New Yorkers will spend nearly $4 billion this year to fund pension benefits for city workers. But all that money isn’t just so these workers can retire in style. Gotham’s taxpayers are also unwittingly funding a well-orchestrated lobbying campaign against Social Security reform.
Actually, lobbying is too polite a word for what some pension-fund trustees are doing. Their tactic is closer to intimidation. Many Americans remain in the dark about what Social Security reform could mean for them—and some pension-fund trustees want to keep it that way. They are using their public-sector investment clout to make sure that Wall Street investment banks and Fortune 500 companies keep their mouths shut on reform.
Three union trustees of the New York City Employees’ Retirement System (NYCERS)—from the local chapters of the American Federation of State, County, and Municipal Employees (AFSCME), the Teamsters, and the Transport Workers Union—recently issued a threat to six top Wall Street firms: if JPMorgan Chase and its competitors support private Social Security accounts, or keep contributing to lobbying groups that do, the letter warned, the firms risk losing the hundreds of millions in fees they earn each year from managing public-pension funds.
“We are gravely concerned that apparent connections between your firm and organizations involved in initiatives that are potentially injurious to the retirement security of plan beneficiaries may be at odds with the duty to represent the best interests of our plan and its beneficiaries,” the three trustees wrote, according to the Wall Street Journal.
AFSCME also sent a separate letter to drug company Pfizer, advising Pfizer to withdraw from a trade group that supports Social Security reform. “We’ve concluded that a pro-privatization position would represent a poor business decision that would damage the reputation of your company,” AFSCME president Gerald McEntee told Pfizer executives.
It’s a free country—and unions should be free to raise money from their members to advocate for a political cause. But the unions don’t want to argue this one on the merits. They want to shut down the national debate before it really begins.
The unions might succeed. Through their representation on public-pension funds across the nation, they help to control $2.3 trillion in investment assets—the largest single special-interest bloc of money in the American capital markets. Public-pension assets have grown sevenfold in 20 years, while private-pension fund assets have crept up more slowly, to $4.2 trillion—only about twice as big as the public funds, compared to three times as big two decades ago. (NYCERS alone controls $85 billion in investments.)
The public pension funds have long used their clout within corporate America to lobby for union causes: in the past decade, pension funds have fought the outsourcing of jobs to cheap-labor nations and have fought for “a living wage” standard worldwide—a global minimum wage, in other words. Closer to home, they’ve fought privatization efforts: NYCERS has adopted a rule that prohibits private-equity investments in companies that provide private-sector services that could “have the potential of eliminating public-sector jobs.”
But a push against Social Security reform could be the funds’ biggest effort ever—because Social Security reform threatens their very existence. Bush’s reform plan hinges on convincing Americans that they should control their own retirement accounts—not be dependent on a monthly government payout for whole decades of their lives. (NYCERS as a whole hasn’t taken a public position on Social Security reform. But California’s main public-employee pension fund, CalPERS, is against private accounts.)
If Bush can convince Americans of this, the public pension funds, and the unions, will lose much of their clout, because such reform might persuade taxpayers that in a world where most workers have 401(k) defined-contribution pension accounts—and where even Social Security has a defined-contribution element—there is no reason for public-sector employees alone to have rich defined-benefit pensions, guaranteed by taxpayers regardless of how the markets perform. It could even dawn on public-sector workers in New York and California that, since their future benefits are contingent upon future politicans keeping promises made by elected officials today, they would be safer accepting a defined-contribution pension plan now—doing away with the need for the pension trustees.
Already, California governor Arnold Schwarzenegger argues that the state switch its $300 billion pension system to a system of private accounts, similar to private sector 401(k)s. This is partly to protect government workers from future benefit cuts—and partly to protect taxpayers. Right now, taxpayers must make up any shortfalls in the public pension funds, so during bear markets, municipal governments must raise taxes or cut services to cover mushrooming costs. In California, taxpayers must pony up nearly $3 billion this year to help make up $20 billion in pension-fund losses suffered in 2001 and 2002.
Just when Americans would benefit from a no-holds-barred argument on Social Security, those taxpayers in California and New York can observe that their billions in annual payments to the pension funds are enabling the unions to muzzle a debate about the nation’s future.