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Joe, Do you have the firefighters’ backs?

All across the country cops hear it, “If it weren’t for that gun, you wouldn’t be so tough!”   Yet, both the accusers and police know that the police officer’s gun is not their most effective tool; it’s their radio.  For all a police officer has to do is broadcast a three or four-digit code and either an entire district, an entire municipal force, or surrounding counties will respond to the officer’s request for help.  It is the principle of wave after wave of additional officers arriving that allows a force of one thousand to provide safety to a city of one million.

Teamwork starts the first day.  Rookie police and fire recruits are measured not by their arrests or demonstrations of bravery, but on the simple test of whether they will drop everything to immediately respond to a coworkers call for assistance.  Protecting each other’s back, not to be confused with a wall of silence, is the pillar of public safety.  Recruit, do you have my back?

The question is whether public safety officers protect their coworkers’ backs to the same degree once the uniforms come off.   Consider the issues I raised in the June addition of this newspaper regarding the Retirement Board meeting comments captured on video by elected commissioner and the Chairperson of the deferred comp committee, Joe Driscoll.  At the April meeting, Joe specifically brought up my name and stated he was familiar with the inferiority of annuities, while ensuring that San Francisco Retirement System (SFERS) had not limited SF employees to annuities as their deferred comp option.

Two months after I contacted Joe, he doubled down in an email to me writing that Prudential’s product “is a mutual fund that invests in other mutual funds.”    Not only does this sound nonsensical, I believe Joe, in his role as a fiduciary, has made a material misstatement of fact.

First, if Prudential created a mutual fund to invest in existing mutual funds, Prudential’s new mutual fund would have to register the mutual fund and obtain an identification number, like a license plate, called a CUSIP number.   I found no evidence of a new mutual fund identification number.  Three months have passed since I asked the Prudential Vice President on Key Accounts whether a CUSIP exists for this new mutual fund, and I am still waiting for an answer.

Second, with an apology for the technical nature of this one paragraph, Prudential’s contract with San Francisco’s deferred comp plan allows Prudential “to invest in contracts issued by an insurance company including separate account or comingled commingled separate accounts.”  Section 5(e) goes on to discuss the parameters for a “group annuity.”  By coincidence, Prudential’s marketing brochure (RSBR852 June 2013) that was provided to SFERS, is titled in the same language:  Insurance Company Separate Account.  Further, on page three: “These investment vehicles are made available through group annuity contracts issued by the insurance company (Prudential) to ….. government plans.”

Not only is the word “mutual fund” absent from the documents, but it appears that Prudential’s account with San Francisco is an annuity- specifically a group annuity.  The differences being the mutual funds are held in an insurance annuity vat or keg instead of served in individual 12 ounce annuity bottles.   This would mean that Joe has voted on numerous occasions to direct his fellow firefighters to an investment he defines as “inferior.”  The magnitude of this mischaracterization is magnified exponentially by the almost $3 billion size of this account.

Unlike me, I am not sure whether Joe has ever experienced a “406,” whereby an entire public safety force has responded to help him.  Also unlike me, Joe has never spent a single day in financial services where a client’s whole financial life is in your hands.   In both situations, the enormity of trust and responsibility is humbling, and it is my gratitude and loyalty to the uniforms, that is the impetus for this article.

Firefighters should feel offended by Joe’s lack of watch-my-back due diligence: It’s a mutual fund that invests in other mutual funds?  Really Joe?  Its not just the gigantic $3 billion size of Joe’s fellow public employees’ assets, its that each dollar invested represents coworkers’ sacrifices and dreams of a better life for their family.

Similarly, taxpayers should also be extremely concerned that if this is an indication of Joe’s curiosity and financial expertise on a simple deferred comp plan, what exertion is he making on his hedge fund and Chinese A-share adventurism for the $20+ billion city pension?  The plan that taxpayers have ultimate responsibility for.

Joe, let me prep you for when Prudential clouds the arguments made by this article.   The most recent SFERS annual report states the value of the June 30, 2015 SF deferred comp investment allocated to the Vanguard 500 Fund is $199,014,798.   If Prudential’s assertion that they act “ solely as a record keeper” is true, than Prudential should be able to provide a June 30, 2015 Vanguard document, titled in SFERS’ name, for the exact amount of $199,014,798.

Joe please ask for this documentation, and if Prudential does not supply the Vanguard statement, do the right thing and request an audit from a national CPA firm.  While, Macias Gini & O’Connell CPA’s conducted an audit on the $20 billion SFERS pension, it appears the $3 billion deferred comp has not been audited. Joe, its time to rejoin the team, and protect your fellow firefighter’s financial backs.

You are welcome to email me for copies of the aforementioned brochure or contracts.

Lou Barberini, CPA

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