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Sirota writes: "In the national debate over what to do about public pension shortfalls, here's something you may not know: The texts of the agreements signed between those pension funds and financial firms are almost always secret. Yes, that's right."


"So what is happening to retirees’ money?" (photo: Getty Images)


Wall Street's Secret Pension Swindle

By David Sirota, Salon

27 April 14

 

A lack of transparency is allowing financial firms to make high-risk investments with your retirement funds.

n the national debate over what to do about public pension shortfalls, here’s something you may not know: The texts of the agreements signed between those pension funds and financial firms are almost always secret. Yes, that’s right. Although they are public pensions that taxpayers contribute to and that public officials oversee, the exact terms of the financial deals being engineered in the public’s name and with public money are typically not available to you, the taxpayer.

To understand why that should be cause for concern, ponder some possibilities as they relate to pension deals with hedge funds, private equity partnerships and other so-called “alternative investments.” For example, it is possible that the secret terms of such agreements could allow other private individuals in the same investments to negotiate preferential terms for themselves, meaning public employees’ pension money enriches those private investors. It is also possible that the secret terms of the agreements create the heads-Wall-Street-wins, tails-pensions-lose effect — the one whereby retirees’ money is subjected to huge risks, yet financial firms’ profits are guaranteed regardless of returns.

North Carolina exemplifies the latter problem. In a new report for the union representing that state’s public employees, former Securities and Exchange Commission investigator Ted Siedle documents how secrecy is allowing financial firms to bilk the Teachers’ and State Employees’ Retirement System, which is the seventh largest public pension fund in America.

The first part of Siedle’s report evaluates the secrecy.

“Today, TSERS assets are directly invested in approximately 300 funds and indirectly in hundreds more underlying funds, the names, investment practices, portfolio holdings, investment performances, fees, expenses, regulation, trading and custodian banking arrangements of which are largely unknown to stakeholders, the State Auditor and, indeed, to even the (State) Treasurer and her staff,” he reports. “As a result of the lack of transparency and accountability at TSERS, it is virtually impossible for stakeholders to know the answers to questions as fundamental as who is managing the money, what is it invested in and where is it?”

Before you claim this is just a minor problem, consider some numbers. According to Siedle’s report, this huge pension system now is authorized to invest up to 35 percent — or $30 billion — of its assets in alternatives. Consider, too, that Siedle’s report shows that with such a large allocation in these risky alternatives, the fund “has underperformed the average public plan by $6.8 billion.”

So what is happening to retirees’ money? As Siedle documents, more and more of it is going to pay the exorbitant fees charged by the Wall Street firms managing the pension money.

“Fees have skyrocketed over 1,000 percent since 2000 and have almost doubled since (2008) from $217 million to $416 million,” he writes, adding that “annual fees and expenses will amount to approximately $1 billion in the near future.”

The details get worse from there, which makes Siedle’s report a genuine must-read for anyone who wants to understand the larger story of public pensions. After all, North Carolina is not an isolated incident. In state after state, the financial industry is citing modest public pension shortfalls to justify pushing those pensions to invest more money in riskier and riskier high-fee investments — and to do so in secret.

It is a story that isn’t some minor issue. On the contrary, the fight over that $3 trillion is fast becoming one of the most important economic, business and political stories of modern times. The only question is whether the story can even be told — or whether those profiting off secrecy can continue hiding their schemes from the public.


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+23 # RMDC 2014-04-27 08:54
This is really a scandal. Why isn't the Justice department investigating this. Or why are there no Congressional hearings. We've had a dozen hearings on the phony Benghazi story.

the answer is that the investment banks own the government in the US and in most nations. They have simply acquired by illegal means enough money and power to dominate whole nations. We are all ripped off and there is nothing we can do to stop it.

It is pretty well known that pension funds, 401ks, and other savings that are managed by banks are a rip off. People save every year, and the bank makes the profit.
 
 
+22 # Jackpine 2014-04-27 09:54
You're absolutely right, of course; America has become an oligarchy, with much of the rest of the world not far behind. We have one political party with two wings. I believe that there is a growing awareness of this chilling reality among the public. The question is whether this rising awareness can translate itself into meaningful change, or whether so much power has accumulated in so few hands that we are powerless.
 
 
+5 # Cassandra2012 2014-04-27 12:32
Quoting Jackpine:
You're absolutely right, of course; America has become an oligarchy, with much of the rest of the world not far behind. We have one political party with two wings. I believe that there is a growing awareness of this chilling reality among the public. The question is whether this rising awareness can translate itself into meaningful change, or whether so much power has accumulated in so few hands that we are powerless.


Perhaps it is time someone found new building plans for guillotines?
 
 
+1 # RMDC 2014-04-28 06:03
That's my view. We could have digitally operated guillotines. The oligarchs simply insert their heads, and the machine takes care of the rest.
 
 
+6 # hwmcadoo 2014-04-27 13:21
It's easy to get legal means when you own Congress. For the 99% not so much.
 
 
+11 # dbrize 2014-04-27 12:57
We have become a nation run by the big banks for the big banks.

Under Reagan, both Bushes, Clinton and Obama. The last two have outdone the others by protecting bank profits while socializing their losses upon the taxpayers.

The same taxpayers that are already struggling to pay down their debt inspired consumption purchases.

Artificially low interest rates only encourage more of the same, as if one more drink will make a drunk sober up.

We penalize those who would be savers and discourage thrift and investment. Investment that would encourage producers to produce. Why? Because it's more important to protect paper profits for the multinational investment banks.

Until we relearn the value of thrift, savings and delayed gratification, we will continue on the road to economic oblivion.

Instead we are told that we must inflate and redistribute the income so we can renew our debt inspired consumer purchases.

Same old sorry story, we can spend our way into prosperity. "Bubbles for all" the battle cry.

Until we again become a nation that produces things people actually need and export products instead of dollars, things will continue in a downward spiral.

It goes far beyond merely taxing the "rich" though corporate and income tax reform is part of the solution. It goes to the heart of what is wealth and how it is created.

This is the discussion we really need to be having.
 

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