PROVIDENCE, R.I. -- The federal government is investigating activities the Providence Employees' Retirement System for the second time in three years.
The city's $310 million defined benefit plan has been at the center of a tug of war between city leaders and the union-dominated retirement board for more than a decade.
DOL investigation
This time around, investigators from the Department of Labor are looking into two real estate investments made by the retirement fund in the early 1990s:
* A $12.5 million mortgage loan to a Cranston real estate developer for construction of the Birnam Woods shopping center. The property was eventually sold and the fund got its money back along with 8% interest, according to City Solicitor Charles Mansolillo. But Mr. Mansolillo said the loan was illegal under city ordinances.
* The loss of a $2 million investment with Preservation Investments Inc., Boston, which went bankrupt before it fulfilled its promise of renovating commercial buildings in downtown Providence. Mr. Mansolillo said only about $100,000 was recovered.
The fund no longer invests in real estate.
The Department of Labor neither confirms nor denies that it is investigating the retirement plan, but spokesman Ted Fitzgerald said the Inspector General's office has received recent complaints about the fund. Mr. Mansolillo confirmed the DOL investigation.
The DOL looked into allegations three years ago that Shawmut Bank's asset management division was receiving investment mandates by wining and dining retirement board members. No charges were ever filed in that case. Shawmut merged in 1995 with Fleet Financial Group Inc., which manages about $30 million for the fund.
Separate board
Following that investigation, the city council established a separate Board of Investment Commissioners, which handles all investment activity for the pension fund. The 14-member commission is composed primarily of city officials, such as the mayor, the city finance director and the city treasurer; there are three appointed positions.
The original Providence retirement board now handles only disability claims.
It is the battle between those two boards that continues to heat up. The retirement board in March asked the city to hire an auditor to look into the two investments.
"I've already hired an auditor," said Providence's longtime mayor, Vincent Cianci Jr., referring to the city's relationship with Decision Strategies Inc., Boston.
"We brought them in a couple of years ago to look at everything and investigated it ourselves. We welcome an investigation. We don't think we've got anything but good things going on here."
