State laws impose a fiduciary duty on pension trustees to manage retirement plan assets for the exclusive benefit of the beneficiaries, that is, state employees and retirees. However, public pension assets are often funneled into secret, risky, and underperforming investments based on contributions of “dark money” by Wall Street to politicians sitting on supervisory boards and unions – private investment funds that also guarantee exotic bonuses to pension employees. Even worse, when retirees demand disclosure of records that will reveal how their retirement savings are invested, boards and employees routinely respond with hostility—as if plan participants were the enemy, as opposed to asset owners. Recipients of state pensions today need to struggle to ensure that these pension plans are run for their exclusive benefit and not for the benefit of elected officials, unions, generously paid pension employees and Wall Street billionaires.
Under federal and state pension law—similar to traditional trust law—the duty of fiduciary fiduciary matters under the duty of beneficiaries to administer the pension fund for the benefit of the beneficiaries only. In short, pension assets should never be used for the benefit of any other party and should be held for the exclusive purposes of providing benefits to plan participants and beneficiaries.
Unfortunately, there is no easy way for state pension participants to ensure that their retirement plans are properly managed for their exclusive benefit. In the absence of strong public scrutiny and accountability, state pension investments are frequently selected based on criteria other than what is best for participants. So, who are the investments chosen for?
State pensions are monitored by councils controlled by elected officials and union representatives who completely lack any investment experience or credentials. They wouldn’t know a good investment if they saw it and didn’t really care. These board members and the organizations they represent often receive “dark money” contributions from the Wall Street firms that run the most expensive funds ever devised – hedges, private equity, real estate, and venture funds. They are subject to a conflict of interest in that they are taking advantage of the assets of the routing scheme of the Wall Street firms that secretly pay them. Unlike the federal retirement law, there are no restrictions on self-dealing and other conflicts of interest that would prevent such corrupt decisions.
State pensions that hold hundreds of billions of dollars in assets also have formidable investment personnel with agendas of their own. These government workers are compensated based on asset performance. They are paid generous bonuses when pensions outperform general market indices, such as the S&P 500, but are not penalized when pensions are underperforming. Therefore, it is in their best interest to direct funds to high-risk, secret investments that will allow them to value the self-managed assets and inflate the results of investment performance.
In most states today, pension investment employees are the most highly paid state employees. They receive much more basic compensation and incentive than governors or state treasurers.
It should come as no surprise, then, that in recent years state pensions have increased their alternative investment holdings to more than 30%, spurred by dark money payments to politicians and unions, and the greed of investment staff.
The best test to see if your state pension is being administered for the benefit of parties other than recipients like you, is to file public registry applications for investment documents. If your state pension refuses to ask for public records or stone walls, it's hiding something ugly. It's your money and you have the right to know how to invest it. If you are denied access to the records, this means that someone else's interests have outweighed your own. This means that your pension is managed for parties other than you - and they don't want you to see what is being done with your hard-earned retirement savings.