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.