State Pension Funds Face Huge Losses
The largest pension funds in the United States, overseers of multibillion-dollar public employee retirement funds, said Thursday that they lost well over $1 billion on stock and bond investments in telecom giant WorldCom Inc.
The California Public Employees’ Retirement System, the biggest U.S pension fund, faces an unrealized loss of $565 million in its $150-billion portfolio. New York state’s retirement system, the second-largest, with $112 billion in assets, estimates it lost $300 million on WorldCom stock and bond investments.
“Occasionally you will have human error. But this is not human error. It is deceit, and we are not happy about it,” said Gary Bruebaker, chief investment officer of the Washington State Investment Board. His state’s $42-billion pension fund took a $75.3-million hit on the long-distance phone company’s bonds.
Bruebaker said his board would look at its options, including possibly a suit for damages.
WorldCom, the No. 2 U.S. long-distance phone company, Tuesday disclosed $3.9 billion in improperly treated expenses that boosted its reported cash flow, a closely watched measure of operating profitability.
In New York, state Comptroller Carl McCall “is outraged that another irresponsible corporate action has defrauded members of the pension system and all investors,” said his spokesman, Jeffrey Gordon.
Still, pension benefit recipients can relax for now, state officials said. WorldCom accounted for less than half of 1% of CalPERS’ holdings.
Sherry Reser, a spokeswoman for the California State Teachers’ Retirement System, said the losses would have no effect on its members’ pensions and contributions.
Cal Teachers, the third-largest U.S. public pension fund, with $100 billion in assets, suffered a $109-million unrealized loss because of WorldCom.
WorldCom shares, which peaked at more than $64 in 1999, disintegrated Tuesday, plunging to 83 cents on Nasdaq and to 35 cents in after-hours trading. It did not open for trading Wednesday or Thursday.
Some states, such as Tennessee, which lost $9 million in its $23 billion state pension fund, got off lightly because they sold WorldCom earlier this year.
