Teachers union: Wall Street puts the big squeeze on pension funds

A report by the American Federation of Teachers (AFT) says that excessive fees charged by Wall Street fund managers are hurting public pensions funds.

Calling the fees an unfair transfer of wealth from working people to Wall Street, the report recommends that public pension funds renegotiate the fees that fund managers are charging and demand more fee transparency from the managers.

For many years, most public pension funds invested in traditional assets such as bonds and high quality stocks.

But during the last 15 years, pension funds have substantially increased their investments in alternative assets such as private equity funds, hedge funds, real estate, commodities, and derivatives.

The AFT report estimates that 25 percent of public pension investments are now in alternative assets.

Alternative assets have become an attractive investment because they offer higher rates of return.

The problem, according to the AFT report, is that the investment firms managing the alternative asset investments for pension funds charge high and hidden fees that substantially reduce the pension funds’ rate of return on investment.

The report, entitled The Big Squeeze, said Randi Weingarten, AFT’s president, “documents the harm to pension funds and state budgets” done by the oversized and hidden fees of alternative asset fund managers.

One of the oversized fees referred to by Weingarten is a 2 percent fee on managed assets called a performance fee. Fund managers get the fee whether the investment’s performance is good or bad. The other is a 20 percent share of gross profits that fund managers take off the top.

Weingarten said that AFT is working with pension funds to reduce the 2/20 fee structure. Doing so would save billions that could be used to make pension funds stronger.

The Big Squeeze examines 12 large public pension funds that have invested in alternative assets.

Alternative assets have become more popular because the companies that manage them have marketed them as high-return investments.

But the promised higher returns come at a price.

The companies that sell and manage alternative asset investments charge hefty fees for their services.

In addition to the typical 2/20 fee structure, fund managers also charge fees for administration, legal services, and transaction services.

We know that these additional fees mount up over time, but we don’t know by how much because fund managers won’t divulge the amount of the fees. That information, according to managers is proprietary information not for public disclosure.

These hidden fees, which can be substantial, deprive investors of information they need to know.

 

The Big Squeeze recommends that pension funds demand that asset managers fully disclose all their fees and that pension renegotiate the standard 2/20 fee structure.

The report recommends reducing the standard fee structure to 0.9 percent of funds under management and 9 percent of profits.

Had the 0.9/9 fee structure been in place, the 12 pension funds examined in The Big Squeeze would have saved $3.8 billion a year, or $19 billion over five years.

The savings and the return on investment that the savings would have generated would have gone a long way toward securing and fortifying the retirement security for millions of workers.

Some of the pension funds examined in The Big Squeeze are under funded. That is, their assets to liabilities ratio over a 31-year period is below 80 percent.

Right wing critics of defined benefit pensions have jumped on the under funding problem citing it as the main reason that pensions should be eliminated and replaced with less secure retirement savings accounts.

The Big Squeeze argues that reducing alternative asset fees and making them more transparent would return billions to pension funds and put them on a path toward full funding.

Weingarten said that there is evidence to show that cutting excessive fund management fees can help pension funds regain their financial footing.

“By calling out these pernicious practices and working closely with pension trustees and legislative allies, we’ve begun to see fees cut and fee structures for hedge fund and private equity managers exposed,” said Weingarten. “This is a win-win situation—revealing these practices means would-be fees are redirected back into retirement systems to address the so-called under funding of (pensions) and to ensure retirees can get the retirement security they’ve been promised.”

 

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Staples tries to elude effects of boycott; changes name of Mail privatization deal

Staples, one of the largest office supply chains in the US, announced on July 14 that it is ending a privatization pilot program to provide postal services at more than 80 of its stores across the US.

But the American Postal Workers Union (APWU) said that the announcement was a ruse undertaken by the company to reduce the impact of a boycott against Staples organized by APWU.

Staples’ announcement came two days after the American Federation of Teachers (AFT) passed a resolution at its national convention supporting the boycott.

According to Mark Dimondstien, the deal between Staples and United States Postal Service (UPS) has changed names but not purposes. Staples will no longer provide postal services as part of the Approved Postal Services Provider pilot program, but instead will do so under the Approved Postal Shipper program.

“The Staples announcement and a letter from USPS dated July 7 make it clear: They intend to continue to privatize postal retail operations, replace living-wage Postal Service jobs with low-wage Staples jobs, and compromise the safety and security of the mail,” said Mark Dimondstein, APWU president. “This attempt at trickery shows that the “Don’t Buy Staples'” movement is having an effect. We intend to keep up the pressure until Staples gets out of the mail business. The US Mail is not for sale.”

The boycott support resolution passed at the AFT national convention held in Los Angeles criticizes the USPS’ privatization pilot with Staples as a “no-bid, sweetheart deal” that could jeopardize the security of the mail and lead to the replacement of good paying Postal Services jobs with low-wage, high turnover retail jobs.

The resolution also notes that teachers are facing their own fight against the privatization of public education and that “the AFT and postal employees are fighting a common battle against privatization.”

The resolution urges AFT members, their family, and friends “to no longer shop at Staples until further notice.”

According to the Chicago Teachers Union, an AFT affiliate, “teachers have an especially important role to play in this fight. Staples knows that teachers spend billions of dollars at office supply stores each fall and throughout the school year for the benefit of their students.”

During the convention, thousands of teachers attended a support rally for postal employees called by APWU.

The International Association of Fire Fighters has also joined the Staples boycott.

The IAFF announced on July 13 that the union’s executive board unanimously voted to support the boycott.

“The IAFF supports the APWU in its efforts to protect good-paying jobs and ensure the highest possible standards of customer service,” said IAFF General President Harold Schaitberger. “IAFF affiliates, members and families have done a substantial amount of business at Staples. This no-bid contract between Staples and the USPS is an attack on postal workers and middle class jobs, and yet another attempt to shift good union jobs to part-time, low-wage non-union hourly workers.”

Wisconsin judge rules against anti-worker law; unions seek new ways to rebuild union power

A Wisconsin judge recently ordered officials of the state labor relations commission to stop enforcing portions of Article 10, the 2011 law championed by Gov. Scott Walker that curtailed collective bargaining rights for the state’s teachers and other public service workers.

Union members and leaders applauded the ruling, but the state will appeal it. An appeal will eventually be heard by the state’s Supreme Court, which now has a conservative majority.

Meanwhile some unions aren’t waiting on a final ruling; instead, they’re pursuing new strategies to rebuild the union movement among Wisconsin’s public service workers.

Dane County Circuit Judge Juan Colas ruled in 2012 that Article 10 applied only to state employees and not to city, county, and school district employees.

Despite the ruling, the Wisconsin Employment Relations Commission continued to enforce the law, taking away collective bargaining rights of workers as their contracts expired.

The judge on October 21 found commission officials to be in contempt and issued an injunction barring them from decertifying unions representing city, county, and school district employees. The ruling however, does not restore all rights eliminated by Article 10. For instance, it does not restore the right to binding arbitration to settle grievances and other work related issues.

Even before Judge Colas made his ruling, some unions found new ways to blunt the impact of Article 10.

For example, the University of Wisconsin at Madison Teaching Assistants Association (TAA) decided that it would act like a union whether or not the law recognizes its right to exist.

Article 10 as James Cersonsky reports in Salon requires public service unions to win annual representation elections in order to remain legally recognized by an employer.

TAA recognized that such a requirement was meant to sap union resources and keep them from being effective, so the union decided to forego the elections and instead mobilize its members for collective action.

The result was a “Pay Us Back” campaign aimed at raising pay for teaching assistants and project assistants.

Members held grade-ins at administrative offices, lobbied academic departments to support a pay raise, circulated petitions, and organized a mass e-mail campaign.

As a result, UW Madison recently announced a 4.67 percent pay increase for teaching assistants and project assistants, which raises their pay to the same level as research assistants.

“We realize this is a fairness issue and have been in discussions with graduate assistants  for about a year,” said Darrell Bazzell, vice-chancellor for Finance and Administration, to the UW News,

“This is just the start,” said a posting on the TAA website. “We will continue to fight for more take home pay, including seg fee remission. We win when our union is strong, and when we demonstrate our worth and our power on this campus.”

Meanwhile 5,000 workers at the University of Wisconsin Health Center in Madison are using political leverage and a grassroots campaign on the job to ensure that high quality patient care is maintained and workers continue to have a voice on the job after their current contracts expire.

UWHC workers were specifically targeted in Article 10, which means that when current contracts expire, UWHC administration will no longer be required to bargain collectively.

Three unions, AFSCME Council 24, AFT Wisconsin Science Professionals, and SEIU Healthcare Wisconsin, have joined together to form 5,000 Strong, a grassroots campaign aimed at maintaining the workers collective voice on the job.

According to a report by SEIU Wisconsin Healthcare and AFSCME Council 24, collective bargaining in addition to providing fair wages and benefits has given workers a voice in decisions affecting patient care, which has “strengthened the culture of quality care at UWHC.”

5,000 Strong is mobilizing members to assert their collective voice.

Members in July urged the Madison Common Council, the city’s city council, to approve a resolution supporting the recognition of the workers’ unions at UWHC.

On the day that the resolution came up for a vote, union members packed the council’s chambers. Some spoke in support of the resolution.

“The state is trying to impose a radical change on something that has been working very well,” said Willie Backes an AFSCME member and a senior respiratory therapist at UWHC. “They are trying to force an ideology on us and ‘fix’ something that isn’t broken.  This poses a huge threat to quality care and hurts Madison, the region and the entire state.”

Backes noted in is remarks that UWHC has once again been rated Wisconsin’s top hospital.  But that tradition of excellence is in danger if employees are denied a voice on the job. “We think Act 10 was a terrible mistake for everyone,” said Backes. “But it makes absolutely no sense for an independent authority that doesn’t rely on taxpayer support.”

UWHC receives no state revenue.

5,000 Strong in September also won the backing of the Dane County Board of Supervisors.

The goal of the city and county resolutions and 5,000 Strong’s grassroots mobilization is to convince UWHC to”recognize our unions  as the voice of the employees and commit to continue policies embodied in collective bargaining agreements.”

5,000 Strong notes that Dade County recently took action to maintain rights that union members have won through collective bargaining.

I”t’s time for UWHC to do the right thing, said a posting on the 5,000 Strong website. “Work with our unions to give their employees a voice and protection on the job.”

Teachers union report exposes pension double dealing by hedge funds

The American Federation of Teachers on April 19 released a report identifying hedge fund and private equity firms and their managers who appear to be working both sides of the divide between those who want to maintain and strengthen traditional public pension plans and those who want to destroy them.

These asset managers solicit business from public pensions and at the same time contribute to and actively support groups seeking to eliminate public pensions and replace them with individual savings plans such as 401(k) plans.

Randi Weingarten, president of AFT, said that the purpose of the report is to provide information to trustees of public pension plans that they can use when deciding who will assist them in making investment decisions.

“This is about transparency—a right to know,” said Weingarten. “America’s workers and pension trustees deserve to know if the asset managers with whom they are investing their hard-earned retirement savings are also aligned with organizations advocating for the elimination of those same pension plans. With transparency and disclosure,trustees can make informed decisions about the risks their plans face.”

“I have an issue with people thinking they can play both sides,” said Jay Rehak, president of the Chicago Teachers’ Pension Fund to the Wall Street Journal. “They come to us with their hand out, and then they are stabbing us in the back.”

The report, entitled Ranking Asset Managers, lists more than 30 hedge fund and private equity firms with ties to three groups–StudentsFirst, the Show-Me Institute, and the Manhattan Institute–that advocate eliminating public pensions. It also describes the anti-public pension activity of the three named groups.

According to the report, public pension plans have been repeatedly attacked by right-wing think tanks and political committees that receive much of their funding from hedge fund and private equity managers. Some of the same asset managers actively “seek investments from the deferred wages of teachers, firefighters, and other public servants, while attacking their economic interests.”

The report also says that over the last few years, the track record of hedge fund managers has been “uneven” and quotes a passage from the New York Times DealBook blog, which notes that over the last four years, hedge funds have underperformed in relation to the market. “The average hedge fund,” reads DealBook. “gained 6.4 percent last year. . . . By comparison, the Standard & Poors 500 stock index climbed 16 percent when factoring in dividends.”

According to Ranking Asset Managers, the companies on its watch list, which will be updated regularly, have directors or executives who contribute to or sit on the boards of the three anti-pension groups.

In a recent blog post, Matt Taibbi, who writes for Rolling Stone, provides more detail on one of the hedge fund operators identified by Ranking Asset Managers. According to Taibbi, Dan Loeb, founder and CEO of Third Point Capital, is on the board of StudentsFirst New York, “one of the leading advocates pushing for states to abandon defined benefit plans–in favor of defined contribution plans, where benefits are not guaranteed.”

At the same time, Loeb currently manages assets for the Ohio Public Employees Retirement System, the New Jersey State Investment Council, and other public pension plans.

Loeb was scheduled to speak at a recent meeting of the Council of Institutional Investors, a non-profit association of public pension plans, endowments, employee benefit plans, and foundations, where he was presumably going to pitch his services to potential customers.

Loeb, however, canceled his engagement after the teachers union made public his relationship with the anti-public pension group in New York.