Numerous public pension plans across America are in horrendous shape. The employee plan of the Commonwealth of Puerto Rico, funded at an alleged 7 percent of assets, is functionally broke. Other public plans, like that of Charleston, West Virginia, have 24 percent of the assets needed to meet future promises to retirees.
There is little to no regulatory oversight of public pensions. And what little there is comes in a roundabout way. For example, the sanction that the Securities and Exchange Commission administered to the state of Illinois for not adequately disclosing to bond investors that it was not properly funding its system.
The core of the SEC complaint says:
The state omitted to disclose in preliminary and final official statements material information regarding the structural underfunding of its pension systems and the resulting risks to the state’s financial condition.
So the SEC says to a state, “You were not telling investors, who bought your bonds, all the facts.” And then essentially says, “Don’t do it again.” Of course, the SEC could have fined Illinois, but taxpayers would just foot the bill for this. There must have been dozens of people involved in the preparation of the state’s bond offering documents. Was there a mastermind behind it? Probably not. If there had been, the SEC would have charged that individual as it did in the case of San Diego officials who misrepresented the city’s pension. Those charges were eventually dismissed.
Now all the media is filled will howls of indignation at the SEC for the lame treatment of Illinois. This was capped with Bloomberg’s Jonathan Weil’s piece, “And the SEC Wonders Why Investors Think It’s Spineless.” This is not quite fair. There is some kind of a heist of pension assets taking place in Illinois, but neither the SEC nor any other federal agency has the power do anything about it. Here is why, from the SEC complaint: