Minnesota Pensions Still Hiding Billions In Wall Street Fees
Even after increasing disclosed fees by a staggering 400%, the majority of state pension costs remain unreported. That amounts to billions that could be used to improve teacher retirement benefits.
The expert forensic investigation of Minnesota pensions commissioned by concerned state teachers, released in September 2024, included the finding that the state’s pensions massively underreported billions in investment fees paid to Wall Street over past decades.
Weeks after the release of those damning findings, the pensions quietly (without telling the teachers who brought the misrepresentations to light) increased the amount of disclosed fees paid to Wall Street by an astronomical 400%. The Teacher pension’s disclosed fees alone skyrocketed from $24 million to $105 million. Using TRA’s flawed method of calculating fees, the State Board of Investment’s disclosed fees would jump from $84 million to an estimated $350 million.
In terms of percentages or dollar amounts, that’s quite an error—inexcusable.
Financial Statement “Materiality”
In financial statement audits, a 5% reporting error is considered “material.” That is, the misstatement is significant enough, according to well-established accounting standards, that it may have an effect on financial statement fairness.
Accurate reporting of the explosive growth in and magnitude of the state pensions’ fees could have changed investment decisions made by the pensions over the decades, as well as alerted its stakeholders—had they been told. Instead they were kept in the dark. For decades, Minnesota’s pensions now admit they wildly misstated in their financial statements the outlandish fees they paid for underperformance.
Accurate reporting of the magnitude of the state pensions’ investment fees could have changed decisions made by the pensions over the decades, as well as alerted its stakeholders—had they been told. Instead they were kept in the dark.
400% Excusable Error?
A staggering 400% misstatement should have prompted a statewide outcry. But in Minnesota, there has been no reporting whatsoever of the gargantuan errors and no legislative inquiry. The “material” financial misstatement is seemingly inconsequential and, it seems, no one will be held accountable.
By way of an explanation, i.e., excuse, in a footnote to the Teacher pension’s most-recent financials, the pension states that “historically” (i.e., for decades) it had been “impracticable” to include the total fees on a fiscal year basis. So, the pension knowingly made investments which it could not “practicably” monitor and report to the public, consistent with applicable law. Immediately after exposure of the underreporting in our forensic investigation, suddenly the impossible became possible—doable—done.
Immediately after exposure of the underreporting of pension fees in our forensic investigation, suddenly what had been impossible became possible—doable—done.
Billions Still Unreported
Even after the 400% increase, the majority of state pension investment fees remain unreported. That amounts to billions that could be used to improve teacher retirement benefits.
Minnesota’s Office of Legislative Auditor Remains Silent
Beginning around December 2, 2024, many teachers filed requests for a Special Review with the Office of the Legislative Auditor, attaching the 113-page expert investigation as the “reasonable basis” for such a review. The OLA acknowledged receipt of the requests and responded:
Thank you for contacting the Office of the Legislative Auditor (OLA) with your concerns regarding state pensions. Please allow us time to review the information you provided. OLA leadership and the special reviews team will discuss your complaint and contact you once we have determined what steps, if any, OLA should take regarding your complaint.
After nearly 6 months since OLA’s only response (above) to our initial requests, yesterday I sent the following email to OLA:
Clearly, ample time has elapsed since my request for a Special Review last December, to permit OLA to review my expert findings regarding massive misrepresentations amounting to tens of billions of dollars in state pension financial statements. Indeed, OLA modified TRA's most recent financial statements to indicate a 400% increase in disclosed investment fees, as indicated in my findings--for some reason without informing me, or stakeholders.
Miraculously, disclosure of these additional massive fees, which the TRA financials statements indicate was "impracticable" "historically" over the past decades, suddenly became possible in the weeks following release of my findings. However, the harm to the public is ongoing since, even now, the disclosed investment fees are still substantially understated in both SBI and TRA 2024 financials, as indicated in my findings. Billions in prior decade fees remain unaccounted for. You stated, "OLA leadership and the special reviews team will discuss your complaint and contact you once we have determined what steps, if any, OLA should take regarding your complaint." I have heard nothing from OLA. Given that these pension disclosures almost certainly amount to the largest financial misrepresentations in the history of your state, OLA’s lack of response it especially troubling.
Given that these pension disclosures almost certainly amount to the largest financial misrepresentations in the history of Minnesota, OLA’s lack of response it especially troubling.