Teacher strikes and states demanding cuts in pension benefits have frequently been in the news lately. But what you are not reading about are the huge fees being paid to Wall Street to manage the source of many of those funds – fees which have risen sharply in recent years untethered to the performance of the investments.
In a quest to increase the return on trillions of dollars parked in pension pools at a time of historically low-interest rates, many states have turned to alternative investments in real estate, timberland, businesses and other unorthodox places. These investments are often handled by hedge funds and money managers who charge even higher rates than the big investment firms, who themselves in past years have simply shepherded those funds.
While lawmakers concerned about rising state budgets have acted aggressively in many cases to cut benefits and cost of living increases for retirees and keep public employees wages low, “lawmakers have not done anything to impede the nine-figure payments to one elite set of PERA beneficiaries: the wealthiest people on Earth, who live 1,600 miles to the east,” reports Westword.
PERA refers to the Public Employees Retirement Association which handles money in the state of Colorado for state retirees, including former government workers, teachers, and other public employees.
While the state – mostly controlled by Republican politicians – has been fighting police, firefighters, and teachers (among the lowest paid in the nation) who want raises, while eliminating the cost of living increases for about 500,000 retirees who count on that money (because they do not receive any social security), fees paid to those who handle investments have soared.
EXCLUSIVE: Colorado lawmakers move to slash pensions of teachers who get no Social Security, as state pension officials have funneled $1 BILLION of fees to Wall St moguls — and passed a law barring the public from seeing the details of the fees https://t.co/VTtGmjNgCX #coleg
— David Sirota (@davidsirota) May 4, 2018
Nationwide there are about $3 trillion in pension funds, and as of 2014, with the shift to alternative investments, the fees have risen to about $10 billion a year – up 30 percent over the prior decade, according to the Pew Charitable Trusts.
Most lawmakers are unaware of these spiraling costs being paid to hedge funds and money managers, however, the Westword piece reported.
Colorado alone paid about $1 billion in investment fees between 2009 and 2016.
“Ask (lawmakers) if they realize those are only the fees that are disclosed — and that there are likely hundreds of millions of dollars of additional fees being paid — and they will express disbelief,” writes Westword.
“Ask them if they know that state officials passed legislation – written by the financial industry – barring the details of the fee terms from being revealed to the public, and you will elicit outrage.”
Some state legislatures have sought more transparency. California passed a bill that revealed it was paying nearly $1.5 billion a year for its private equity investments.
More typical, reports Westword, is Colorado’s situation, where the state treasurer, a second term Republican, demanded PERA publish details about how much pensioners were receiving but never sought information on how much Colorado pays the financial industry to ‘manage’ these investments.
Maybe that’s because the financial industry spent half a billion dollars a year on campaign contributions, and the asset managers are regularly among the top donors to the Republican Governors Association.
How Wall Street profits while states cut pay for teachers. https://t.co/SEMirMvmJM
— Alex Gibney (@alexgibneyfilm) May 4, 2018
“The result,” adds Westword: “In nearly every state with revenue shortfalls, the political debate over pension reform primarily revolves around proposals to cut workers’ benefits — while ever-larger payouts to financial firms are considered sacrosanct and kept hidden from view.”
Few bother to notice that Trump pal Steve Schwarzman, the CEO of Blackstone, which manages PERA’s money, made $800 million last year
“Instead, financial firms and their trade associations have cast themselves as part of the solution, ” writes Westword, “arguing that their alternative investments have produced returns that appear to eclipse the stock market — and are therefore worth the cost and secrecy.”
That is the kind of bizarre, upside down logic that Wall Street, hedge funds, and big financial firms have been able to stuff down the throats of Americans while they spend lavishly on politicians who write legislation and rules that make them even richer.
When Donald Trump was a candidate he promised to eliminate a loophole that allows hedge fund managers with eye-popping annual compensation packages to pay much lower taxes than working Americans. But when it came time to write and pass the Republican tax bill, that change was nowhere to be seen.
Instead, the richest Americans got the big benefits from the Republican tax overhaul, and the rest of us got stuck with the bill.
It isn’t a surprise in a country where the wages of CEOs have skyrocketed while the wages of almost everyone else have remained stagnant for the past two decades.
That, however, doesn’t make it right or fair.
Until voters elect politicians who don’t take money from the greedy few who live like kings while the rest of us have to worry about monthly expenses and live in fear of the prospect of crippling hospital bills of we get sick, this will not change.
So when you go to the polls on primary day, or in November and beyond, don’t vote for the candidates who lie to you, who promise lower taxes for everyone but really only intend to help the rich, who stand for single social issues like religion, or flag burning or abortion, while picking your pocket every day of the year.
Get smart and vote for those who will actually help you afford a decent place to live, and to be able to send your kids to good schools.
I assure you Steve Schwarzman’s kids and grandkids will have exactly that.