The retirement investment scam.


Jerome J. Schlichter, the lawyer representing employees of M.I.T., N.Y.U. and Yale, has filed more than 20 lawsuits in the last decade on behalf of workers in retirement plans.CreditWhitney Curtis for The New York Times

To my younger millennial readers who tell me that they love my blog but their eyes roll back when I write about pensions, this is one of those.

As a member of the teacher pension system in Illinois, I will ask questions about investments, fees and specific returns.

In many cases, those questions will not be answered because the investment strategies of the those who invest our money is considered proprietary information. That means if a company like Governor Rauner’s GTCR (which did manage TRS investments) says what they do with our money then someone else can steal the investment strategy and, I don’t know, make money too? Or lose it.

Just to say that even with the good people that we choose to sit on the TRS board of trustees, there is still a problem with transparency when it comes to fees and investment strategies.

Governor Rauner and some of his Republican friends (some Democrats too) want to create a third tier for future retirees which would end the current  defined benefit plans and convert them to defined contribution plans. A DBP guarantees retired public employees a 3% increase in our yearly post retirement increase, no matter if the market does well or poorly. A DCP would take our retirement saving and put it in a market-based annuity. If the market does well, great. If it doesn’t? Enjoy the cardboard carton under the Kennedy expressway in your senior years.

And bring a blanket. And a marker and cardboard.

“Will teach for food.”

If you think there is a problem with transparency in our DBP, the alternative is worse.

The New York Times is reporting that employees at M.I.T., N.Y.U. and Yale are suing their employers over investment scams.

The complaint against N.Y.U. — which involves two 403(b) plans covering faculty, research administration and the medical school — centers largely on costs. The complaint said that participants were offered too many investment choices (there were more than 100 options for faculty), and that many of them were too expensive. The suit, filed in Federal District Court for the Southern District of New York, singles out several investments, including the TIAA Traditional Annuity, which it said has severe restrictions and penalties for withdrawal, as well as variable annuities that have several layers of fees and have historically underperformed.

A spokesman for TIAA said it offered high-quality plans and low-cost investments that provide lifetime income.

The suit also argues that even the cheapest funds offered could have been provided for less, given the enormous size and bargaining power of the faculty and medical school plans, which together held $4.2 billion in assets for more than 24,000 participants at the end of 2014.

The complaint alleges that the university did not use its negotiating powers to select a single low-cost record keeper for administrative tasks such as sending statements to employees. It said it also overpaid for these services for many years.

The issues concerning Yale’s 403(b) retirement plan — which held nearly $3.6 billion in assets in the spring of 2014 — follow a similar pattern: multiple record keepers with excessive fees, costing participants millions of dollars over the last six years; too many investments of the same style; and the use of higher-cost funds instead of identical but lower-priced ones. That case was filed in Federal District Court in Connecticut.

So my dear millennial friends and readers. If you’re still reading this, keep your noses  and your eyes wide open.

4 Replies to “The retirement investment scam.”

  1. Fred,
    There is a story recently about a large retirement fund that took a hard look at service and investment ad visors servicing a few thousand participants. The performance and fee structure studied in detail by independent parties. Decision was made to move to better performing lower cost funds.
    Guess what-huge blow back from the participants. Everyone looked for an angle, looked for who was bought, looked for how they were getting screwed. Even though the move meant thousands or 10-‘s of thousands of dollars to a participant in their retirement the move was not made just to silence the hoards of idiots.

    Freakin geniuses they are!!

    This is what you deal with in the old RW.

  2. It isn’t just Mullins is that don’t don’t understand retirement benefits. BTW that stuff from the private equity outfits is just BS.It is a joke that our funds are given a black box and told this thing gave you a great return. Even though we get paid regardless we should show the taxpayers whose fault it is when the funds come up super due to underfunding or scams.As to the DCs this is a great shot. I have an extensive investing background and contructed a nice bond portfolio in my DC. We have both. Ours are now IRAs. Most 401s and 403 are less flexible. In the case of day Yale….they have professionals that manage their endowment. The couldn’t give investment advice to the DC people. Of course not.

  3. “Governor Rauner and some of his Republican friends (some Democrats too) want to create a third tier for future retirees which would end the current defined benefit plans and convert them to defined contribution plans.”

    Wouldn’t this also require moving those retirees to social security?

    1. “Wouldn’t this also require moving those retirees to social security?”

      That would be nice — at least for those of us working for the state who were sucked into the 403b scam. No ‘safe harbor’ here — so why continue the exemption?

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