• December 5, 2022

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State laws mandate that pension fiduciaries have a duty of loyalty to manage retirement plan assets for the exclusive benefit of beneficiaries, i.e., state workers and retirees. Yet all-too-often public pension assets are steered into secretive, risky, poor-performing investments based upon “dark money” contributions by Wall Street to politicians sitting on oversight boards and unions—private investment funds which also ensure outlandish bonuses to pension staffs. Worse still, when pensioners demand disclosure of records which will reveal how their retirement savings are invested, state boards and staffs routinely respond with hostility—as if plan participants were the enemy, as opposed to the owners of the assets. State pension beneficiaries today need to fight to ensure these retirement plans are managed exclusively for their benefit and not for the benefit of elected officials, unions, lavishly-compensated pension staffs and Wall Street billionaires.

Under federal and state pension law—similar to traditional trust law—the duty of loyalty places trustees under a duty to the beneficiaries to administer the pension trust solely in the interest of the beneficiaries. In short, the assets of a pension should never be used to benefit any other party and must be held for the exclusive purposes of providing benefits to participants in the plan and their beneficiaries.

Unfortunately, there is no easy way for state pension participants to ensure their retirement plans are properly managed for their exclusive benefit. In the absence of robust public scrutiny and accountability, state pension investments are frequently selected based upon criteria other than what’s best for the participants. So, for whose benefit are investments selected?

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State pensions are overseen by boards dominated by elected officials and union representatives utterly lacking any investment experience or credentials. They wouldn’t know a good investment if they saw one and really don’t care. These board members and the organizations they represent often receive “dark money” contributions from Wall Street firms managing the costliest funds ever devised—hedge, private equity, real estate and venture funds. They are subject to a conflict of interest in that they benefit from steering plan assets to Wall Street firms which secretly pay them. Unlike under federal pension law, there are no prohibitions on self-dealing and other conflicts of interest that would preclude such corrupt decisions.

State pensions holding hundreds of billions in assets also have enormous investment staffs which have agendas of their own. These government workers are compensated based upon performance of the assets. They get paid lavish bonuses when pensions outperform public market indexes, such as the S&P 500, but are not penalized when pensions underperform. Therefore, it is in their interest to steer monies into high-risk secretive investments which are permitted to self-value assets under management and inflate investment performance results.

In most states today, pension investment staffs are the most highly compensated state employees. They receive base and incentive compensation exponentially greater than governors or state treasurers.

It should come as no surprise then that state pensions have in recent years increased their alternative investment holdings to well over 30%, motivated by dark money payments to politicians and unions, and investment staff greed.

The best test for whether your state pension is being managed for the benefit of parties other than beneficiaries, like you, is to file public record requests for investment documents. If your state pension denies your public records request or stonewalls, it’s hiding something ugly. It’s your money and you have a right to see how it’s invested. If you are denied access to records, that means someone else’s interests have trumped yours. That is, your pension is being run for the benefit of parties other than you—and those parties do not want you to see what’s being done with your hard-earned retirement savings.

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