In mid-June I was transferring a portion of my Prudential San Francisco Employees’ Deferred Comp account to another institution when I stumbled upon something I had overlooked: Prudential has never issued me, nor the other 25,000+ San Francisco public employees, individual account numbers. Prudential instead uses participants’ social security numbers as the sole point of reference, which increases the vulnerability of San Francisco city employees’ to identity theft.
And, when Prudential’s contract is up for renewal next year, San Francisco city employees will again be corralled into a fresh, overly-complex life insurance annuity — probably another one without account numbers. It sure seems suspect that the crew with no members having passed the life insurance exam,when selecting investment vehicles for city employees, only fish in the small life insurance annuity pond, instead of the ocean of other investment companies.”
The financial website, Investopedia’s perspective on account numbers is:
“At one time, it was common to use a Social Security number as the primary identifier. Because of the proliferation of identity theft, however, this practice has been all but eradicated. It is not a good idea to use a Social Security number for any type of account, or as a user name or password for electronic identification.”
So if the practice of using social security numbers in lieu of account numbers has been eradicated, why is Prudential so far behind the times? Prudential probably wants to save the costs of this extra step.
The irony is that Prudential takes the unnecessary step of converting every San Francisco employee’s purchase of mutual fund shares into a secondary fictitious share price, unique to Prudential a second set of books. Prudential can spend money to keep two sets of books that confuse investors, but cannot spend money to create a secondary point of reference — like an account number — to protect investors.
Contrast Prudential’s behavior to your typical credit union. When I access my credit union account from my computer, I need to have a pass code texted to my phone. This ensures that two of my devices have to be stolen before my account can be compromised. This extra hurdle is burdensome, but it conveys to me that my credit union is looking out for my interests — unlike Prudential and the San Francisco Employees’ Retirement System (SFERS). Why can a credit union pay for dual sign-ins, while Prudential — which has an asset base 1,000 times larger — can’t afford to simply create unique investor account numbers?
Prudential’s response will be that their representatives ask security questions to mitigate identity theft. This is not a true safeguard against identity theft. With the proliferation of social media (Facebook, Linked-In, etc.,) identity thieves will have absolutely no problem answering the two screening questions Prudential asks customers: What is your birth date and what is your zip code?
Not creating account numbers also supports my narrative that Prudential does not invest city employees’ money in the investment options to which Prudential claims. It is suspicious that SFERS’ contract allows Prudential to ignore city employees’ investment instructions to invest in a Golden State Warriors’ mutual fund, and instead put that investment in an inept San Francisco Giants’ mutual fund. For the city employees, the performance of the Warriors’ fund shows on their statement, while their money is actually invested in the Giants. If Prudential were truly transferring city employees’ money to American, Fidelity, T. Rowe Price, and Vanguard ¾ the Warriors-type mutual funds — an account statement would exist at those mutual fund companies titled to SFERS. Public record requests to SFERS have confirmed that no such account exists. By not issuing account numbers, Prudential has increased the difficulty of following the money trail to where Prudential has actually invested San Francisco city employees’ money.
The San Francisco Civil Grand Jury recently released a report on SFERS’ other $20+ billion pension, the one that is funded to a 77.6% level. The report recommended that a public oversight committee be formed to monitor the large pension fund, and the new committee’s members should possess experience in “life insurance.”
Considering that the Civil Grand Jury is recommending committee members have experience in life insurance, it would be interesting to see which SFERS administrators have life insurance experience that could be applied to decisions on deferred comp. After all, SFERS has churned its deferred comp plan through five different life insurance companies over the last 20 years.
It turns out that, per the California Department of Insurance website, neither SFERS’ Chief Investment Officer, Bill Coaker, who was the City’s highest-paid public employee at $512,485 in the year ending June 2016; its Executive Director; its Deputy Executive Director; its Deferred Comp Plan Manager; its chairman of the Deferred Comp Committee; nor its entire seven-member Retirement Board of Trustees have passed the insurance exam (by the way, I did pass that exam).
SFERS is never going to address, or respond to, the numerous red flags I have raised in the Westside Observer about Prudential’s deferred comp annuity over the past year. Executive Director Jay Huish still has not answered the three questions I posed to him in November 2016. And, when Prudential’s contract is up for renewal next year, San Francisco city employees will again be corralled into a fresh, overly-complex life insurance annuity ¾ probably another one without account numbers. It sure seems suspect that the crew with no members having passed the life insurance exam, when selecting investment vehicles for city employees, only fish in the small life insurance annuity pond, instead of the ocean of other investment companies. If the deferred comp plan is churned to another company that also uses social security numbers rather than account numbers, city employees will remain at identity theft risk.
I purposely misspelled “Identity” in the title of this article. It’s my effort to try to be informative to readers, without attracting hackers’ searches. After all, someone has to watch city employees’ backs.
Lou is a CPA living in the West Portal area. He has an MBA in Tax and worked for a Big Four firm and investment companies before his 20-year career with SFPD. He can be contacted at: [email protected]