Former Chicago Teachers Pension Fund President Says "Makes Sense to Invest in Index Fund"
The former President of the Chicago Teachers Pension Fund (CTPF) Jay Rehak said it makes a lot of sense to invest the teachers’ pension money in an Index Fund rather than pay out millions in hidden fees to private equity money managers.
“Just throw (teacher pension money) into an Index Fund and forget about it, which I think makes a lot of sense,” Rehak told Chicago Reader Ben Joravsky during an interview on his podcast show. “But the private equity guys say no, we’re gonna make you guys a lot of money, which they do and they don’t.”
Second City Teachers earlier interviewed whistleblower Ted Siedle who has sued pension funds for hiding excessive fees paid out to private investment managers. His forensic audits of major pension funds have revealed profound omissions, conflicts of interest, and hidden and excessive fees. The Chicago Teachers Pension Fund is currently conducting its own forensic audit.
Pennsylvanias $72 billion pension fund for public school employees said they planned to reduce their annual investment fees by more than $100 million by reallocating the proceeds to lower-cost investments like Index Funds over time. Siedle and Warren Buffet said all Pension Funds should do the same.
Rehak told Joravsky when he was first elected as a Trustee to the Chicago Teachers Pension Fund in 2009 he sued Mayor Richard Daley’s nephew “because they ripped us off.”
“We lost 25$ million in bad investments and they said sorry about that,” Rehak said. “When we sued them they had a contract where we had to pay for their lawyers. They said, ‘Fine, sue us,’ but we had to pay for their attorney’s fees.”
Rehak said Pension Funds are just large amounts of money that are prey to men and women who are good at hustling their ware.
Rehak explained the current pension funding crisis in very clear terms.
He said Chicago teachers pay 9 percent of their salary into the pension fund and not into social security. The teachers pay about $200 million and the City of Chicago pays about $200 million each year to the Pension Fund.
However, the pension funding crisis began under Democrat Mayor Richard Daley who stopped the City from paying into the Teachers Pension Fund for 10 years citing a state law that allowed him to stop making pension payments if the Fund was at least 80 percent funded.
The Fund was over 100 percent funded in 2000, but only 45 percent funded in 2023.
That is why today Chicago owes a whopping $1 billion to the Pension Funds to pay for both their current and overdue bills.
“It works if everyone pays their bills,” Rehak said. “Now the Chicago Board of Education is on the hook to pay almost $1 billion for all the back money they owe. You cannot not pay bills for 20 years and just pay it back.”
He said Mayor Daley was credited for being a financial wizard and paying for grandiose projects such as Milennium Park, which was paid for with money stolen from the teachers and other city workers pensions.
Mayor Daley also further damaged teachers’ pensions by closing public schools and replacing them with charter schools where only 50 percent of the teachers needed to be certified teachers. Only certified teachers pay into the Pension Fund, so the charters paid even less money into the Fund.
Rehak raised this issue when he was first elected a CTPF Teacher Trustee about the problem with Charter Schools. He also went to war against the money managers who were supporting charter schools while managing public school teachers pension money. He was elected during President Barack Obama’s Race to the Top attack on public schools, teacher unions and their pensions. Rehak and CORE were elected to fight the corporate agenda to destroy public schools and privatize education.
Rehak said Chicago implemented a real estate surtax charge of up to one percent to pay more into the woefully underfunded public pensions.
“Now the taxpayers are paying the price,” he said.
Rehak said his advise to Mayor Brandon Johnson would be to continue funding the pensions. Chicago Teachers Union President Stacy Davis Gates said it is a revenue question that the union needs to address in the State Legislature.
“Brandon Johnson has a very tough job ahead,” said Rehak, who helped campaign for Johnson.
Rehak said CTPF would always hold its breath at the end of the State Legislature Session June 30 when a law could be passed at the last minute that would again allow the City another year to skip paying into the Pension Fund. He said Mayor Rahm Emanuel called him when he was the CTPF President and asked him to stay neutral when he would ask the State for yet another pension holiday. Rehak said no.
He said the Tier 2 Pension System is a bad deal for all the new teachers who were hired after 2011 because they will get a lower pension and have to work until 67. The Chicago Teachers Union Tier 2 Committee (I am a member) is working on correctly this gross injustice to Chicago teachers. Lobbying politicians, informing teachers and fighting to change the law will be on the agenda.
Shortly after taking office, Mayor Brandon Johnson persuaded Fraternal Order of Police President John Catanzara to wait for the Illinois General Assembly to eliminate a two-tier pension system for new and old police officers and firefighters with a promise to tackle the long-standing inequity in the fall, the Sun-Times reported. Catanzara has argued that his members “should only have a one-tier pension plan for all members” and that “a two-tier plan for our newer members with its salary cap and last eight-year requirement must be removed.”
The Firefighters Pension Fund hovers closest to bankruptcy, with assets to cover just 18.8% of liabilities. That’s followed by Municipal Employees (20.7%), Police (21.5%) and Laborers (39.9%).
“They call pensions dumb money,” Rehak said. “They have access to a lot of money. So these private equity guys can go to the Pension Fund for $50 million, where else can they get this money. What happens is when bad things happen, it seems that the banks hold all the good money and Pension Funds hold all the bad money. When I started in 2009, we had lost $175 million in securities lending - where you loan stocks to companies and it works beautiful. CTPF was making about $17 million a year, not much, just in interest. But then when Lehman Brothers went down and crashed, Lehman had all this money loaned out that the (Pension Funds) couldn’t get back, but not the Banks. So the CTPF sued to recover this money from our fiduciary bank Northern Trust and we recovered some of the money. When crashes come we take the hit.”
By law, pension fund money must be invested.
Rehak also explained that there is a flipside to debt.
“It’s good if you own the debt, but if you owe the debt it’s bad,” he said. “The City of Chicago is borrowing money like crazy, (and) there are people making money on that. People need to understand with debt someone is making a big profit on that.”
In other pension news, CTU President Stacy Davis-Gates told Crain’s that delegates will likely introduce a Resolution to address the Ariel and Starbucks anti-union tactics. Melody Hobson is the co-CEO of Ariel Investments and the chairwoman of Starbucks, who Sen. Bernie Saunders said are engaged in “the most aggressive and illegal union-busting campaign in the modern history of our country.”
CTPF Trustees have continued to shield Hobson and Ariel, despite their wicked union-busting director and poor performance managing pension fund money. Past attempts to steer teacher pension money away from Ariel which is connected to the Chicago Machine and boasts a minority status that many CTPF Trustees have defended, have gone down in flames. Teachers should look closely at what the Resolution will say to see if it goes far enough to hold Ariel to account.