Should Public Employees Know the Details of the Investments Being Made with Their Retirement Savings?

662px-Seal_of_Kentucky.svgBy Elaine Magliaro

In an article published earlier this week in In These Times, journalist/author David Sirota wrote that Kentucky has a message for public school teachers in the state: “You have no right to know the details of the investments being made with your retirement savings.” Sirota said that was basically “the crux of the declaration issued by state officials to a high school history teacher when he asked to see the terms of the agreements between the Kentucky Teachers’ Retirement System and the Wall Street firms that are managing the system’s money on behalf of him, his colleagues and thousands of retirees.”

Sirota:

The denial was the latest case of public officials blocking the release of information about how billions of dollars of public employees’ retirement nest eggs are being invested. Though some of the fine print of the investments has occasionally leaked, the agreements are tightly held in most states and cities. Critics say such secrecy prevents lawmakers and the public from evaluating the propriety of the increasing fees being paid to private financial firms for pension management services.

Sirota said that this trend in secrecy has been spreading across the country. He reported that in November, officials in Illinois had “denied an open records request for information identifying which financial firms are managing that state’s pension money.” He noted that officials in both Illinois and Kentucky “asserted that the firms’ identities ‘constitute trade secrets.'” And get this: The Illinois’ Freedom of Information Act actually “includes special exemptions for information about private equity firms.”

Earlier this year, Gina Raimondo–the General Treasurer and governor-elect of Rhode Island–rejected a newspaper’s open-records request for information about state pension investments. Sirota said that Raimondo’s office had “argued that financial firms have the right to ‘minimize attention’ around their compensation.” He noted that Raimondo “held a closed-door meeting of the state investment commission to review the state’s $61 million investment in a controversial hedge fund” last week.

(NOTE: Last year, I wrote a post for Res Ipsa Loquitor titled A Glimpse of Public Pension Reform in Rhode Island: Who’ll Lose Benefits? Who’ll Get Rich? It provides information about Gina Raimondo and the pension reform that she helped institute in the Ocean State.)

According to Sirota, Steve Judge, president of the Private Equity Growth Capital Council, claimed that secrecy was “necessary and appropriate to protect the financial industry’s commercial interests” in an essay that he penned recently.

Sirota:

 “The argument that [agreements] should be accessible to the public is akin to demanding that Coca-Cola publish its famous and secret soda recipe,” he wrote. “Like Coke’s secret recipe, [agreements] contain proprietary and commercially sensitive trade secret information that, if disclosed, could undermine a private equity fund’s ability to invest and generate high returns for its limited partners.”

On November 10th, WFPL (Louisville), reported that Randolph “Randy” Wieck, a public school teacher in Jefferson County, had filed a lawsuit against the Kentucky Teachers’ Retirement System (KTRS), “which has been called one of the worst-funded pension systems for educators in the U.S.” Wreck told WFPL that the system that supports over 140,000 teachers in Kentucky is billions of dollars in debt. Wieck noted that teachers in Kentucky “pay about 12 percent of their paychecks into the retirement system.” He said, “We have raced to the bottom and we’re neck and neck with the worst funded teachers plan in the country.” Wreck added that the investments made by KTRS were “not responsible.”

One would think that teachers and other public employees should have the right to know how THEIR OWN MONEY is being invested…and what kinds of fees investment firms are receiving, wouldn’t one?

In an editorial this week, the Lexington Herald-Ledger noted that the Kentucky retirement system had paid $55 million to investment managers–and that there was “very little disclosure” about what the state got for that money.

Lexington Herald-Ledger:

It’s impossible to fix Kentucky’s public pension mess without laying all the cards on the table…How are the investment advisers’ fees set and what do we get for them?

Sirota said that “defense of secrecy is being challenged in both the state legislature and the courts” in Kentucky.

WFPL reported earlier this week that “Kentucky state Rep. Jim Wayne has pre-filed a bill that would make state pension plan contracts subject to competitive bidding and open-records laws. That will be taken up in the 2015 legislative session.”

SOURCES

Wall Street to Workers: Give Us Your Retirement Savings and Stop Asking Questions (In These Times)

Ky. pension system is public business (Lexington Herald-Ledger)

Illinois Blocks Release Of Info About Which Firms Are Managing $3 Billion Of Public Money (International Business Times)

Kentucky Teachers’ Retirement System Denies Louisville Educator’s Request For Investment Information (WFPL)

Manual High Teacher Sues Kentucky Teachers’ Retirement System Over Underfunding (WFPL)

 

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11 Responses to Should Public Employees Know the Details of the Investments Being Made with Their Retirement Savings?

  1. There are multiple ways to bleed out entities liquid strength. Bustouts, side deals by insiders for veiled agendas (example Toys R Us gave up public stock so execs could get rich in the RE and Bain gets the retail…similar withKmart bankruptcy)

    In bankruptcy and/ or merger the retirement funds are (purprortedly licitly) stolen.

    Now a manager can make bad investments and simply say.oops we guessed wrong on thst one.

    So much essier to do behind closed doors.

  2. eniobob says:

    Funny you should bring that up Elaine:Probably parallel issues but good info.IMHO.

    “WASHINGTON — One casualty of the House budget talks to avert a government shutdown may be a proposed rule requiring investment advisers to act in the best interests of their clients, according to multiple House Democratic sources.

    Labor activists and financial reform experts have heralded the rule as a critical step toward enhancing retirement security. The policy would impose a “fiduciary duty” on financial professionals who oversee retirement accounts, barring them from considering the potential profits of their own firm when choosing investments. Instead, investment managers would have to pick stocks, bonds and other assets based only on what was in the best interest of retirees.”

    http://www.huffingtonpost.com/2014/12/05/government-shutdown-retirement-rule_n_6279006.html

  3. Mike Spindell says:

    As someone whose very financial existence relies on my public employee pension, knowing the details of the investments is of major importance to me. This is particularly so because we have seen the pension fund after pension fund being bankrupted due to poor investments and outrageous fees being paid as political payoffs, of for political payoffs.

  4. Mike…

    Simply, dark dealings cant stand the light. It happened to all airline bankruptcies.

    As a matter of fact , our Paul Traub handled TWA,s

  5. Elaine M. says:

    Gov. Christie Shifted Pension Cash to Wall Street, Costing New Jersey Taxpayers $3.8 Billion
    By David Sirota
    8/25/14
    http://www.ibtimes.com/gov-christie-shifted-pension-cash-wall-street-costing-new-jersey-taxpayers-38-billion-1667622

    Excerpt:
    Gov. Chris Christie’s administration openly acknowledged that more New Jersey taxpayer dollars were going to land in the coffers of major financial institutions. It was 2010, and Christie had just installed a longtime private equity executive, Robert Grady, to manage the state’s pension money. Grady promoted a plan to put more of those funds into riskier investments managed by Wall Street firms. Though this would entail higher fees, Grady said the strategy would “maximize returns while appropriately managing risk.”

    Four years later, New Jersey has secured only half the promised results. The state has sent more pension money to big-name Wall Street firms like Blackstone, Third Point, Omega Advisors, Elliott Associates and Grady’s old firm, The Carlyle Group. Additionally, the amount of fees the state pays financial managers has more than tripled since Christie assumed office. New Jersey is now one of America’s largest investors in hedge funds.

    The “maximized returns” have yet to materialize.

    Between fiscal year 2011 and 2014, the state’s pension trailed the median returns for similarly sized public pension systems throughout the country, according to data from the financial analysis firm, Wilshire Associates. That below-median performance has cost New Jersey taxpayers billions in unrealized gains and has left the pension system on shaky ground. Meanwhile, New Jersey is now paying a quarter-billion dollars in additional annual fees to Wall Street firms — many of whose employees have financially supported Republican groups backing Christie’s reelection campaign.

  6. What are the protocols for Social Security fund?

    I’m well versed on these guys workings. And how the end run decency under placating pretensions of ethical adherence.

    Example

    Po,s note on best interest. The no1 rule if wealth funds is diversity. .

    So any investment coukd be deemed “best interest” under the priority rule of diversity

  7. Eliane.

    Governor Christie was given his job for being top cop innovative crook. (Kind adored by karl rove)

    While being a NJ US Attorney, Christie funded a fraudster to bribe (90% dems n Rabbi,s) to rig elections.

    That was exposed by Andrew Kreig

    Then, Christie provided his masterpiece.

    USAG Ashcroft was assisting U.S. sttack bankruptcy fraud. Then, all of sudden, US Attorney Christie gives former USAG Ashcroft a $50 million NO BID “deferred prosecution agreement”

    In more licit times, they had another, more precise, literal depiction of the dynamic of a target of federal inquiry giving millions to the head federal prosecutor…

    For the purpose of refusing to prosecute

  8. Elaine M. says:

    laser,

    Stateside New Jersey: SEC and Manhattan District Attorney’s Office to Investigate Governor Chris Christie’s Diversion of Port Authority Funds
    https://flowersforsocrates.com/2014/04/25/stateside-new-jersey-sec-and-manhattan-district-attorneys-office-to-investigate-governor-chris-christies-diversion-of-port-authority-funds/

    Excerpt:
    Lisa Brennan (Main Justice) broke the news today that “people close to the matter” have said that the Securities and Exchange Commission has joined with the Manhattan District Attorney’s office “to investigate possible misuse of Port Authority of New York and New Jersey funds by Gov. Chris Christie and his allies.” She said that two SEC lawyers from the New York regional office of the Enforcement Division “are examining the manner by which the Christie administration apparently steamrolled the agency’s top in-house counsel into creating a legal justification in 2011 allowing the New Jersey governor to grab $1.8 billion of Port Authority tax-exempt bonds to fix the aging Pulaski Skyway bridge and other neglected state roadways.”

    Brennan said that Christie was able to keep his campaign promise not to raise taxes by “re-routing the Port Authority funds to local New Jersey roadway repairs.” She added that this diversion of Port Authority funds made it possible for the governor of New Jersey “to avoid raising gasoline taxes to refill the depleted coffers of the state’s transportation trust fund.” She said that “the justification for the diversion may have constituted fraud. The SEC’s rule 10b-5, issued pursuant to the Securities Exchange Act, authorizes the agency to investigate fraud in the securities markets, including in the offering of tax-exempt bonds.”

  9. eniobob says:

    Christie is a real “Humpty Dumpty”.The coming indictments all be it his inner circle folks are lawyering up and will hasten thou tumble.

  10. bigfatmike says:

    “The no1 rule if wealth funds is diversity. ….So any investment coukd be deemed “best interest” under the priority rule of diversity”

    This is a little bit of a tangent, the main issue in this discussion is the right’s push to turn pension funds over to for profit investment advisers.

    Diversification cannot be used to justify the purchase of just any investment. Diversification of the investment portfolio is about avoiding strong correlation in the returns of investments, not just in holding lots of different investments. For example holding Ford, GM, steel mills, and Firestone Tires would likely achieve little if any meaningful diversification. If oil prices spiked in one year then it is likely that returns from all those firms would plummet at the same time.

    Diversification requires carefully evaluating the new investment in relation to investments already held.

    There was a time when many believed that the average return of the entire NYSE could be modeled with as few as 16 carefully chosen stocks. It is well known that few investment advisers achieve long term returns better than the long term marked average. In regard to the NYSE, a viable strategy would be the invest in perhaps a score of well chosen stocks. Such a strategy would likely save much in fees for trades and investment advice. And the returns would likely be as good as one could hope to achieve in the long term.

    In terms of the the NYSE the portfolio would be fully diversified with less than a score of stocks. There would be no reason to hold many more. Now I realize that the NYSE is not the universe of possible investments. In a real portfolio one would want to hold other investments in addition to stocks. But the example demonstrates that diversity is not about holding many investments. It is about holding investments with the proper relation to each other.

  11. Anonymouly Yours says:

    I think so…. Something funny about Hobby Lobby…. The owners have investments in birth control …… Hmmmm…..

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