Public Worker Pensions Funneled Into Risky Investment Funds

A recent report by advocacy group Democracy Now! details how pensions for millions of Americans public workers have been invested into risky hedge funds, private equity and “alternative investment funds.”
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These investments put worker pensions at risk – but they have been lining the pockets of local politicians with millions of dollars in investment fees.

In one case, journalists learned President Obama’s one-time chief-of-staff, now Chicago Mayor Rahm Emanuel, received $600,000 in campaign contributions from investment firms that are responsible for managing city worker pension funds in Chicago. In New Jersey, the top official seated on the board that decides how state workers’ $80 billion in pension funds are invested was closely involved with Gov. Chris Christie’s head campaign fundraising aides while he was lobbying for re-election.

Other states have come under fire for the fact they refuse to release any information about how public worker pension funds are managed or invested.

A reporter for the International Business Times published a report in 2013, called, “The Plot Against Pensions.” Democracy Now! recently interviewed him for insight on how the problem has evolved since then.

As the reporter noted, the collective effect of this is that one-third of the country’s $3 million in public pension fund money is being entrusted to firms on Wall Street. Most of these plans involve sky-high fees.

The reason politicians have made these moves is two-fold. The first is that some local and state governments are still struggling with serious budget shortfalls. What they are hoping to do is “big-bet” their way out of these predicaments. However, this hasn’t so far yielded many successes. In fact, the returns on these funds is essentially lower than the stock market. The stock market, meanwhile, costs virtually nothing to invest in.

So why would governments continue to use these investment vehicles? The answer, most probably, lies in the issue of campaign contributions.

For example in New Jersey, where Gov. Christie oversees an enormous pot of public pension funds, the fees on those investments have almost tripled for pension management on these funds, and the investments are delivering mediocre returns. So taxpayers are footing the bill for these investments, public workers aren’t getting as much back, but politicians like Christie are getting huge campaign contributions from the Wall Street firms entrusted with these investment funds.

The relationships get even more wiry. For example, at the very same time New Jersey moved billions of dollars in pension money into one large investment firm, that very same company bent its own rules to allow the firm run by the head of the state pension fund to invest in the company too.

This has raised many questions about how these funds are invested and whether such actions are proper. Still, it’s not a story that has gained much traction in the mainstream national media.

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Additional Resources:
As Public Pensions Shift to Risky Wall Street, Local Politicians Rake in Political Cash, February 2015, By Amy Goodman, Democracy Now!

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Study: Millions Have Paychecks Garnished for Old Debts, Sept. 16, 2015, Miami Foreclosure Lawyer Blog