So what’s the problem with the New Jersey public pension system? Senate Democrats think they found a scapegoat:
Christie’s philosophy in trying to wade through this financial crisis has been to cast the middle class as villains; their benefits have been too generous and they’re too stubborn to make the necessary sacrifices to make the system solvent. Taxpayers continue to suffer as a result.
But there’s another important component to this problem that the governor and his allies don’t want to talk about. That’s because it goes directly to the heart of the administration’s own dubious financial decisions that have taken a big problem and made it even bigger. In short, state officials may be investing pension funds poorly.
That was the subject of a Senate Legislative Oversight Committee hearing on Thursday amid rising concerns that the state is spending too much for too little return. New Jersey has paid about $600 million in fees to money managers over the past year, compared to $140 million in 2010. That increase has been fueled largely by a growing reliance on alternative investments — real estate and hedge funds, for instance — which require more active management than traditional stocks and bonds.
And that difference is explainable. More money in investment vehicles that charges fees based on the value of those investments* means higher fees.
The argument crops up in Rhode Island where a crowdfunded study found:
Likewise, this forensic investigation into the Employee Retirement System of Rhode Island (“ERSRI”) reveals that investment decisions that were obviously wrong from inception— reckless piloting of public retirement assets into secretive high-risk investments and leakage related to lavishing ever-greater investment fees on Wall Street—are the greatest factors undermining the solvency of the state pension today.
That’s possible but are they really the ‘greatest factors’? Then I read of the next line of the Executive Summary and it all became clear.
Mismanagement and “politicization” of pension investments—not excessive benefits promised to workers—are the chief culprits.
So that’s the shot and the general public is the mark. Excessive benefits are not the problem. Don’t eliminate COLAs. Don’t raise retirement ages. Don’t go 401(k). Don’t make governments put in the real cost of the benefits they are promising. Just rein in Wall Street fees and public pensions will be solvent. That $10 billion annually being paid to New Jersey retirees will be affordable if Wall Street agrees to take $50 million less on the junk they are peddling.
* Since fees on alternative investments are based on asset values and the people who get those fees set the values then what should be under investigation is the accuracy of the values being reported but that would not suit the agenda of politicians who desperately what to believe those assets really exist at those stratospheric levels and their participation in funding these plans can be limited.