Survey shows strong support for public workers

The results of a recent survey commissioned by the Pew Center on the States are quite surprising.

An overwhelming majority of the voters surveyed have favorable views of public service workers, and a solid majority have favorable views of their unions.

Also, two out of three people queried about the health of public pensions responded that there were either no problems with them or that the problems were minor.

The results are surprising because during the last decade the discourse on public pensions has been dominated by those who have exaggerated the problems of  public pensions and demonized public services workers and their unions.

But the survey results also suggest that voters can be swayed to support cuts to or the elimination of public pensions if the message for doing so if framed in the right way.

David Sirota, who broke the story about Pew’s survey in Salon, said that the survey’s results show that “the American public is powerfully rejecting the right’s anti-public-worker crusade.”

The survey was conducted by the Mellman Group, which usually works for Democratic candidates, and Public Opinion Strategies, which usually works for Republican candidates. They surveyed 1,000 voters and found that

  • 93 percent have favorable views of teachers,
  • 92 percent have favorable views of firefighters and police, and
  • 74 percent have favorable views of state employees.

Moreover, 57 percent have favorable views of teachers’ unions, 53 percent have favorable views of state employees’ unions, and only one-quarter think that public pension benefits are too high and only one-third think that there were major problems with public pensions.

“The overarching takeaway from these numbers is pretty straightforward,” writes Sirota. “The political class’ assumptions about the politics of public employees, budgets and pensions are way off the mark,” and Americans haven’t been persuaded by propaganda that demonizes public employees and their pensions.

However, cautions Sirota, these results won’t stop those who want to reduce or eliminate public pensions from pursuing their quest.

And, in fact, some other responses to the survey suggest that voters could be swayed to support public pension cuts or their elimination if the message for doing so can be properly framed.

For example, 81 percent agreed that financial sustainability should be one of the top goals for public pension systems and 71 percent agreed that providing public employees a secure retirement was important. Sixty-five percent had a favorable view of cash balance retirement plans,  a defined contribution plan with features of a defined benefit plan.

Recently, supporters of cutting or eliminating public pensions succeeded in Kentucky by arguing that replacing the state’s defined benefit pension plan with a cash balance plan would make public pensions sustainable and provide retirement security.

Pew, which in partnership with former Enron executive John Arnold, has been urging pension cuts and the elimination of defined benefit pension plans under the banner of “pension reform,” points to Kentucky as a model for successful pension reform.

Kentucky for years made a mistake that a few other public pensions have made: it gave cost of living raises without  funding them, leaving the pension seriously under funded

To deal with the problem, the legislature and governor agreed to a bi-partisan solution that among other things barred new hires from enrolling in the state’s defined benefit pension and moved them into a cash balance plan.

According to Pew, “Kentucky’s cash balance plan provides workers with the opportunity to reach a secure retirement” and along with other changes puts the state’s retirement system on a path toward financial sustainability.

What Pew failed to mention is that workers enrolled in the cash balance plan will end up with a smaller pension benefit because the benefit amount is based on a career long salary average rather than an average of an employee’s highest earning years.

In her book Retirement Heist, Ellen Schultz writes that some corporations in the 1990s converted their employees’ defined benefit pension to a cash balance plan to disguise pension reductions.

One company, Cigna a health care insurer, sent employees a fact sheet emphasizing some of the same points as Pew did a decade and a half later.

According to Cigna’s fact sheet, the cash balance plan would deliver a secure retirement and meet the needs of a more mobile workforce while making the company more competitive.

What Cigna didn’t tell employees was that their cash balance benefit would be less than their defined benefit, a fact that was common knowledge among those advocating cash balance plans.

Schultz in her book reported the following exchange at a 1998 panel entitled “Introduction to Cash Balance/Pension Equity Plans” put on by consulting companies that helped corporations convert defined benefit plans to cash balance plans:

“It is not until they are ready to retire that they understand how little they are actually getting (from cash balance plans),” said (an actuary from) Watson Wyatt (a pension consulting company). That got a good laugh from the audience, as did the response by a fellow panelist. “Right, but they’re happy while they’re employed. . . You switch to a cash balance plan where people are probably getting smaller benefits, at least the older, longer service people; but they are really happy, and they think you are great for doing it.” More laughter.


Sweden’s pension funds drop Walmart investments; Portland suspends further investments

Citing Walmart’s systemic abuse of workers’ rights, four state-managed Swedish public pension funds became the latest in a growing number of public pension funds divesting themselves of Walmart stocks and bonds.

Prior to the divestment decision, Handels, the Swedish union of retail workers, wrote a letter requesting a review of the funds’ Walmart investments to determine whether they matched the funds’ social responsibility goals.

“It’s a welcome and wise decision,” said Lars-Anders Häggström, head of  Handels to The Local, “Our union members have expressed astonishment when they found out their pension savings were invested in Walmart. If we influenced the AP Funds’ decision today, we are of course delighted.”

Closer to home, the Portland, Oregon City Council has voted to stop investing in Walmart at least until the end of 2014. City Commissioner Steve Novick said that the city council took the action because of the retail giant’s “voluminous” record of poor corporate  behavior.

Sweden’s public pensions, known as the AP Fund, are an amalgamation of six different funds worth a total of $140 billion. Four of those funds had invested in Walmart.

The AP Fund has an Ethical Council whose mission is to ensure that  the funds invest in companies that act responsibly toward the larger community.

In its letter to the Ethical Council, Handels said that Walmart had stifled employee efforts to improve their working conditions through organizing and collective action.  Walmart’s interference, according to Handels, is a violation of the workers’ right to freedom of assembly and association established by the  United Nation’s International Labor Organization.

Walmart recently fired workers like Carlton Smith of Los Angeles and Colby Harris of Dallas for participating in legal unfair labor practices strikes and for organizing fellow workers. Smith and Harris are both members of OUR Walmart, a group of Walmart associates organizing for change on the job. Other members of OUR Walmart have also been fired or disciplined for trying to improve working conditions and for speaking out for change.

The Ethical Council had opened a dialogue with Walmart in an attempt to find common ground that would allow the funds to continue to hold investments in the company, but after extensive talks, the council reported to the funds’ managers that “Walmart continues to fall short of (the) dialogue(‘s) objectives.”

“We welcome this important decision by Sweden’s pension funds, and the work of our affiliate union, Handels, in making it happen,” said Phillip Jennings, the general secretary of UNI, a worldwide confederation of commercial worker unions. “This is yet more evidence that Walmart values its profits over the human rights of its own workforce.

“The world’s pension funds are deserting Walmart in droves, and rightly so,” added Jennings. “It is about time the company showed the sort of responsibility that should come with being the world’s biggest employer.”

In 2006, the Norwegian Government Pension Fund, which at the time was worth $240 billion, divested itself of Walmart of  $400 million worth of the company’s stock. According to Stacy Mitchell, writing for the Institute for Local Self Reliance, the Norwegian decision was based on a report by its own ethical council.

After examining Walmart’s practices in North America, El Salvador, Nicaragua, and China, the council concluded that  continuing to invest in Walmart would make the fund complicit “in serious, systematic or gross violations of norms” including the forcing employees to work overtime without compensation, discrimination against women,  hazardous working conditions, and “aggressive anti-union tactics.”

In June 2013, PGGM NV, which manages the public pension fund in the Netherlands, added Walmart to its exclusion list and dropped its $183 million investment in Walmart from its portfolio because the company would not address PGGM’s concerns about Walmart’s poor labor relations.

According to a PGGM press release, “The policy pursued by Walmart in the US restricts employees’ opportunities to organize themselves in trade unions. This is not only contrary to fundamental principles and rights at work (ILO), but also contrary to the codes Walmart has compiled for its own suppliers.”

In Portland, the City Council voted unanimously on October 2 to temporarily cease investing in Walmart.

Commissioner Novick, who proposed the investment ban, cited the company’s bribery of Mexican leaders, its aggressive anti-union actions, and its decision to reduce health insurance benefits for employees.

The city, however, did not divest itself of Walmart investments.  In fact In September, it purchased $20 million worth of Walmart bonds.

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.

Texas pension hearings make the case for maintaining public pensions

A Texas House committee recently wrapped up its hearing on design changes to the state’s public pensions. Expert testimony during the two-day hearing agreed that traditional defined benefit pension plans are the most cost-effective way to provide retirement security to public employees throughout the state, including teachers, state employees, and local government employees.

The hearings were held in response to demands by right wing special interest groups that Texas eliminate public pensions for public sector workers and replace them with 401(k)-type defined contribution savings plans.

“What we heard from all the experts was that traditional defined benefit plans are a much better deal for both public workers and taxpayers,” said Derrick Osobase, political director of the Texas State Employees Union. “The facts are on our side. Now we need to organize and mobilize like never before to get more state and university workers involved in the effort to educate lawmakers with the facts. These same lawmakers need to know that there is a well-organized constituency that will fight like hell to protect public pensions.”

One of the experts testifying at the hearing was Christopher Hanson, executive director of the Texas Pension Review Board, which oversees Texas’ public pension plans.

Hanson based much of his testimony on a report recently completed by the Pension Review Board entitled A Review of Defined Benefit, Defined Contribution, and Alternative Retirement Plans.

Committee Chair Rep. Vicki Truitt said that the report is an excellent source of information about pensions and possible alternatives.

One of the points made by Hanson was that converting to a defined contribution plan will not eliminate or reduce pension funds’ unfunded liability; in fact, doing so will increase unfunded liabilities.

An unfunded liability is the difference between a pension fund’s assets and its liabilities estimated over a 31-year period. The unfunded liability for the Texas Teacher Retirement System (TRS) is $24 billion; for the state Employee Retirement System (ERS), it’s $5 billion. These are the state’s two biggest pension plans.

Prior to 2002, both funds had no unfunded liability, but legislators’ decision to reduce state pension contributions and two big stock market downturns created the unfunded liability.

Opponents of public pensions, such as Houston millionaire Bill King and the Texas Public Policy Foundation, seized on the unfunded liability to argue that Texas state and local governments could no longer afford to fund public pensions and must replace them with defined contribution plans.

Hanson, in his testimony, said that doing so would increase the unfunded liability and increase taxpayer risk. He pointed to the experience of Michigan, which closed its defined benefit plan to new hires in 1997.

At the time the pension plan was closed, Michigan’s funding ratio was 109 percent. In other words, it had 9 percent more assets than it needed to pay off its 31-year liability.

In 2011, the fund’s funded ratio had dropped to 72.6 percent, and the state’s contribution to the pension plan nearly doubled from $229.5 million in 1997 to $442.9 million in 2011. This deficit will continue to grow for some time.

Seth Hutchinson, Texas State Employees Union organizing coordinator, pointed out that reports by both TRS and ERS show that switching to defined contributions will either require more state retirement contributions or reduce benefits or, possibly, both.

“Reduced benefits will endanger the retirement security of both current and future retirees,” Hutchinson said.

Hutchinson said that the ERS and TRS defined benefit pension provide a modest benefit, on average $1,551 a month for state employees and about $1,900 a month for teachers, who for the most part do not receive Social Security. Neither of the plans has provided a cost-of-living increase since 2001.

The state could address ERS’ unfunded liability by a slightly increasing the state’s contribution. “Currently, the state contribution to the ERS retirement plan is less than one-half of 1 percent of the state budget,” Hutchinson said. “Increasing the state’s contribution by $259 million would eliminate the unfunded liability. The increased funding would increase the budget share of ERS pension contributions to just 0.065 percent.

“Converting to defined contribution plan,” Hutchinson said. “Will not reduce or eliminate the unfunded liability, could cost taxpayers more money, and could result in reduced benefits. That’s a bad deal for retirees, employees, and taxpayers.”