Don't stay the course, pick a new one
Published Tuesday October 14th, 2008
As stock markets fell precipitously last week, investment fund managers were besieged by phone calls and e-mails from investors requesting changes to their portfolios.
Not so, for those shepherding the city of Saint John's troubled pension fund through the market. The city, it seems, has taken the oft-heard advice to "stay the course" to heart.
Staying the course is a sound strategy for long-term investments in tumultuous times, but its value depends on whether one's investments were on-course in the first place. Can anyone say that of Saint John's pension fund, given its enormous deficit?
For major, healthy retirement funds, staying put may be the best option. But Saint John's municipal plan is in the hole - and it will be, until city hall adopts a different strategy. This applies to more than asking the fund's managers to seek out blue chip bargains amid the Dow and TSX's tumbling stocks.
In its search for new options, common council has asked city manager Terry Totten to revisit and revise his most recent report on what can be done to resolve the pension deficit. This also is a "stay the course" strategy.
For the second time, council has turned to a city employee with one of the largest vested interests in the pension plan, to give them advice on how to change the plan.
Councillor Bill Farren and former councillor John Ferguson have repeatedly proposed a better idea - hire professionals to provide an independent assessment of the state of the pension plan and options that would limit the city's liability.
Council keeps looking for in-house solutions to a problem that can't be solved in-house. And there's the rub: staying the course doesn't work if you're already going nowhere.
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No one in business would keep going back to the same employee for a solution when the employee's past advice hasn’t worked.
The previous council borrowed from the province to make up the shortfall just adding more interest to the debt rather than paying it down. Based on what has happened in the market since most investments went south this pension plan mess could be as much as the city's total $100 million budget since it was in the hole close to $50 million before the stock market slumped.
Who knows? Not the taxpayers who have to make up the shortfall or the retirees!
Albert Einstein said, "“The definition of insanity is doing the same thing over and over again and expecting different results”.
These "efforts" to fix the pension are like asking a hospital orderly to do a brain operation.