Show Us The Money
Imagine that tomorrow you came into a whole great big heaping pile of money. Something really significant like say $10 million. You came by your pile of dough honestly and have decided that you will invest it for your retirement and that of the people at your workplace. Looking for someone who will help you invest your multi-million dollar wad, you walk up to the first investment broker you meet and say:
Excuse me kind sir, but I have this substantial pile of cash that I wish to invest for the benefit of myself and my struggling brothers so that once we are too old to be exploited, we might live a decent life. I am going to give you my pile of cash and ask that you invest it for me. Even though the nature of your trade ought to make be naturally suspicious of you, I will trust you implicitly and assume that you will act, at all times, in my best interest. Even if I come to suspect that I am being hosed, I will question neither your judgment nor your expertise. If you wish to use my funds to build a temple in your own honor, go right ahead. If you'd like to lend it to your needy, greedy or unscrupulous friends, I will understand. If you want to use my money to exploit people just like me the whole world over, hey, go for it. If you'd like to party hardy on my dime, just do it. I will not sit in judgment on the prudence of your investment decisions or on the worthiness of the recipients of my money. I will be a most unobtrusive client, expecting little in the way of communication about my investments. Once in a while, simply send me some indecipherable document that assures me that my moolah is still in your capable hands and that, you are doing something with it and that, upon our retirement, my brothers and I will receive something out of the bargain.
Nobody in his or her right mind would treat their money this way or expect anyone else to, right? Wrong. Millions of working people are asked to do just that and have been for years.
We've had a lot to say about union pension funds on this web site and we're about to say more. Over the past year, we've posted one news item after another about union pension fund scandals, questionable investments of workers hard-earned money and investment schemes that defy seem to benefit everybody except the workers who own the cash. We've asked a lot of questions about how these funds are managed and have encouraged union members to do likewise.
Why can't we just leave well enough alone? Why can't we try harder to believe in the goodness of the wise men investing all those millions and the great corporate gods who benefit from those investments? Because we're not fools and neither are the millions of workers who are expected to make like our trusting friend in the imaginary story above.
Working people who belong to pension plans of some need to take an active role in their plan's governance, administration and investment decisions because it's their money. How that money is managed will determine their quality of life after retirement. In a society where money talks, workers' pension funds are a source of power. There are a lot of people out there looking to make your money work for them.
It's Your Money
The money in your pension plan belongs to you and the other plan members. It does not belong to your employer, your union, the pension plan trustees or anybody else. It's yours, just like the money in your RRSP, your bank account, or any other place you have some stashed. Your employer puts money into the pension plan on your behalf, just like it puts a paycheck into your bank account on your behalf. The people who administer your pension plan do so on your behalf. The people who decide how and where to invest the money in your pension plan do so on your behalf. As a member of a pension plan, you are an investor and should be treated like one by the people who you entrust with managing your wealth.
Liars Figure
One scandal after another is shaking up the business community. Creative accounting, corporate bullshitting, greed, conflict of interest, and corruption - it's all happening and there doesn't seem to be an end in sight. Even corporate cheerleaders are warning that we've only seen the tip of the iceberg and that more of the same is coming. Billions of dollars of workers' pension money is invested in corporations that - to date - have been subject to little in the way of regulation. How big a hit have pension funds taken? This is a partial listing of pension funds that incurred losses as a result of the Enron disaster alone. How much will be lost in the mess lurking just below the tip of the iceberg? We'll probably never know. More so than other investors, working people are in a real catch-22 when it comes to their retirement income. They depend on their pensions plans. To make a decent return, these must be invested in various financial instruments. Some of these (at least) are controlled by unscrupulous people over whom workers have absolutely no control. They can only cross their fingers and hope that the fund managers and investment advisers, in whose judgment they must put their complete faith, know their ass from a hole in the ground.
A Source of Power for the Power Source
There is an enormous amount of money in workers' pension funds. According to the Canadian Labour Congress:
As of March 31, 1997, the assets of trusteed pension plans in Canada amounted to $485 billion. The assets associated with pension plans for union members is not precisely known, but a reasonable guess would be that at least half of the assets would be attributable to benefits of union members. This is a large amount of money by almost any standard. For instance, the assets of trusteed pension plans amount to close to half of annual national income. Between 1996 and 1997, the assets grew by more than half the value of all new securities issued in Canada, including federal government bonds that will provide declining investment opportunities in the years ahead. For the most part, the unions whose members belong to workplace pension plans have little to say about how the pension funds are invested.
This pales in comparison to the U.S.:
Pension funds are now the largest pool of investment capital in the U.S. economy. These funds, now worth more than $4 trillion, represent the savings of millions of working Americans. Pension funds account for 74 percent of net individual savings, over one third of all corporate equities and nearly 40 percent of all corporate bonds. Pension funds hold nearly one third of the total financial assets of the U.S. economy. In 1993 alone, these funds made new investments of between $1 and $1.5 trillion. Pension assets now exceed the assets of commercial banks in the United States, making them a formidable investment tool. (The End of Work, Jeremy Rifkin)
The leverage that this can provide to the investors - the millions of working men and women to whom this money belongs - in a society where money talks, is massive.
Management's claim that gains in productivity ought to go to the investors who risk their capital to create the new technology has no become a potentially potent weapon in the hands of the workers. For, as it turns out, the investors by and large happen to be the workers. It is the deferred savings of millions of American workers that are being nested in the new information technologies...
Unfortunately, workers have little or no say over how their deferred savings are invested. Consequently, for more than forty year, banks and insurance companies have been investing billions of dollars of workers' funds in new laborsaving technologies, only to eliminate the jobs of the very workers whose money is being used. For a long term, pension-fund managers argued that under the government's "prudent man" rule, their only obligation was to maximize the return on the portfolio. In recent years, partially in response to the prodding of organized labor, the deferral government has broadened the concept of the prudent man principle to include investments that promote the overall economic well being of the recipients. For the workers' perspective, it makes little or no sense for portfolio managers to simply maximize the return on pension investments if it means the wholesale elimination of their jobs in the process. Since it is their own hard-earned savings that are being used to advance productivity, American workers have justifiable right to share in that productivity both as investors and as employees. (Rifkin again)
What Rifkin is getting at is that workers have the potential to influence business behavior through their pension investment decisions but, unfortunately, most have no control over this powerful investment tool.
Your Money Hard at Work for Them
It would seem that if any group of workers stood to take control of their investments it would be those who are members of union-trusteed pension plans. With the power of their union behind them, they could take control of investment and administration decisions and put their money to work for them, their families and their communities. But it just isn't so. While some union administered pension plans are undoubtedly managed in a way that is most favorable for their members, some most certainly are not and others, in the very least, beg some pretty big questions.
A few recent examples:
When it comes to union pension fund misadventures the United Association of Plumbers & Pipefitters National Pension Fund is a tough act to follow. To date, the UA's pension fund has poured $800 million dollars into this Florida Hotel. This investment sparked outrage from pension plan members and an investigation by the US Department of Labor which, in the end, reluctantly agreed to let the pouring continue because … so much cash was tied up in it already.
Pension and benefit trust funds affiliated with Local 290 of the Plumbers, Steamfitters and Shipfitters Union in Oregon invested about $40 million with a fly-by-night outfit called Capital Consultants only to see federal regulators seize the firm in September 2000 for running an alleged Ponzi-like scheme. About $29 million of the Plumbers' total was in questionable investments that are either lost or at risk.
Members of six unions sued their fund trustees after the collapse, accusing them of imprudently investing their money. Federal pension law requires trustees to "utilize the care and skill of a prudent expert in selecting and monitoring" their funds' investments and advisors.
Earlier this year, a government-ordered audit found trustees of the Edmonton Pipe Industry Pension Trust Fund pension fund violated regulations, lost cash on bad deals and took trips with their wives at the fund's expense. According to the audit, the trustees "jeopardized the future of the plan" and contravened the Employment Pensions Plan Act and the Income Tax Act.
During the course of the audit, it was discovered that the fund's administrator was the CEO of three golf courses owned by the fund, and several trustees were on the board of directors of companies the fund owns. Auditors discovered that trustees used plan assets as collateral to borrow $14.5 million for a mortgage, and $8 million US for mortgages for two U.S. golf courses.
UA officials weren't in a hurry for members to learn of the results of the audit. Doug Patterson, a member of the United Association of Plumbers and Pipefitters, Local 488, said he had to ask the government for a copy of the audit after the trust fund's officials refused to give it to him.
In the US, six locals of the United Food and Commercial Workers Union are suing the union's International Executive Committee over a whopping $75 million deficit incurred by their pension fund over a one year period in 1998-99. When the suit was filed, executive committee board members promptly voted to indemnify the union's executive committee (International Union president, secretary-treasurer, and three executive vice presidents) who are also administrators of the Pension Plan from any possible financial damages that may occur as a result of the lawsuit.
Here in Canada, questions continue to be asked by members of the UFCW's Canadian Commercial Workers Industry Pension Plan about the plan's investments in seemingly risky hospitality trade businesses, apparent conflicts of interest, a proliferation of investment "entities" used as pipelines for funds from the pension plan and a somewhat distasteful character who has had an enduring relationship with certain CCWIPP officials. The details and the questions can be found elsewhere on this site. Starting in the early 1990's the CCWIPP began pouring millions into financially troubled hotels in exchange for voluntary recognition agreements for their workers. The cash-for-members strategy fell flat, but the money continued to flow.
Workers, who have asked questions about concerns about the solvency of the plan and possible reductions in pension benefits, have not received a lot in the way of answers.
These are just a few of our faves. There are others.
How Not To Get Screwed
An interesting book came out a little while ago. How Companies Lie by Larry Elliott and Richard Schroth talks about why and how liars figure and how investors can tell the difference between a pot of gold and a crock of crap. The book is a good read for any union member who wants a fuller understanding of the mechanics of corporate corruption but also because union members are investors and need to protect and control their investments. Elliott and Scroth advocate greater scrutiny on the part of investors of corporations, their key decision-makers, and their business practices before deciding where to put their money:
Among the more than 14,000 publicly registered companies in the U.S. and the even larger number of privately held companies, there are a class of people who will lie to the public, the regulators, their employees, and anyone else in order to increase personal wealth and power. Investors want to know who the liars are and how to get rid of them. In the very near future, CEO's, boards and key managers will find their records and backgrounds examined as never before.
If this is the advice the business community is giving business people, it would seem that working people should expect the same from the people who they entrust with their money. If they are not getting a warm feeling from the trustees of their pension fund or the fund managers, advisers and administrators, it's time to kick their asses and tell them they'll need to do better. Tell the people who are managing your money that you want a full accounting of:
- Who is involved in investing your money.
- How are these people/firms selected and what is the selection criterion.
- What investment strategies are being used for your money.
- Where your money is being invested.
- To what degree of risk are they exposing your money.
- On balance, who do their investments favor - you or the recipients of your money (don't accept "notional" benefits like "Oh sure the hotel we bought with your cash has made a pile for the owners but down the road there will be something in it for you").
- What rate of return is being realized on specific investments.
- How are potential investments evaluated - what is the evaluation criterion.
- If your pension plan is governed by a board of trustees, ask:
- How is their performance assessed?
- What are they told about their legal and ethical obligations?
- What steps are taken to avoid conflict of interest?
- What information are plan members currently receiving about their investments? If it's not enough, demand more.
- Ask also to be included in the discussion that is occurring among the elite of the labour movement about socially responsible investing.
Be careful of the "enabling myths" behind high-risk investments favored by labour's venture capitalists. In Canada today, about $5 million is sloshing around in Labour Sponsored Investment Funds (LSIF's). These are venture capital funds sponsored by a number of unions. They lend money to small and mid-sized businesses for start up and expansion. The LSIF crowd pants and slobber enthusiastically about job creation and building better communities to rationalize their pouring millions into businesses that are more than your average risk. But for all the panting and slobbering about job creation, there is little hard evidence about just how many jobs have been created or what kinds of jobs have been created. Even less is known about the community-building properties of LSIF's since most do not audit the firms in which they invest for social responsibility. Then there is the whole thorny dilemma about why working people should take responsibility for job creation for businesses that will only shed jobs at the first opportunity. The CAW sums it up;
In reality, however, the LSF industry is the wrong way for the labour movement to become more active in the struggle for a fairer, more productive and efficient economy. The LSF industry entails an acceptance of the same regime of private, self-interested, profit-seeking investment that has so failed our economy and our workers during the 1990s. The LSF industry has created an elaborate and expensive administrative structure, has been incredibly inefficient at channeling taxpayers' dollars into actual investments, and has had far less positive impact on labour markets than we should expect from a program this costly. In the process of supporting this concept, labour has allowed its good name to be attached to a private investment scheme that is dubious at best, and downright corrupt at worst.
It's time to start thinking about your money and how you can get the respect you deserve from the people investing it. If you are part of a union-trusteed pension plan, there is no reason why you and all the other plan members can't be consulted. Don't believe for a minute that it's just too difficult for your trustees to be democratic because there are just too many of you. The technology exists to consult with and poll every single pension plan member about every important aspect of pension plan governance, administration and investment. You're looking at it. Electronic voting is on its way.
We'll have more about using the power of your pension plan for the community of workers in our forthcoming Labour Reformer Day edition.