Are Liberals The Cause Of Public Pension Fund Problems?

Following up on a tip, I'm left wondering if mostly Democrat politics isn't at the heart of current public pension fund problems. Many of the people controlling those funds seem more interested in using the money as leverage to expand their political interests and power, as opposed to minding the money. They routinely make decisions and even spend money, including on lawsuits, advocating for causes that actually undermine the ultimate value of the funds they manage.

I received an interesting email tip in response to an Instapundit-linked post from yesterday involving Sean Harrigan: Villaraigosa Pension Appointee Resigns. It seems Harrigan and convicted corrupt-ocrat Alan Hevesi were part of a liberal group that founded the National Coalition for Corporate Reform in response to the corporate scandals during the Enron era.

That research led me to this article. Read the whole thing, but I'll give you the meat below. Here's what many public pension fund managers have been doing, along with allegedly managing public pension funds. Keep in mind, as business goes, so go these funds comprised of retirement dollars the taxpayer is ultimately responsible for when the funds fall short, as they often do.

Hevesi led a delegation of heads of public pension funds to the United Nations where he demanded that companies disclose to investors what they intended to do about global warming. Hevesi also directed the state’s pension funds to take the lead in a series of controversial class-action lawsuits against publicly held companies.

The abuse in Hevesi’s office is symptomatic of a growing problem as public employee pension funds housing trillions of dollars in assets become political toys under the control of elected officials or politically appointed boards.

Other cases in Ohio, Illinois and California have similarly focused on kickbacks and extortion among trustees of public pension funds.

In 2003, for instance, the board of advisors of the California’s Public Employees’ Retirement and State Teachers’ Retirement Systems (Calpers), a group composed of state public sector union officials, voted to reduce holdings in companies that run operations for local governments because public officials were turning to these companies during the recession to reduce spending. One could argue that investing in such businesses, not dumping their shares, during a recession makes lots of sense, but Calpers’ decision was motivated by a desire to pressure these businesses and drive down their shares at a time when local governments were looking for ways to outsource work.

Similarly, New York City’s public sector pension fund, whose trustees include two elected officials, stopped making investments several years ago in firms specializing in privatization services because these firms potentially eliminate public sector jobs by allowing governments to outsource work. Thus the fund, composed of taxpayer dollars, was actively working against taxpayers, who benefit when governments reduce costs.

Back in 2004, for instance, Hevesi used the state pension fund’s holdings in Sinclair Broadcast Group to threaten the company as it was about to broadcast a documentary critical of Democratic presidential nominee John Kerry. Hevesi, a Democrat, claimed that Sinclair’s plans to air the documentary would undermine the value of the company’s stock because advertisers might boycott the program.

After reform legislation in 1995 made it more difficult for trial lawyers to file so-called ‘strike’ lawsuits against a corporation when its share price declines, public pension trustees cordially stepped into the game and started partnering with the class-action firms as lead plaintiffs in new rounds of lawsuits. Milberg Weiss, a firm which eventually went out of business after several former partners pled guilty to paying kickbacks, was especially active with its contributions in New York and California. It poured $137,000 into Hevesi’s campaign for New York State comptroller and later represented the state pension fund in a big lawsuit against pharmaceutical giant Bayer.

Nor was Hevesi the only abuser. Louisiana’s teachers pension fund was a serial litigant against big corporations, prompting a federal judge to brand the fund a “professional plaintiff” in one ruling denying it class action status.

Under Hevesi, for instance, New York took the lead in filing third-party lawsuits against financial firms like Citigroup that did business with Enron or WorldCom, claiming the financiers enabled corporate malfeasance. The litigation raised eyebrows because at the time New York was a major shareholder in several big financial firms, with a $1 billion stake in Citicorp, for instance. In the end, this third party litigation cost New York more than it earned because the settlements against the firms hammered the price of stocks that the pension fund owned. But the trial lawyers, who had contributed $121,800 to Hevesi’s campaign, did quite well, earning tens of millions of dollars in fees.

The ultimate solution is to put the investment decisions of public workers in the hands of investment managers selected by the workers themselves, through decentralized 401k-style plans. In such a system, public trustees can only influence the selection of a menu of investment advisers—mutual fund companies, index-fund managers and the like—to serve workers, who would retain individual control over their investments. Such accounts can be designed with limits on risky investments, providing employees with a menu of investment options that made it impossible for workers to place too much of their retirement money in speculative assets, but nonetheless keeps the money in workers’ hands, not trustees.

Comments

[JustOneMan]

And the beat goes on......

Former N.J. Sen. Robert Torricelli is linked to N.Y. pension corruption inquiry
by The Star-Ledger Continuous News Desk
Friday April 24, 2009, 5:01 AM
Former New Jersey Senator and now lobbyist Robert Torricelli was questioned in connection with New York Attorney General Andrew Cuomo's pension corruption investigation, according to a report in The New York Times.

The report said a Torricelli spokesman confirmed he did work from 2005 to 2008 for Searle & Company, a Connecticut investment firm that employed his longtime friend Hank Morris. Morris, a former chief political adviser to New York's former state comptroller Alan Hevesi, was indicted in March on fraud charges.

[Peg C.]

Half of Republicans are corrupt crooks but 100% of Democrats are. Every policy and program they touch is its own moral hazard. Re: pensions, if every pension fund goes bust, what happens? Where are the gazillions of dollars they want to extort from us to pay for every single thing (and every single retiree and future retiree) into perpetuity? What happens when taxes approach 90%? They really think people simply won't just stop working? This is the most ginormous house of cards the gov. has ever built and it is way beyond impossible and obscene. I'm starting to be glad I'm not a youngster. I do not want to see what this country will become in a few decades. I COULD live another 5 decades but why on earth would I or anyone want to? Can this speeding train be stopped or reversed - by anyone? I want to get off.

We need revolution NOW.