PHOENIX - The ABC15 Investigators are exposing years of failed investments and poor oversight of our state’s police and fire pension system—mistakes that have left taxpayers on the hook for a $1.6 billion dollar bailout.
Police officers and firefighters will also suffer the consequences.
Imagine working for more than thirty years and putting money away each month toward your retirement only to learn that the people you trusted to protect and invest that money failed to do their jobs.
That’s what thousands of first responders across Arizona are confronted with.
One of them is Thomas Wood Janssen who retired in March after more than thirty years on the job with the Phoenix Police Department.
As a young police officer, Janssen nearly lost his life when he was shot trying to arrest two drug suspects.
“They shot me in the head and I was lucky I stayed alive. When my backup arrived, even though I was wounded, I still had a hold of one suspect,” Janssen said.
Doctors said it was a miracle that Janssen survived such a severe injury.
It took more than a year for him to recover and return to the job.
But Janssen told us he is proud to have paid into the retirement fund for more than three decades.
Now, because of the losses the retirement fund has suffered, Tom Janssen faces uncertainty about future cuts to his retirement benefits.
While all his friends and family consider him a hero—at the state capitol, police and firefighters have been called greedy and selfish by politicians arguing over how to fix the retirement system.
Legislators called the Arizona Public Safety Personnel Retirement System, known as PSPRS, a “platinum plan” and they complained that it is better than other pension plans.
The ABC15 Investigators wanted to know if rank and file firefighters and cops are really to blame for draining the pension system.
We spent months pouring over records from PSPRS.
We reviewed annual reports and the fund's stock portfolio to find out how nearly 1.6 billion dollars that was lost.
The pension system was once more than fully funded with assets totaling more than 126 percent of the amount needed to pay all claims and costs.
And we found that unlike many public pension systems across the country, the contribution made to the retirement fund by rank and file police and firefighters in Arizona has gone from 7 percent to 11 percent.
The men and women depending on that fund are not eligible for Social Security.
But ABC15 Investigators discovered documents that demonstrate how risky investments, a lack of effective oversight and a failure to adhere to common standards of diversification left the fund in serious financial trouble.
The fund had invested in some of the biggest losers in Wall Street history including Enron, WorldCom and JDS Uniphase.
Here are two examples we discovered.
- The fund lost more than $74 million in a company called JDS Uniphase, a tech firm that did not report a profit during any quarter between 1997 and June 2011.
- The fund lost more than $101 million in a company called Covad---and that was 96 percent of the money it invested in the business communications firm.
In both cases, the retirement fund lost more than 95 percent of their investment before dumping out of those stocks.
Arizona State Senator Kyrsten Sinema says there was “massive mismanagement” of the fund and she was appalled to hear her colleagues in the legislature “blaming the employees, not the investment strategy.”
“Why wasn’t someone, somewhere raising the questions,” asked Arizona Police Association Director Brian Livingston.
Livingston said he’s disturbed by allegations that massive investment losses suffered by the pension fund are somehow the fault of the rank and file and is anxiously awaiting an audit underway by the Arizona State Auditor General’s office.
"Where was the legislature? Where was the auditor general? Where were the safeguards in government?" Livingston asked.
Livingston has also been one of several vocal critics of the former manager of the fund, Jack Martin Cross.
"I want answers. I want the truth," Livingston said.
Jack Cross ran the Arizona Public Safety Personnel Retirement System from May of 1986 to June of 2004.
During that time Jack Cross made almost all the investment decisions for the fund.
ABC15 discovered that contrary to standard practices for public pension funds, Cross never hired outside investment advisors or outside auditors until his waning days as fund manager.
While some of the losses the fund sustained under Cross might be attributable to market declines at the time the high tech stock bubble burst, critics like Brian Livingston and Senator Sinema say his investment strategy amounted to high stakes gambling.
By almost any measure, the fund was poorly diversified—it had more than 70 percent of its total assets in common stocks and no investments in international or emerging markets.
We asked Jack Cross to sit down and help us understand what happened and why.
He declined to be interviewed
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