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New Jersey’s Pension Fraud Hurts Investors, Taxpayers and Retirees

[Ed. note: New Seminal community member Lee A. Saunders is the Secretary-Treasurer of the American Federation of State, County, and Municipal Employees, AFL-CIO, which represents 1.6 million workers. He was elected at the union’s 39th International Convention in July 2010. Please extend him a warm welcome.]

Last week, the U.S. Securities and Exchange Commission did something it has never done before. It charged the state of New Jersey with fraudulently misleading investors about the health of the state’s pension plan. From 2001 to 2007, the SEC charged, the state gave out false information about the state’s retirement funds. They cooked the books. Now investors, taxpayers and retirees are left to clean up the mess.

Robert Khuzami, Director of the SEC’s Division of Enforcement, said: “The State of New Jersey didn’t give its municipal investors a fair shake, withholding and misrepresenting pertinent information about its financial situation.”

It is not just investors who are not getting a fair shake. Taxpayers and retirees are being abused as well. While the state failed to adequately invest in their retirement funds and misled investors, New Jersey’s public employees faithfully made their payments into the funds. Public employees in the Garden State contribute 5.5 percent of their compensation to their retirement fund, and earn an average annual benefit of $20,349.

Now the state’s policy of underfunding the retirement security of state employees has been exposed. As The Wall Street Journal noted this week: “The problems go back nearly 15 years, to when the then-relatively healthy state decided to borrow $2.8 billion and stick it in its pension funds in lieu of making contributions from tax revenues.”

The state compounded the problem by using accounting gimmicks, giving investors the false impression that everything was fine. And governors from both parties failed to make required payments into the funds. Earlier this year, for example, Governor Chris Christie failed to make the state’s required $3.1 billion payment.

No one should be surprised that New Jersey’s fraud against investors, retirees and taxpayers began with tax giveaways for the rich. Lost revenue from income tax cuts enacted from 1994 through 1996 – under GOP Governor Christine Todd Whitman – totaled $14 billion, and sales tax cuts totaled $10 billion. That’s more than enough to fill the hole in the state’s pension funds.

We have every right to be angry with irresponsible public officials in New Jersey. If anything, they got off the hook easy, with the SEC failing to name names or fine the officials who conducted the fraud. Sadly, other states have been just as irresponsible. Many have lost revenue by passing unwise tax cuts, then underfunded their pension plans and used accounting gimmicks to hide their inadequate investments. Investors, taxpayers and retirees all benefit when there is accountability and transparency in pension funds.

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Lee Saunders

Lee Saunders

Lee Saunders is the President of the American Federation of State, County and Municipal Employees, AFL-CIO, which represents 1.6 million members. He was elected at the union’s 40th International Convention in June 2012.

Saunders was previously elected Secretary-Treasurer at the union’s 39th International Convention in July 2010.

Saunders grew up in a union household in Cleveland, Ohio. This inspired him to join the Ohio Civil Service Employees Association (OCSEA) when he began working for the Ohio Bureau of Employment Services in 1975. His father was a bus driver and a member of the Amalgamated Transit Union. His mother was a community organizer and, after raising two sons, returned to college and became a community college professor and a member of the American Association of University Professors.

Saunders began his career with AFSCME in 1978 as a labor economist. He has served in the capacities of Assistant Director of Research and Collective Bargaining Services, Director of Community Action and Deputy Director of Organizing and Field Services. Saunders also served as Executive Assistant to the President of AFSCME and was responsible for managing what is acknowledged to be one of the most effective political and legislative operations in the history of the American labor movement. AFSCME’s clout in fundraising and member mobilization, and its lobbying expertise are unmatched in the ranks of the AFL-CIO and beyond.

Building on ideas generated by local unions, Saunders has championed AFSCME’s Next Wave initiative to encourage and develop the next generation of union leadership. He has also developed and supported programs that foster diversity and promote increased member participation within the union.

He has served as administrator of a number of AFSCME councils and large local unions across the country. For nearly four years, he served as Administrator of AFSCME District Council 37, New York City’s largest public employee union, representing 125,000 members. In that capacity, he was successful in restoring the fiscal health, integrity and good name of the council and its 56 affiliated local unions.

Saunders serves as a Vice President of the AFL-CIO Executive Council, which guides the daily work of the labor federation. He is an at-large member of the Democratic National Committee, Treasurer of the Leadership Conference on Civil and Human Rights and a member of the Executive Committee of the Congressional Black Caucus Institute’s 21st Century Committee. He also serves on the Board of the National Action Network.

He received a Master of Arts degree from Ohio State University in 1974, a year after earning his Bachelor of Arts degree from Ohio University. In 2002, the College of New Rochelle awarded him an honorary doctorate degree in Humane Letters.

Saunders and his wife Lynne live in Washington, DC, and have two sons, Lee, Jr. and Ryan.

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