Wall Street to Workers: Give Us Your Retirement Savings and Stop Asking Questions

David Sirota December 5, 2014

Big banks are more than happy to take workers' retirement funds—as long as those workers don't want to know what those banks are doing with the money. (Flickr / Paul Bailey)

If you are a pub­lic school teacher in Ken­tucky, the state has a mes­sage for you: You have no right to know the details of the invest­ments being made with your retire­ment savings.

That was 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.

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.

The secre­cy trend is spread­ing through­out the coun­try. Last month, for instance, Illi­nois offi­cials denied an open records request for infor­ma­tion iden­ti­fy­ing which finan­cial firms are man­ag­ing that state’s pen­sion mon­ey. Like their Ken­tucky coun­ter­parts, Illi­nois offi­cials assert­ed that the firms’ iden­ti­ties con­sti­tute trade secrets.” Illi­nois’ Free­dom of Infor­ma­tion Act includes spe­cial exemp­tions for infor­ma­tion about pri­vate equi­ty firms.

The denial from Illi­nois pen­sion offi­cials fol­lowed a deci­sion ear­li­er this year by Rhode Island Gen­er­al Trea­sur­er Gina Rai­mon­do, a Demo­c­rat, to reject a newspaper’s open-records request for infor­ma­tion about state pen­sion invest­ments. The trea­sur­er’s office argued that finan­cial firms have the right to min­i­mize atten­tion” around their com­pen­sa­tion. Last week Rai­mon­do, who is now Rhode Island’s gov­er­nor-elect, held a closed-door meet­ing of the state invest­ment com­mis­sion to review the state’s $61 mil­lion invest­ment in a con­tro­ver­sial hedge fund. 

In a recent essay, Steve Judge, pres­i­dent of the Pri­vate Equi­ty Growth Cap­i­tal Coun­cil, wrote that secre­cy is nec­es­sary and appro­pri­ate to pro­tect the finan­cial industry’s com­mer­cial interests.

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.” 

In Ken­tucky, that defense of secre­cy is being chal­lenged in both the state leg­is­la­ture and the courts.

Rep. Jim Wayne, a Demo­c­rat, is plan­ning to rein­tro­duce his leg­is­la­tion to sub­ject pen­sion invest­ment agree­ments to pro­cure­ment statutes that man­date pub­lic release of all gov­ern­ment con­tracts. Mean­while, Ran­dolph Wieck, the Ken­tucky high school teacher, has filed a class-action law­suit charg­ing KTRS offi­cials with, among oth­er thing, vio­lat­ing their fidu­cia­ry duty to retirees by mov­ing pen­sion mon­ey into opaque alter­na­tive investments.

Even if leg­is­la­tors and courts in Ken­tucky and else­where press for trans­paren­cy, events in Iowa sug­gest the secre­cy may con­tin­ue. There, the pri­vate equi­ty firm KKR in Octo­ber warned state pen­sion offi­cials that if they release infor­ma­tion about the fees that Iowa tax­pay­ers are shelling out to Wall Street, the finan­cial indus­try may respond by effec­tive­ly pro­hibit­ing the state from future pri­vate equi­ty investments. 

Of course, maybe that threat isn’t so ter­ri­fy­ing. After all, with many high-fee Wall Street firms fail­ing to deliv­er returns that beat low-fee stock index funds, investors like War­ren Buf­fett are say­ing pub­lic pen­sion sys­tems should­n’t be plow­ing retire­ment sav­ings into hedge funds, pri­vate equi­ty and oth­er so-called alter­na­tive invest­ments.” That is an espe­cial­ly pow­er­ful argu­ment when such invest­ments keep allow­ing the finan­cial indus­try to charge ever-high­er fees in near-total secrecy.

David Siro­ta is an award­win­ning inves­tiga­tive jour­nal­ist and an In These Times senior edi­tor. He served as speech writer for Bernie Sanders’ 2020 cam­paign. Fol­low him on Twit­ter @davidsirota.
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