State should start investing pension funds in a ‘boring, responsible’ manner - Albuquerque Journal

State should start investing pension funds in a ‘boring, responsible’ manner

Certain influential state legislators, and staff at New Mexico’s pension funds themselves, have recently proposed “fixes” for our pensions. These proposals would result in an effective cut in pay for all active and retired public employees, either by mandating higher employee contributions and/or by cutting cost-of-living-adjustments for retirees.

For public employees in New Mexico, that’s a non-starter. In 2013 we agreed to a series of reforms, including cuts to COLAs and increased contributions, that showed our commitment to shared sacrifice. And with new revelations about the drastic underperformance, and inordinate costs of Wall Street fees, to our pensions, we’re just not prepared to accept any more cuts to our standards of living. Certainly not before we commit to eliminating the over $200 million in fees that our pensions pay to finance the lifestyles of the 0.0001 percent.

That’s why we’ve launched a campaign to protect our pensions. CWA-New Mexico is serious about fighting to protect our pension – we’re not going to let our hard-working members sacrifice more of their hard-earned benefits just because some politicians say so.

The fees are only one part of the story. Gambling on Wall Street has cost our pensions over $4 billion in the past five years. The highly-compensated staff deciding how to invest our pensions have consistently delivered over-priced underperformance that trailed far behind a generic stock/bond index fund. That’s why we hear the oft-repeated mantra that pensions “can’t invest their way out of” underfunding – it’s because the people who actually manage the pensions don’t want the public to pay attention to how they’re not up to the job we’ve hired them to do.

It’s not like they don’t have better examples to look to. The Nevada pension fund pays out a third less in fees, as a percentage of assets, than we do in New Mexico. And their returns have consistently exceeded ours. While the PERA and ERB have over a dozen people managing investments between the two of them, the Nevada fund has just one – despite being larger than PERA and ERB combined.

Apparently investment staffers haven’t heard, but the new, hot trend in investing is actually pretty boring. Recommended by everybody from Warren Buffett to Jack Bogle, the founder of the world’s largest mutual fund, this doctrine advocates just trying to meet the returns of the market, and to have fees as low as possible. Index funds are a snoozefest, but they consistently deliver the best returns, particularly for pension funds with billions of dollars in assets. The question is, do we want exciting, “winner picking,” investment decisions, with exorbitant fees, pay-to-play scandals and under market returns that threaten the future solvency of our funds? Or, do we want boring, responsible investing that will keep our retirements safe?

Here’s why this push to cut the pay and pensions of public employees is so dangerous: The median pension in New Mexico is around $30,000 annually, and the average state worker makes around $40,000, with many making much lower. Public workers and retirees do not make enough money to compensate for the fund’s ongoing losses to over-priced underperformance. Increasing our already high contribution rates, and/or cutting our retirees already low pension benefits, simply would not fix the problem.

Meanwhile, the Wall Street fund managers that charge enormous fees for sub-market returns are living high off the hog. Right now, PERA has over $30 million invested with one hedge fund manager. Paul Singer made his fortune charging astronomical fees to pensions, all the while lobbying against public pensions in his role as chairman of the Manhattan Institute. In 2016 alone, Singer made an astonishing $400 million, which is over 3,000 percent more than the annual cost of our retiree COLAs.

And some of the investments raise real questions. Campaign contributors to Gov. Susana Martinez have received large investments, voted on by Gov. Martinez’s appointees to the ERB board. One of those investments is Enervest, a company which has now made history as one of the first private equity firms to have one of its funds lose literally all of its value.

So today, CWA-New Mexico’s message is clear: NO MORE OVERPRICED UNDERPERFORMANCE! We’re demanding that PERA and the ERB get out of high-fee hedge funds and private equity, and start following Warren Buffett’s sage advice: stop trying to beat the market; instead, focus on reducing costs. Stop giving money hand-over-fist to Wall Street; use the money to shore up the pension fund instead. New Mexico public employees have earned our pensions – and we’ve earned our COLAs, too. We don’t need to pay more into our pensions, instead, we need to stop financing Wall Street’s grifting. We’re asking all New Mexico public employees to let the pension boards know, and to sign our petition, available here.

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