Who Stole My Pension?

Who Stole My Pension?

Book Review

By Jim Vail 

This is the book every teacher, retired teacher or wannabe teacher should read if they want to know if their pension is safe.

Who Stole My Pension was written by Robert Kiyosaki of Rich Dad Poor Dad fame and Ted Siedle, who successfully sued public pension funds and writes how Wall Street money managers are ripping off the pension funds.

These are the questions we need to ask about our Chicago Teachers Pension Fund:

--  Pensions are becoming less transparent at the behest of Wall Street

--  Pensions are gambling on high-risk, high-cost investments more than ever

--  Pensions routinely lie about the investment fees they pay, their investment performance and funding levels

--  Pension are not fully audited by independent accounting firms

We cannot trust the government to protect our defined benefit pension in which we work a number of years and are guaranteed a pension payment each month (roughly 2.2% of salary earned each year on the job). Ted writes that the Pension Benefit Guarantee Corp. that is supposed to police pensions instead has a private agenda to assist corporations. He noted the federal agency has no capacity to audit pensions.

His 2011 forensic audit of the bankrupt US Airways pilots pension revealed profound omissions, conflicts of interest, hidden and excessive fees, and potential violations of law with dozens of firms who do audit, actuarial, investment consulting, and money management.

Why is the Chicago Teachers Pension Fund dragging its feet on conducting a forensic audit that would probably reveal the same things?

The Teamster Alliance for Pension Protection key finding was a massive $767 million gamble on high cost, high risk, illiquid and opaque "alternative' investments that cost $400 million. It too like CTPF was only 45 percent funded.

Illinois is one of the worst offenders of short changing its public pensions. But Ted writes that not enough money in the pot is not the primary cause of pension problems.

The authors predict that the next big bailout with taxpayer money will be the pension 'too big to fail' banks selling fake, toxic assets to the world. The bailout will be in the name of saving pensioners retirements, but really just a repeat of bailing out corrupt Wall Street.

In the US the combined value of pension plan assets held by state and local governments in 2018 was over $4 trillion. overseen by trustees of laymen who lack knowledge in investments.

CTPF is overseen by teachers and retired teachers with little investment background.

“Fortunately there are globally recognized experts in pensions and investments who offer sound advice on how pensions should be prudently managed.”

Public pensions have failed to meet overly optimistic return assumptions over the past 2 decades and dug themselves into deepening funding hole as they allocated ever greater assets to highest cost, highest risk ever devised by Wall Street - hedge and private equity funds.

Second City Teachers is hearing reports that the Chicago Teachers Pension Fund is heavily invested in high-risk, high cost private equity funds. The question is why amidst our crisis!

"In fact, every forensic investigation I've ever undertaken has exposed that the nearer a pension is to insolvency, the higher the fees and the greater the risks the pension takes on."

Is the Chicago Teachers Union paying 'obscene fees to Wall Street and moving further away from transparency?’

Every teacher and pensioner should be able to ask a simple question, like how much do we pay these private equity funds to manage our pension money.

While CORE has boasted that their trustees have kicked out hedge funds, they still work with private equity funds who are not much different.

"The workers should tell the pension fund board to refuse any secrecy agreements with investment firms. There is no justification ever for secrecy agreements."

Siedle writes that you need to know the assets (stocks, bonds, private equity, etc) in which your pension is invested, the names of these firms managing the assets, how much the firms get paid and how well they performed.

"To protect your retirement security, you need to pay particularly close attention to your pension's investments in these risky "alternatives" because these deals are riddled with abusive provisions amounting to a license to steal - from you."

"In summary, less transparency in pension results in less accountability and greater looting."

If Warren Buffet says, “It’s a lopsided system whereby 2% of your principal is paid each year to the manager even if he accomplishes nothing .. and additionally 20% of your profit is paid to him if he succeeds," then it can’t be good if our beloved Chicago Teachers Pension Fund is doing this.

Pension overseers are supposed to be on the pensioners’ side, not cuddling up to investment firms. That is a question I had when I noticed how poorly Ariel Management performs for the CTPF, yet some of our trustees continue to support them. Why must our trustees take exotic trips to sales conferences?

A 2014 internal review by US Securities Exchange Commission (SEC) found that more than half of about 400 private equity firms charged unjustified  fees and expenses without notifying investors.

Senator Elizabeth Warren has even proposed new regulations on the private equity industry to end "legalized looting" by "vampire" investment firms that take over troubled companies. 

The CTPF should seriously consider index investment management services that can be purchased for 1 basis point (one one-hundredth of a percent) or even for free.

“Active managers, who attempt to beat the market by stock picking, may charge pension fees up to 120 times greater (1.2 percent). Private equity may charge up to 9 percent or 900 times greater than indexing. Paying higher fees negatively correlates to superior investment performance. Overwhelming majority of active managers fail to outperform market indexes over time net of fees. The higher the fees, the greater the drag on investment returns.”

Siedle said shifting from passive investing to active investing is a terrible idea. He recommends all of us writing the following letter to CTPF:

“Please disclose all fees, expenses and other costs related to pension investments, but not limited to asset based investment advisory fees and performance or incentive fees as well as investment advisory fees. Please provide this comprehensive fee and expense information by manager and for the pension as a whole.”

In countless investigations, Siedle said he has proven that the fees pensions disclosed to the public as just the 'tip of the iceberg,' most often due to complexity, and multiple levels of hefty fees which are not fully disclosed to pensions or participants.

We should be suspicious when the CTPF newsletter gives glowing reports about beating their benchmark, because you need to compare the pension to relevant benchmarks like S&P 500, not their own benchmarks.

About 60 percent of all corporate pensions in the US are not audited or they pretend to audit, or they have limited scope audits but then disclaim responsibility for fraud or mismanagement.

Here are some more eye-opening takeaways from this must-read book:

1. World is faced with retirement crisis

2. Pension benefits promised are in danger

3. People overseeing your pension are not knowledgeable about pensions or investments

4. Wall Street firms hired to manage pension money are profiting at pensioners expense (aka looting)

5. You can and should get involved in scrutinizing the pension for your retirement security.

We need to take action and start asking the Chicago Teachers Pension Fund these very same questions!