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Wednesday, October 26, 2016

If you are a public school teacher in Kentucky, the state has a message for you: You have no right to know the details of the investments being made with your retirement savings. That was the crux of the declaration issued by state officials to a high-school history teacher when he asked to see the terms of the agreements between the Kentucky Teachers’ Retirement System and the Wall Street firms that are managing the system’s money on behalf of him, his colleagues and thousands of retirees.

The denial was the latest case of public officials blocking the release of information about how billions of dollars of public employees’ retirement nest eggs are being invested. Though some of the fine print of the investments has occasionally leaked, the agreements are tightly held in most states and cities. Critics say such secrecy prevents lawmakers and the public from evaluating the propriety of the increasing fees being paid to private financial firms for pension management services.

The secrecy trend is spreading throughout the country. Last month, for instance, Illinois officials denied an open-records request for information identifying which financial firms are managing that state’s pension money. Like their Kentucky counterparts, Illinois officials asserted that the firms’ identities “constitute trade secrets.” Illinois’ Freedom of Information Act includes special exemptions for information about private equity firms.

The denial from Illinois pension officials followed a decision earlier this year by Rhode Island General Treasurer Gina Raimondo, a Democrat, to reject a newspaper’s open-records request for information about state pension investments. The treasurer’s office argued that financial firms have the right to “minimize attention” around their compensation. Last week Raimondo, who is now Rhode Island’s governor-elect, held a closed-door meeting of the state investment commission to review the state’s $61 million investment in a controversial hedge fund.

In a recent essay, Steve Judge, president of the Private Equity Growth Capital Council, wrote that secrecy is necessary and appropriate to protect the financial industry’s commercial interests.

“The argument that [agreements] should be accessible to the public is akin to demanding that Coca-Cola publish its famous and secret soda recipe,” he wrote. “Like Coke’s secret recipe, [agreements] contain proprietary and commercially sensitive trade secret information that, if disclosed, could undermine a private equity fund’s ability to invest and generate high returns for its limited partners.”

In Kentucky, that defense of secrecy is being challenged in both the state legislature and the courts.

Rep. Jim Wayne, a Democrat, is planning to reintroduce his legislation to subject pension investment agreements to procurement statutes that mandate public release of all government contracts. Meanwhile, Randolph Wieck, the Kentucky high school teacher, has filed a class-action lawsuit charging KTRS officials with, among other thing, violating their fiduciary duty to retirees by moving pension money into opaque alternative investments.

Even if legislators and courts in Kentucky and elsewhere press for transparency, events in Iowa suggest the secrecy may continue. There, the private equity firm KKR in October warned state pension officials that if they release information about the fees that Iowa taxpayers are shelling out to Wall Street, the financial industry may respond by effectively prohibiting the state from future private equity investments.

Of course, maybe that threat isn’t so terrifying. After all, with many high-fee Wall Street firms failing to deliver returns that beat low-fee stock index funds, investors like Warren Buffett are saying public pension systems shouldn’t be plowing retirement savings into hedge funds, private equity and other so-called “alternative investments.” That is an especially powerful argument when such investments keep allowing the financial industry to charge ever-higher fees in near-total secrecy.

David Sirota is a senior writer at the International Business Times and the best-selling author of the books Hostile Takeover, The Uprising, and Back to Our Future. Email him at [email protected], follow him on Twitter @davidsirota or visit his website at

Photo: Ervins Strauhmanis via Flickr

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  • dana becker

    This is nothing but a transfer of wealth. Period. They are stealing the money. There is no reason for secrecy otherwise. They don’t want them to see they are being robbed.

    Index Funds would garner more money for the retirees and Wall Street knows this. They are finding more vehicles to fee to death. They are not creating wealth for the pensioners they are creating wealth for themselves at the expense of the pensioners. The Hedge fund makes money no matter which way the investment goes.

    I hope the plaintiffs prevail and it should be illegal to hold that information secret when so many lives are affected by any adverse decisions made by the State and Investment firms.

    • ps0rjl

      I agree with you. These funds invested for the benefit of the public employees. Furthermore they are funds taxpayers have contributed. The records regarding what they have been invested in and with whom, and what fees these Wall Street companies charge should be made public. The reason the politicians and Wall Street don’t want the information to become public is because Wall Street doesn’t want anyone to know what fees they are charging and the politicians don’t want the public to know what firms are contributing funds to their campaigns. It is their dirty little secret.

    • Independent1

      If the GOP isn’t stealing it by the underhanded way they manipulate pension monies, they’re stealing it by constantly cutting taxes and budgets so the wealthy can pay even less than what was their fair share of taxes; or by starting unnecessary wars based on lies and distortions of the truth so they can hand out no-bid contracts to their buddies who run defense industry related firms who can figure out every which way to defraud our government and thereby pocket even more taxpayer dollars – like trillions. Or even by passing legislation that shoves billions of taxpayer dollars into the pockets of big Corporations which are hugely profitable without the subsidies so those managing them can use the excesses to buy even more yachts and 3rd, 4th, 5th homes and more around the world. And even stuff trillions overseas in holding accounts that are charged little or no taxes because they’re owned by companies not domiciled in that country – like Apple that has billions stashed in Ireland which collects nothing from Apple in taxes. And on and on and on it goes – the merry old American Mafia (aka the GOP) doing everything it can to steal the American taxpayer blind.

  • Grannysmovin

    If they privatize social security do you think it would be any different,

  • Guest

    Make no mistake the new Congress and Senate will go after pension plans in anyway they can. Please read the following article anyone with a pension should be quite frightened

    • Independent1

      Given that the GOP doesn’t have enough votes in at least the Senate to override a veto – let’s hope Obama keeps his veto pen handy and keeps the GOP from doing too much damage to America between now and 2016.

  • Bill Thompson

    The new Congress and Senate have plans for an all out attack on pension plans. Anybody with a pension should be quite frightened, please read the following.

  • FireBaron

    Hey, the company I work for (a multinational – which means they probably pay $0 in federal taxes) took over the pension management from an independent contractor. We are not allowed to know how their investments work, either! So it ain’t just the public sector, my friends.

  • Independent1

    It’s not just Kentucky, it’s also states like New Jersey – where Christie claims the state can’t afford to pay retired teachers their pensions, but somehow can manage to give out state subsidies to companies in the state at multi-million dollar levels. And the investment firm that has managed New Jersey’s teachers’ pensions was originally run by the now governor of Massachusetts, has continued to have a very poor record on investment returns and yet still collects very high investment fees from Chrisite’s government.

    See this from PandoDaily (excerpts from an article dated 5/27/14:

    Last week, Gov. Chris Christie announced he will take $2.4 billion owed to New Jersey’s public pension system and use it instead to balance the state’s current budget.

    To hear Christie tell it, he has no choice: the money simply isn’t there. But one group for whom that might be hard to swallow is New Jersey’s teachers — particularly, I suppose, math teachers. After all, as public school teachers learn that their pensions won’t be funded, education technology and publishing firm Pearson continues to receive a huge taxpayer subsidy from New Jersey.

    Enacted in late 2012, the deal sees Christie’s state giving Pearson a multi-year subsidy of up to $82 million. in other words, Christie is taking money from public school teachers to ensure that he can continue to support a giant education publisher. That’s particularly galling for teachers because Pearson just so happens to be one of the driving forces behind the push for more standardized testing and other so-called education “reforms” that many public school teachers and teachers’ unions vehemently oppose.

    And that’s just the first of several twists in the now completely tangled story of New Jersey’s public pension system.

    Here’s another: A mere 4 days before announcing their pension raid, Christie officials approved a $225 million subsidy for JP Morgan, which just so happens to be a big donor to the Christie-run Republican Governors Association.

    All these subsidies are part of Christie’s record $1.5 billion in corporate handouts. Add to that theestimated $1.2 billion in Wall Street fees from Christie’s high-fee, high-risk pension investment strategy, and you get a $2.7 billion hole blown through New Jersey’s finances. And whaddya know? That just so happens to be almost exactly the amount Christie is now borrowing from the pension fund to balance the budget.

    • bckrd1

      It is how the wealth gets transferred. He will make a fine Republican “President”.