While many times this space has counseled on the desirability of merging and increasing transparency of Louisiana’s state and state-affiliated retirement systems, another incident reinforces that wisdom and sheds additional light on the potential problems that come by ignoring this advice.

In a story that echoes from other systems in the recent past, the longtime executive director of the Municipal Employees Retirement System of Louisiana Robert Rust is under investigation for questionable expenses after media reports, by both authorities and its board which has suspended him with pay when staffers reported they suspected in connection with those reports that he began tampering with records related to these. Based on those reports, board member (as this elected official is of all the 13 state and statewide systems) Treasurer John Kennedy has questioned over $100,000 of expenses in recent years, which appear to violate laws and regulations, and tomorrow a meeting concerning that will occur where Rust can answer for these. (The chairmen of the Legislature’s committees on retirement also are members but seldom interact with the boards; often but not always does the Department of the Treasury attend meetings, usually that not being Kennedy.)

In previous communications with the board, Rust’s alibi has been that the expenditures did happen, but that much did not involve retirement system money. Instead, he has contended that these were drawn from an account designed for “educational” purposes, from money donated. Some of the other he claims were for legitimate business purposes, even as some of the amounts were eye-popping in their size. Most expenditures came in conjunction with conferences Rust organized, which he said served a purpose of continuing education for board members (legally required for all 13 state and statewide systems’ boards) they must have annually – eight hours of investment training, four hours of actuarial science information education, two hours of education regarding the laws, rules, and regulations applicable to each’s system, and two hours of instruction on fiduciary duty and ethics.

Of course, the law does not specify that an annual conference at in a posh resort outside of the state need be organized to accomplish this. Administrators more easily could conduct training before or after board meetings, especially as sometimes these go on over multiple days. Or national organizations such as the National Conference on Public Employee Retirement Systems (just held in New Orleans, by the way) could accomplish at least 12 of the hours with their yearly conference and exhibition, or even statewide nongovernmental organizations like the Louisiana Trustee Education Council or theLouisiana Association of Public Employees Retirement Systems, which each have an annual educational conference geared to completing all 16 hours. Paying for members to attend these would cost a fraction of the $50,000-plus MERSLA shells out for its own separate conference.

The board presently seems concerned that all of the expenses out of this fund did not relate to the conference or any real business of the organization or were not for staff (such as for his wife Rust admitted and maybe his son). But let’s say all could be justified on these bases. That still leaves a problem – money comes into the fund from “sponsors” including entities vying for and actually doing business with the organization. Roughly 15-20 pony up $1,500 a year – which does not explain how conferences twice as expensive can be afforded – that only now is the board beginning to question whether this practice violates states ethics laws.

If this doesn’t it should be (legal experts think sponsor dollars do count as public money and therefore fall under these laws), but, regardless, common sense should dictate that the practice of having entities that may contract business with the organization should not donate money to the organization that goes towards paying for board members’ expenses for anything. This seems perilously close to “pay for play” from which any government entity ought to steer clear.

And this policy already may have cost MERSLA dearly. Fletcher Asset Management, now being sued by MERSLA and three other Louisiana-affiliated government systems for alleged fraud, was a regular contributor to the special fund – even in 2011, after MERSLA wanted to trim its position and the firm convinced it otherwise, it still accepted the cash. Not long after, the firm went insolvent and the $40 million MERSLA investment is at entire risk. Did the willingness of MERSLA to get into and stay with the investment have anything to do with the donations that permitted Rust, who makes $215,000 a year, and others to live luxuriously during periods supposedly engaged in system business?

Simply, these kinds of incidents would be far less likely to happen if a much smaller universe of board members made decisions. Most states have fewer pensions systems for state and local employees; a couple have just one. Those members more likely would be selected for investment acumen rather than for parochial representation reasons reflecting employment, and would have a much larger asset base to control that would diminish the appeal of potential pay for play opportunities with the larger spotlight on them. Certainly costs would go down with economies of scale from smaller staff and reduced expenses of fewer board members. This also would help the three politicians who serve on all to be able to concentrate on just one situation and thereby aid them in their oversight.

With a divided asset pool and attention, political representation, questionable management, and lack of expertise all more likely and magnified by being spread out among so many entities, it does not seem accidental that the rash of unsound investment advice that boards take, the sketchy ethical behavior engaged in, and the downright criminal activity witnessed from employees of these retirement systems in the state have come from this fragmented arrangement. The unfortunate revelations at MERSLA add to other reasons previously noted a different and as regrettable rationale to reform this broken system through consolidation and professionalization.