Wall Street Fleeces Pension Funds As Workers Pay Twice

Gretchen Morgenson had an interesting article on Friday that illustrated how Wall Street firms are fleecing pension funds as those funds search for higher returns to keep themselves even reasonably funded. The New York State Teamsters Conference Pension and Retirement Fund has$1.3 billion in assets but just 44.8 percent of its obligations are funded. A recent actuarial study found that at the current rate the fund would be insolvent in less than 20 years. Because of the underfunding, current and future retirees are now facing 20%-30% benefit cuts. There are many reasons that the pension fund is underfunded. The decline in unionization has meant there are fewer workers than were anticipated contributing to the fund. In addition, the stock market crash in 2008 and this extended period of low interest rates have also hurt the fund’s performance. It is not alone in that regard.

Some concerned members of the fund raised enough money to have any independent investigator to a forensic study of the fund. The investigator found that the fund has invested in many illiquid and opaque products, chasing returns promised by private equity managers. Those returns, however, have not even kept up with the returns in the equity market averages over the same period. According to the forensic study, the fund suffered $500 million in excessive expenses and fees and another $400 million in losses due to underperformance.

It is really hard to see what purpose Wall Street actually provides these days. However, they do engage in massive schemes to defraud their customers; they continue to avoid responsibility for massive mortgage fraud that destroyed the economy and required taxpayers to actually bail them out; and they no longer fulfill their supposed role as an efficient allocator of resources. They are, however, exceedingly good at fleecing the rest of us.

For those pensioners who are now facing cuts of 20%-30%, this is a brutal blow. And it just reflects another broker promise to the workers in our country. Many of these workers agreed to forgo wage increases in the 1980s and 1990s specifically in order to protect their pensions for the future. Now, when the day comes to actually pay the piper, the pensions are not full funded. So the workers helped keep wages lower which benefitted the corporations. And when they are due the money they are owed, they are told the money isn’t there because some other corporation has managed to rip off their pension funds with excessive fees. Once again, for corporations and Wall Street, it’s “heads I win, tails you lose“.