North Carolina exemplifies the latter problem. In a new report for the union representing that state's public employees, former Securities and Exchange Commission investigator Ted Siedle documents how secrecy is allowing financial firms to bilk the Teachers' and State Employees' Retirement System, which is the seventh largest public pension fund in America.
The first part of Siedle's report evaluates the secrecy.
"Today, TSERS assets are directly invested in approximately 300 funds and indirectly in hundreds more underlying funds, the names, investment practices, portfolio holdings, investment performances, fees, expenses, regulation, trading and custodian banking arrangements of which are largely unknown to stakeholders, the State Auditor and, indeed, to even the (State) Treasurer and her staff," he reports. "As a result of the lack of transparency and accountability at TSERS, it is virtually impossible for stakeholders to know the answers to questions as fundamental as who is managing the money, what is it invested in and where is it?"
Before you claim this is just a minor problem, consider some numbers. According to Siedle's report, this huge pension system now is authorized to invest up to 35 percent -- or $30 billion -- of its assets in alternatives. Consider, too, that Siedle's report shows that with such a large allocation in these risky alternatives, the fund "has underperformed the average public plan by $6.8 billion."
So what is happening to retirees' money?