Public Pensions Under Fire

Now that they've destroyed the housing market, Wall Street is taking aim at public pensions.

Wall Street billionaires must be fed, even in these times of austerity. Because their greed is matchless, they've taken aim at public pensions this time, and are bent on consuming them by breaking contracts with workers in order to grab a chunk of their earned retirement security.

David Sirota has written a blockbuster report about how they're aiming at public pensions in all 50 states. It's coordinated, it's intentional, and the sole beneficiaries are Wall Street investment managers and maybe a couple of Texas billionaires who made their billions by looting the pensions of Enron workers. (I'm looking at YOU, John Arnold.)

Matt Taibbi has more:

Here's what this game comes down to. Politicians run for office, promising to deliver law and order, safe and clean streets, and good schools. Then they get elected, and instead of paying for the cops, garbagemen, teachers and firefighters they only just 10 minutes ago promised voters, they intercept taxpayer money allocated for those workers and blow it on other stuff. It's the governmental equivalent of stealing from your kids' college fund to buy lap dances. In Rhode Island, some cities have underfunded pensions for decades. In certain years zero required dollars were contributed to the municipal pension fund. "We'd be fine if they had made all of their contributions," says Stephen T. Day, retired president of the Providence firefighters union. "Instead, after they took all that money, they're saying we're broke. Are you f*cking kidding me?"

There's an arcane but highly disturbing twist to the practice of not paying required contributions into pension funds: The states that engage in this activity may also be committing securities fraud. Why? Because if a city or state hasn't been making its required contributions, and this hasn't been made plain to the ratings agencies, then that same city or state is actually concealing what in effect are massive secret loans and is actually far more broke than it is representing to investors when it goes out into the world and borrows money by issuing bonds.

Another manufactured crisis! In the real world where most of us live, federal law requires employers to properly fund their pension plans and to pay insurance premiums to the Pension Benefit Guaranty Corporation (PBGC) to insure that at least part of employees' pensions are federally insured.

There are two exceptions to that rule. Church and public pensions are exempt from that requirement. It should come as no surprise, then, to discover that both are seriously underfunded. Chron.com reports on church pensions:

A pension is, essentially, a promise. For millions of workers counting on pension checks for retirement security, that promise comes with protections. Even as many companies move to freeze the benefits and eliminate them for younger workers, federal law requires most private employers with pension plans to contribute to them and insure them, in case they fail to honor their obligations.

But as the situation at St. Mary's shows, those protections do not cover all workers or pensions. Because of a legal loophole, there are actually parallel pension systems. One comes with safeguards. The other, while it may be backed by good faith and honorable intentions, has no safety net.

Congress set it up that way by crafting an exemption in benefits law to protect churches from government interference in their finances. But the exemption applies to religiously affiliated employers like hospitals and service agencies, including some that have let pension funds dwindle.

One might forgive charities for sacrificing pensions to help people, I suppose, though I can't resist poking at those conservatives who claim charities can take care of health care rather than the government. Clearly they cannot. But public pensions? That's something entirely different.

Pew Charitable Trusts Partner With Wall Street To Target Public Pensions

David Sirota:

As Taibbi’s Rolling Stone piece and my report documented, Rhode Island is the Democratic template for Arnold’s pension-slashing agenda. There, with the backing of Arnold’s cash and the Pew Charitable Trusts, the state’s Wall Street-funded politicians pled poverty as a justification to slash retiree benefits. Yet, almost all of the $2.3 billion cut to retirees’ cost of living increases didn’t go to saving the state money – most of it was handed over to billionaire hedge fund managers. Meanwhile, despite the pleas of poverty, the Ocean State apparently had so much cash lying around, reformers preserved the state’s$356 million in annual corporate welfare, including a $75 million headline-grabbing giveaway to former Red Sox pitcher Curt Schilling.

Engineering such a huge and successful corporate heist in the Democratic state of Rhode Island, Arnold now appears to be taking his same road show from the smallest state in the nation to one of the biggest economies in the entire world – the Democratic state of California.

It is a bold move that this young billionaire has been planning for a while. As IRS financial reports show, Arnold has already been funneling money to right-wing groups in Californiathat promote plans to slash retiree benefits. PR-wise, the effort has worked – Google “California” and “pension” and inevitably you will be hit with a wave of media sensationalism about how an alleged financial emergency in the Golden State means retiree benefits must be cut (even as far more expensive corporate welfare is preserved). Most of that news coverage doesn’t mention any inconvenient facts that might be debunk the hysteria.

It's an easy formula: States fail to contribute to workers' pensions in difficult economic times but continue to hand out corporate welfare like candy because...jobs. Then they manufacture a crisis where pensions are underfunded and lawmakers set out to cut them, rather than touching any small piece of corporate welfare.

As a final embellishment, an orchestrated campaign is launched to convert public pensions to 401k plans, shifting the retirement savings burden over to the worker and giving Wall Street a huge bonus by pouring all of those worker dollars into investments managed by mutual fund and hedge fund managers. When the market tanks, there's no penalty to the states, counties and cities because they've washed their hands of any obligation to pay into workers' retirement plans.

What's Pew got to do with it? They've partnered with former Enron executive John Arnold to manufacture the crisis. Taibbi:

In 2011, Pew began to align itself with a figure who was decidedly neither centrist nor nonpartisan: 39-year-old John Arnold, whom CNN/Money described (erroneously) as the "second-youngest self-made billionaire in America," after Mark Zuckerberg. Though similar in wealth and youth, Arnold presented the stylistic opposite of Zuckerberg's signature nerd chic: He's a lipless, eager little jerk with the jug-eared face of a Division III women's basketball coach, exactly what you'd expect a former Enron commodities trader to look like. Anyone who has seen the Oscar-winning documentary The Smartest Guys in the Room and remembers those tapes of Enron traders cackling about rigging energy prices on "Grandma Millie" and jamming electricity rates "right up her ass for f*cking $250 a megawatt hour" will have a sense of exactly what Arnold's work environment was like.

Pew and the Arnold Foundation ducked earlier public scrutiny by "partnering" with one another rather than one giving direct grants to the other. But the outcome is the same: Pew and Arnold are lobbying states to cut or eliminate public pensions entirely.

Diminishing Workers' Voice...and Their Lives

Public pension funds have the ability to hold large blocks of corporate stocks within the fund, which gives workers a voice at stockholders' meetings where they make decisions that directly affect workers. If Pew, Arnold, and the rest of the right wing establishment succeed in destroying public pensions, workers' voices will fall silent at these meetings, leaving the decision-making in the hands of the hedge funders and the corporate moguls.

Never mind that these public entities entered into a contractual obligation to fund their workers' pensions, and that those obligations were part of an overall compensation package. Never mind that, because Wall Street wants those dollars and they want to diminish workers' voices and power throughout the country. What better way to erode wages than to exercise their power and tell workers contracts don't matter?

Meanwhile, states show no signs of backing away from the corporate welfare they're giving. From Sirota's full report (PDF):

Rather than acknowledge that truth, Pew and Arnold have successfully manufactured the perception of crisis – which has prompted demands for dramatic action. Pew and Arnold have consequently helped shape those general demands into specific efforts to cut guaranteed retirement income – all while downplaying (or altogether omitting) any discussion of the possibility of raising revenue through, for instance, ending taxpayer-funded corporate subsidies and so-called “tax expenditures.” This deceptive message persists, even though these annual subsidies are typically far larger than the annual pension shortfalls. Indeed, to advocate cuts in retirement benefits, Pew and Arnold cite a 30-year, $1.38 trillion pension gap – a $46 billion annual shortfall.11 Yet, they rarely ever mention that, as The New York Times reports, “states, counties and cities are giving up more than $80 billion each year to companies” in the form of subsidies and tax expenditures.12

Such an insidiously selective message is eerily reminiscent of Margaret Thatcher’s infamous “There Is No Alternative” framing. It suggests that harming millions of middle-class workers is the only way forward – and that states shouldn’t dare consider raising pension-fund revenue by eliminating corporate subsidies. Thanks to Pew, Arnold and other groups, this has now become the dominant argument even though the amount state and local governments now spend on such wasteful handouts is far greater than the pension shortfalls.

Perhaps the most famous illustration of the pervasiveness of this deceptive argument comes from Detroit, Michigan. When the city recently declared bankruptcy, much of the media and political narrative around the fiasco simply assumed that public pension liabilities are the problem. Few noted that both Detroit and the state of Michigan have for years been spending hundreds of millions of dollars on wasteful corporate subsidies.13 Worse, the very same political leaders pleading poverty to demand cuts to municipal pensions were simultaneously promising to spend more than a quarterbillion taxpayer dollars on a professional hockey arena.

Sirota concludes that eliminating corporate subsidies for one year would fully fund all of those underfunded public pension plans. Yet instead, they're banging the drum to kill public pensions altogether and if they don't succeed, we're likely to hear that the reason there are no jobs is because we're not giving corporations enough money in subsidies to justify hiring.

Something is deeply wrong here. We all know it. If money equals speech as the Supreme Court has ruled, then the only speakers in this country will be billionaires, Wall Street, and corporations. That's plutocracy, not democracy.

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