mead cohen berger shevtsova garfinkle michta grygiel blankenhorn
NOLA Firefighters' Pension Plan Takes a Nosedive


New Orleans firefighters are in deep trouble. Following an internal audit, the New Orleans Firefighters’ Pension and Relief Fund found that its investment income fell by an astonishing 83 percent last year, from $9.7 million in 2011 to only $1.6 million in 2012. As is often the case, the culprit appears to be a number of risky investments, including in real estate. One was particularly dubious, as the Times-Picayune reports:

The audit shows that the firefighters fund’s board has also gotten into the film business, including a $225,000 loan to Tell Tale Heart LLC “for the production of a movie” that went into default. The loan was made in May 2012 as part of a deal that supposedly was to earn the fund a healthy 20 percent return. Tell Tale Heart was supposed to pay back the money and the 20 percent profit in November. Even though it has not done so, the fund still listed $51,000 in investment income from the deal in its 2012 audit.

Tell Tale Heart, a limited-liability corporation with a Prairieville address, filed for Chapter 11 bankruptcy in U.S. Bankruptcy Court in September. But Richard Hampton, the retirement fund’s secretary-treasurer, said he remains optimistic. “That one as well is very close to being realized,” he said Tuesday about prospects for recovering the fund’s investment in the movie project.

If the fund were healthy otherwise, this one-year drop in income wouldn’t be so troubling. Unfortunately, in 2012, the plan was only 34 percent funded, far below the “safe” level of 80 percent, and nearly 50 percent lower than it had been in 2007. Under these circumstances, the fund is extremely reliant on massive investment returns to stay solvent, so a few more years like this one could be ruinous.

New Orleans has spent years digging itself into this hole. Years ago, city pols made lavish promises to these pensioners, doing nothing to secure them until the plan was deep in the red. Now the city has no good options: either slash services to the bone to pay its pension liabilities, deny the firefighters the pensions they were promised, or gamble the money that’s left in high-risk, high-reward investments. Given those choices, it’s not surprising the city has taken the third option, but these bets often fail, and when they do, things can get ugly very quickly.

Defined contribution plans would have been much safer.

[Firefighters image courtesy of Shutterstock]

Features Icon
show comments
  • ljgude

    Given the incompetence of Louisiana politicians and public officials it has to be said that they did better than Detroit.

© The American Interest LLC 2005-2016 About Us Masthead Submissions Advertise Customer Service