AFSCME Investigation Reveals Mismanagement by Florida Trustees
Led to State Pension System's
$335 Million Loss on Enron
Public Employees' Union Calls for Outside Review, Revamped Oversight Board

The American Federation of State, County and Municipal Employees (AFSCME), AFL-CIO, has uncovered a primary cause of the shocking $335 million loss on Enron stock held by the Florida public pension system - grave mismanagement by the government body charged with overseeing the state's investments.

According to a report by AFSCME Florida Council 79, Inside the Florida State Board of Administration: Mismanagement Made the Enron Loss Inevitable, the State Board of Administration (SBA) repeatedly engaged in poor investment practices under the watch of its Board of Trustees, chaired by Gov. Jeb Bush. Despite warnings from inside and outside the SBA, the trustees failed to correct these problems, leading to a stunning loss on Enron stock nearly three times greater than that of any other state retirement fund. The trustees failed to act as Alliance Capital Management, one of the pension fund's money managers, continued to invest in Enron even as its financial instability became public and the Securities and Exchange Commission was investigating the corporation.

"SBA's bad investment practices led to the massive loss of retirement funds for state employees and taxpayers," AFSCME International President Gerald W. McEntee said. "Governor Bush and the other trustees betrayed the faith put in them by Florida workers by putting their retirement security at risk. Plain and simple, there was a reason that the Florida pension fund lost three times more on Enron than any other state fund: mismanagement by the SBA."

"Public employees who have a stake in their retirement future are best able to ensure that their funds are well managed. Florida, unlike most other states, leaves investment decision-making completely in the hands of politicians. For Americans to regain confidence in the security of their retirement funds, equal representation of workers and retirees on public pension funds is essential," McEntee added.

As a result of the investigation, AFSCME Florida Council 79 called today for major reforms of the SBA, including outside review by an investment fiduciary who will report findings to the state legislature and restructuring the state's retirement system as an independent agency with investment powers and a new board of trustees with half of its members chosen from the ranks of plan participants and retirees.

AFSCME staff reviewed 15,000 pages of SBA documents gathered from a Freedom of Information request under Florida's Government in Sunshine laws. Inside the Florida State Board of Administration: Mismanagement Made the Enron Loss Inevitable describes the management problems of the SBA. In addition, unlike most other states which have independent fiduciary boards that monitor the investment process, the Florida SBA has three elected officials (the Governor, Treasurer and State Comptroller) with exclusive responsibility for overseeing the state employee retirement fund.

The trustees of the Florida State Board of Administration are the least representative of plan participants of the 100 largest public pension funds, ranking dead-last in the number of active and retired employees who are board members — zero.

In its report, AFSCME Council 79 calls for four actions that must be taken in order to avoid another Enron-type loss of state pension money by the Florida SBA. These include:

1. A full operational review of the SBA by an external compliance agency or consultant reporting its findings to the state legislature.

2. The creation of an independent auditor and independent evaluation of compliance procedures with specific lines of authority and direct accountability to the SBA Board of Trustees.

3. The restructuring of the Florida employees retirement system as an independent agency with investment responsibilities and a separate board of trustees with specific authority to hire a chief executive officer. Plan participants and retirees should represent at least half the members on a reconstituted board of trustees.

4. A delay in the current implementation of the "investment plan" defined contribution program until the completion of the full operational review and reform of the management and the oversight of the SBA.

The Florida SBA is responsible for managing the investments of the Florida state government. The SBA invests the funds of approximately 25 different government agencies and trusts. The largest trust is the Florida Retirement System (FRS), the country's fourth-largest public pension system, with approximately $100 billion in assets.

AFSCME Council 79 represents 110,000 Florida public service employees with a direct stake in the pension system's financial security and sound management. Nationwide, AFSCME's 1.3 million members lost more than $1.5 billion of their retirement assets as a result of the Enron scandal through their participation in 150 public pension systems.

Read or download the full report: "Inside the State Board of Administration: Mismanagement Made the Enron Loss Inevitable

Read more about Enron and the Florida Retirement System

Read what AFSCME Council 79 wants to do to protect the Florida Retirement System