Minnesota Teachers Authorize Forensic Audit of Teachers Pension Fund
The Educators for Pension Reform in Minnesota is a Facebook group of almost 20,000 teachers who raised $78k to conduct a forensic audit of their state pension fund.
This Facebook group hired Ted Siedle, the nation’s leading investigator of pension fund forensic audits, because of their growing concerns of the state’s Tier 1 and Tier 2 Pension System in which teachers are paying more into the system and getting less in return.
The Teachers Retirement Association of Minnesota funding ratio has dropped this past year from 83 percent to 76 percent.
The Chicago Teachers Pension Fund (CTPF) is funded at only 47 percent yet a promised forensic audit of the troubled pension has yet to be conducted.
Ted Siedle, a former SEC attorney who wrote the book Who Stole My Pension, conducted a forensic audit of the Ohio Teachers Retirement System that led to the state auditor concluding that had their pension fund been managed better it would have doubled its funding from $90 billion to $180 billion.
Instead, Ohio retired teachers have seen their Cost of Living Adjustments (COLA) cut drastically, diminishing the purchasing power of their retirement income by up to 30 percent.
The Ohio Retired Teachers noted that they are paying exorbitant fees to Private Equity money managers that exceed $143 million per year, enough to pay for their COLA increases. The Ohio State Teachers Retirment System has invested 22 percent of its money with private equity, while the CTPF has invested 8.5 percent. Siedle said what is extraordinary is that public pension funds are paying very high fees to private equity managers for doing nothing because they have long-term contracts.
A group called the National Teacher Association wrote a paper that was sent to the Minnesota teachers to discredit Siedle. The former SEC lawyer, who won the largest whistleblower case in history of over $80 million, said most likely this group is backed by political groups who feel threatened about what an audit would expose. He says that if the audit shows financial mismanagement it will be reported to the authorities for further investigation.
There are groups such as the National Public Pension Association and the National Council of Teacher Retirement (NCTR) which are fake groups fronting for Wall Street that oppose any reform that would expose their secret deals and high fees.
In a video podcast entitled The Greatest Teacher Retirement Crisis in History, a panel of Minnesota teachers, a retired Ohio teacher and Siedle spoke about the need to conduct forensic audits of pension funds.
“Wall Street brings many of its sketchiest deals to public pensions who they consider the dumbest investors in the room,” Siedle said. “(Public Pensions) are supposed to be the most transparent, but have become very adept at skirting public records laws.”
Maggie Temple, a veteran Minnesota teacher, said she didn’t know much about pensions until they started their facebook group because their two tier pension system is in “shambles”.
Chicago teachers and all IL state workers also have a Tier 1 and 2 system in which workers hired after 2011 must wait til age 67 to retire after working at least 10 years. This means new teachers get less than Social Security (considered the minimum wage of retirement benefits) which is against federal law.
Stacy Bartlett, a Minnesota science teacher and organizer of their fundraiser to hire an outside auditor, said a Tier 1 teacher can retire at 56 with 100 percent of their benefits, but if a Tier 2 teacher retired at this age they would lose 58 percent of their pension. She said 1.6 percent of the employee contribution pays for Tier 2 and the rest is used to pay for Tier 1.
“We wanted answers but we kept running into roadblocks,” Temple said on Full Disclosure.
Dean Dennis, president of the Ohio Retirement for Teachers Association, also helped form a FB group of over 30k members independent of the teachers union. He said their pension fund only invested 2.5 percent of its portfolio in private equity 10 years ago, but today it’s 22 percent.
“They moved from transparent investments to opaque investments like private equity, (where) you don’t know the fee structures,” he said during the forum. “We don’t how much money, (but it’s) clear when they take benefits away that they have problems.”
Dennis said in Ohio they talked about fees, which were once 10 to 12 basis points annually. Their pension consultants would say today’s fees were over 40 basis points, but independent research showed it was closer to 60 - 100 basis points for private equity. That means manager fees for their $90 billion Ohio Teachers Pension for 40 basis points over 20 years would add up to $12 billion!
“People have no idea about the fees, between 1 and 2 percent adds up over a 30 year span,” he said.
The problem is how to regulate public pension funds. The Securities & Exchange Commission (SEC) is reluctant to get involved with state politics and the attorney generals and other regulators are also hesitant to get involved because they could lose their jobs.
“You very rarely see public pension fraud being prosecuted,” Siedle said. “If you manage public money you should be subject to public scrutiny.”
Dean Dennis said the Ohio Teachers Retirment System of Ohio owns property in Minnesota where buildings are sitting vacant rather than rented out at a lower price because if this was disclosed, it would ruin their investment value.
“They can get their performance bonuses if they let property sit empty and not take in revenue because they don’t want the value of their investments (to drop),” he said. “That’s how sinister these investments can be.”
Dennis said over 100 managers for the Ohio State Pension Fund make over $10 million in performance bonuses and that’s why they go after the exotic higher risk investments such as private equity.
Siedle said there are three components to a public pension plan - 1) how much goes into the pot, 2) what happens in the pot, and 3) how much goes out of the pot.
He said everybody assumes there is not enough money going into the pot which is not true. It’s the mismanagement that has caused these pension funds to substantially underperform.
“It’s all about mismanagement of these funds,” he said. “There is no need for more money. It is how you manage it.”