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Aug. 15 — Crowdfunding is emerging as a creative and powerful tool that pension plan participants and retirees can use to independently investigate their plans.
When the Rhode Island Retired Teachers Association in 2015 wanted to investigate the investments made by the state's employee pension fund, it urged its approximately 700 members to go online to pledge funds to hire an independent investigator.
The effort raised $20,000, enough to hire former Securities and Exchange Commission attorney and financial watchdog Edward “Ted” Siedle to begin digging into the plan’s real estate investments. Siedle, president of Florida-based Benchmark Financial Services Inc., is expected to release his findings next month.
“I don’t know how we ever would have gotten to our $20,000 goal without using crowdfunding,” Diane E. Bucci, chair of the RIRTA legislative committee, told Bloomberg BNA Aug. 11. It would have taken years of cookie and bake sales for the retirees to have raised that amount, Bucci, a retiree from Middletown, R.I., said.
Crowdfunding offers a “potentially new paradigm in which plan participants contributing only $5 to $10 each can hire their own experts,” Siedle told Bloomberg BNA Aug. 11. While crowdfunding can be used fraudulently, plan participants actually have the ability to use it to thwart fraudulent activity, he said.
Using crowdfunding to conduct an independent investigation into a pension plan’s investment decisions is “an interesting concept,” the Pension Rights Center's Joellen Leavelle told Bloomberg BNA in an Aug. 11 e-mail. Leavelle is communications and outreach director for the Washington-based consumer group.
Bucci said that raising the money to hire Siedle made sense for RIRTA members, who were concerned about the funding status of their plan, the Employees Retirement System of Rhode Island.
The state had passed a law making plan retirees’ cost-of-living adjustments contingent on the plan being at least 80 percent funded, and the association wanted to maintain those COLAs, she said.
RIRTA members were concerned that their defined benefit plan was taking too much risk and paying too much in fees through its hedge fund and real estate investments.
RIRTA members made their pledges to fund the investigation on Kickstarter.com, a global crowdfunding platform.
The platform told donors how much money was needed and how long members had to make their donations.
Typically, donors make their pledges online by providing their credit card information. However, credit card payments aren't processed unless the fundraising goal is met.
For crowdfunding to be successful, there needs to be an organized effort by a group such as a union or association such as RIRTA that can spread the word about the need for funds, Siedle said.
In the case of RIRTA, Bucci said the association sent e-mails and letters to members urging them to make donations, which she said were sometimes as much as $50 or $60, but often less.
The association started the crowdfunding campaign by providing several thousands of dollars in seed money, Bucci said. In addition, a state employees union pledged to provide several thousand more if the donations reached a certain amount, she said.
Bucci said RIRTA had no qualms about raising money to hire Siedle, who already had a track record of conducting thorough plan investigations. Siedle had previously investigated and issued a valuable forensic report on the state retirement plan’s investment practices, she said.
This was after the American Federation of State, County and Municipal Employees Council 94 in North Providence, R.I., had raised $21,000 through a separate crowdfunding effort to hire him, Bucci said.
The report later prompted the union to ask the SEC to investigate the state treasurer’s pension practices.
Siedle alleged in the report that the plan mismanaged investments and inappropriately invested assets in hedge funds that were too risky and too expensive and, in some cases, involved a breach of fiduciary duty, Bucci said.
Bucci said that RIRTA filed a complaint against the plan last September with the SEC. In a separate filing in December, the group also asked the Federal Bureau of Investigation to investigate possible criminal conduct regarding the plan’s investments, Bucci said. RIRTA is awaiting a response to both requests, she added.
David Ortiz, communications director for Rhode Island General Treasurer Seth Magaziner, told Bloomberg BNA in an Aug. 15 e-mail that the state treasury wouldn't “hesitate to take action if any credible evidence of wrongdoing were brought” to its attention. Furthermore, he said that the treasurer hasn't been “contacted by any law enforcement agency regarding any of the assertions made by Mr. Siedle.” Magaziner currently chairs the plan's board of trustees.
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