GoLocalProv | Your State Pension Is Not Fully Protected Under Law

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Thursday, 09.09.2021

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Ted Siedle PHOTO: Siedle

State and local pension funds assure workers and retirees that they enjoy the same protection as the comprehensive federal law that ERISA provides for business plans. That’s just not true. Don’t rely on state laws to protect your retirement benefits.

It has been said that the law is a blunt instrument incapable of dealing with all shades and circumstances, with little or no regard for individual situations.
Pension management is doubly complex because it is equal parts law and investment. Typically, those who are familiar with pension law lack investment expertise and vice versa. Lawyers, judges, and regulators rarely understand investment theories, strategies, and practices well enough to sort through the nonsense and make informed decisions. You are regularly misled by savvy Wall Streeters looking to sell sticky financial products. Even well-meaning investment professionals rarely grasp nuances that can have serious legal ramifications.

Here, too, pension overseers are often the most clueless about pension law and investment.

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In addition, the world of investing is fluid – it is constantly changing. Every few years new investment products and practices emerge and old investments come back into fashion. The law moves slowly – the law cannot and may not provide clear and timely answers to all pension management issues.

Derivatives? Bitcoin?

Even where the most comprehensive legal and regulatory framework exists and the answers are crystal clear, your pension is at risk because the law is not enforced or monitored. I teach US Department of Labor pension auditors. As trained and committed as they are, they are hopelessly inferior to the investment industry. Wall Street revolves around regulators charged with enforcing pension laws.

However, the vast majority of pensions are not subject to any comprehensive law.

For example, as difficult as it is to believe, explain, or justify, US pensions of roughly $ 4 trillion are not protected by any comprehensive federal or state law.

The Employee Retirement Income Security Act of 1974 (ERISA), the federal law that sets minimum standards for retirement plans in the private sector, does not apply to state pensions.

ERISA was established to protect the interests of benefit plan beneficiaries and their beneficiaries by requiring the disclosure of financial and other information about the plan to beneficiaries; Establishing standards of conduct for plan trustees; and providing appropriate legal remedies and access to federal courts.

Because ERISA does not apply, none of the above safeguards apply to U.S. state and local government pensions.

In addition, both investment managers tasked with managing public retirement assets and public pensions themselves are often confused about which legal standards apply.

For example, my forensic investigation of the Jacksonville Police and Fire Pension Fund in 2015 found that while the urban pension was not subject to the Federal Pension Act (ERISA) because it voluntarily adopted the highest ERISA legal standards and then failed to enforce those standards, violations can be personal be held liable for all ERISA fiduciary violations. In short, this non-ERISA government pension was voluntarily administered by ERISA, much to everyone’s confusion.

So if ERISA doesn’t cover state and local pensions in America, what law does it?

There is no such thing as a comprehensive law. Public pensions are governed by a thin patchwork of state and local laws. Many of the key questions related to the administration of state and local pensions remain unanswered in these statutes. Anything that isn’t clearly illegal under applicable law can likely get away with it.

For example, another study of a state pension I conducted found that while the pension prohibited investment in hedge funds under local law, the pension had secured a distorted legal opinion by a local company that investing in a trust was exclusive invested in hedge funds was permitted.

Investing in a fund that invested exclusively in hedge funds wasn’t investing in a hedge fund – got it?

The pensioners were obviously keen to gamble in hedge funds. Some Wall Street Huckster had sold them for a complex hedge fund investment they neither understood nor selected. The guards didn’t want the law to get in their way. They didn’t break the law directly – they just bent it in their direction.

Another problem with state and local pensions in the United States is that no state or state regulator or law enforcement agency oversees or oversees these plans. Crooks needn’t worry that the FBI – the DOL or the FBI – is after them, and even the attorneys-general are reluctant to interfere in public pensions matters for political reasons.

In both Rhode Island and North Carolina, for example, my forensic investigations revealed billions in the looting of government pensions, the largest financial crimes in the history of those states. My clients and I have reported these results to both the FBI and the Attorneys General.

In Rhode Island, then Attorney General Kilmartin replied that his office had “limited investigative powers” and “failed to investigate issues related to the solvency of the pension fund.” Imagine that the state’s chief constable who claimed on his website “to fight to improve the economic security of Rhode Island and to restore public trust in the state government by fighting corruption” – did not have the authority to to delve into a multi-billion dollar robbery.

“If you have general questions about the fund’s solvency, contact the pension,” said Kilmartin. “If your complaint concerns an allegation of criminal misconduct, you should contact the Rhode Island State Police or your local police department.”

Local police to investigate multi-billion dollar complex financial crime?
With all due respect, Kilmartin’s office had nothing more important to do than investigate allegations of misconduct related to Rhode Island’s largest pot of money – billions in the underfunded pension that thousands of government employees rely on for their old-age pensions.

In conclusion, to protect your retirement plan, you need to have some knowledge of the law that governs your retirement – strengths and weaknesses. While American pension laws are often viewed as the most comprehensive, as we’ve seen, there are significant loopholes – like the ERISA federal law that doesn’t cover public pensions – and oversight and enforcement by regulators and law enforcement agencies is hardly foolproof.

Many overseas countries do not have the regulatory and financial capacity to fully ensure the integrity and solvency of overseas pensions.

However, as retirees around the world take an active role in reviewing their pensions, asking in-depth questions, identifying irregularities, crowdfunding investigations, and sharing whatever they discover with regulators and law enforcement agencies, regulators and law enforcement agencies will become more familiar and likely with pension matters to make pension protection a priority.

Ted Siedle: I have been called “the Sam Spade of Money Management”, “the Treasurer” and “the Rent Detective”. Born Edward Ahmed Hamilton Siedle, grew up in Trinidad, Venezuela, Panama, Peru, England, Uganda, Egypt and the USA. I am a former SEC attorney, former legal advisor, and director of compliance at Putnam Investments. I owned securities trading and investment banks for over 20 years. My firm, Benchmark Financial Services, Inc., pioneered over $ 1 trillion in forensic research into the money management industry. I am a nationally recognized expert on pension and wealth management issues, and have testified before the Senate Banking Committee and as an expert on various Madoff and other legal disputes. I’m an active member of the Florida Bar. In 2017, I received the largest SEC whistleblower award in history ($ 48 million) and in 2018 the largest CFTC award in history ($ 30 million).

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