Twelve public pension funds with a combined total of $787 billion in assets were analyzed for “The Big Squeeze: How Money Managers’ Fees Crush State Budgets and Workers’ Retirement Hopes.” The researchers found that under the standard fee structure, managers are being paid up to 2 percent of assets under management (AUM), plus a “performance fee,” also known as carried interest. These bonuses are often up to 20 percent of annual profits.
“Rather than following Wall Street’s actions, which erode working people’s pensions by charging unjustifiable fees, this report provides a blueprint for retirement security,” said AFT President Randi Weingarten. She added that, if adopted by pension trustees and responsible legislators, it offers a path forward that also “fuels economic growth and creates good jobs.”
Click here for press coverage of the report’s analysis.
The report finds that if the fee structure had been halved, the funds examined would have saved $3.8 billion per year in alternatives fees. In the future, the average pension fund will save an additional $1.8 billion after five years, $8 billion after 15 years, and $30 billion after 30 years. These relatively conservative changes would produce a “win-win” for future retirees as well as the tax-paying public who ultimately pay the price for the current fee structure.
“Our union’s analysis offers a path forward for lawmakers and pension trustees in states like ours,” said AFT Connecticut President Jan Hochadel. “Redirecting these exorbitant fees and bonuses back into under-funded retirement systems would help shore up vital public assets and help stabilize the economy. That makes this report a valuable tool for moving elected leaders to make better choices,” added Hochadel, who also serves as a vice president on our national union’s executive committee.
In a majority of states, pensions for state and municipal public employees are severely underfunded. According to a 2016 study, the average funding level is just 75 percent, and the total unfunded liability of all plans combined stands at $1 trillion.
Union members in Connecticut have for decades advocated for measures to strengthen the State Employees Retirement System (SERS), which is today a well-funded and modest pension plan. It has been plagued by long standing legacy debts caused by politicians in office long before 1981 when state employees began collectively bargaining for retirement benefits.
“Pensions play an important role in Connecticut’s economy,” said MaryAnn Goggin, the president of the retirees chapter of our AFT Connecticut-affiliated Administrative & Residual (A&R) Employees Union. “They support jobs and generate purchasing power in local communities — every dollar paid out in state pension benefits supports $1.31 in total economic activity. This is real data that politicians should be using to craft fairer policies,” added Goggin, who retired from the Department of Information Technology (DOIT) after 27 years in public service.
Click here for our previous report on efforts to strengthen state employees’ pension funding.
The report includes common-sense reforms, including that pensions divest from risky investments, properly disclose and adopt limits for fees, as well as establish reporting requirements. It also advises advocates to develop trustees to support legislation mandating the publication of fees by fund and asset managers.
Our national union’s report is the third in a series exposing excessive hedge fund fees, following the publication of “Ranking Asset Managers” and “All That Glitters Is Not Gold.” This latest report on May 12 was reviewed and adopted by the AFT Trustee Council, the committee that oversees members’ retirement assets across multiple funds.
