Our View: Punt the pension operation

The evidence just keeps piling up that the town of Longboat Key should not be in the pension business.

On top of having among the largest unfunded liabilities among hundreds of pension funds in Florida, the business of overseeing a pension fund in the modern world is just too complicated for laymen. To put a fine point on it, the Longboat Key Firefighters Pension Board is out of its league. Frankly, anyone not in the complex industry of investments would be.

This point became clearer than ever at a pension board meeting last week when a small phalanx of lawyers, brokers and financial experts explained in the most convincing fashion two opposing stories.

Edward Siedle, a forensic investment lawyer hired by the board’s majority firefighters, concluded that Morgan Stanley’s rate of return for the firefighters pension fund underperformed in comparison to two benchmarks; that Morgan Stanley was charging commissions when it was supposed to be fee-only; that it had a financial arrangement with the money managers of the fund that may have constituted a conflict of interest; and that it may have violated Florida law and that the investment firm was not forthcoming with information that Siedle had asked for in his investigation of the fund’s operation.

Then Morgan Stanley lawyers took the floor and proceeded to demolish Siedle’s conclusions.

Allison Patton, executive director of Morgan Stanley’s Legal and Compliance Division, walked through a thick booklet of documentation refuting each of Siedle’s charges, pointing out that Morgan Stanley has had this confrontation with him with other funds that have resulted in litigation.

Her presentation was complicated and intricate, involving explanations of agency transactions, blotter code, alpha and beta indexes, agency cross-trading and principle trading, block trades, portfolio volatility, tracking codes, blended indexes and so on.

She was perhaps even more persuasive in saying the complete opposite of what Siedle concluded.

Pension board attorney Robert Sugarman was honest enough to say out loud what a lot of people were thinking: “When I heard what Ted (Siedle) said, he was very convincing. When I heard what Miss Patton said, it was very convincing … This is really very specialized.”

Yes. And that is the pension lawyer. Imagine how the complex explanations were processed by a pension board made up of three firefighter representatives and two other appointments — none being experts.

The meeting waded deep into the weeds of investment methodologies at Morgan Stanley and whether the town should be using a broker-affiliated fund manager, such as Morgan Stanley, or an independent fund manager.

But none of last week’s seminar on investing took the tiniest step toward rectifying the real and imminent problem: The pension fund is on the brink of insolvency. The causes are due largely to increased benefits for retired firefighters and partially due to poor fund performance in a bad market.

The pension board needs not to enter into any long-term contracts with Morgan Stanley or anyone else and send the bigger issue up the ladder. In the end, this is not a pension board issue, it is an issue for the Town Commission.

The elected body must get the town out of the pension business altogether. That requires the fund be made whole, which would mean issuing bonds, which connects with another Longboat issue — Bayfront Park and a new community center.

The Town Commission needs to move swiftly to determine what steps it needs to take to dissolve itself as the operator of a pension fund before the hole gets any deeper.