We have to stop letting conservatives get away with the line that state and local governments, as well as corporations, are in trouble with their employee retirement plans because greedy employee unions extracted promises from their employers that they could not keep. That's a deflection from the real issue: conservative policies that have allowed Wall Street moguls to strip retirement funds like locusts swarming a grassy plain.
The deflection is getting increasingly dangerous because Wall Street is quickly reverting to its old, wealth-destroying ways, with the promise of support from conservatives in Congress who pledge to roll back the financial sector reforms passed this year before they've had a chance to take root.
William S. Lerach, the former lawyer and shareholder advocate, is now giving talks based on his new report, "America's Broken Retirement Plans and Pension Systems—Another Gift From Wall Street," which reveals that the roots of today's retirement crisis lie in bankrupt conservative ideology and Wall Street greed.
The result, as he notes in this presentation, is that public pension plans are as much as $3 trillion short of what they need to pay future benefits, and corporate retirement plans are about $400 billion short. That corporate figure would likely be much higher had it not been for the decades-long mass exodus of businesses away from pensions to 401(k) plans, shifting risk and responsibility from corporations to individual workers. Of course, workers with 401(k) plans have seen their savings eviscerated by the Wall Street crash, to the tune of $2 trillion, Lerach says.
The stories that conservatives like to hype of hefty public-sector retirement packages occasionally won by employees who successfully game the pension system reflect, as he says, "an excess that must be addressed." He quickly adds:
But, before condemning workers, remember…Corporate executives have been pocketing giant salaries and bonuses for decades. And, on top of that many corporate executives gave themselves huge specially funded pensions, structured so as to not be voided or cut back by bankruptcy like worker pensions are. Remember as well, generous pensions for public employees were promised as a trade-off for lower wages – something corporate executives know nothing about.
Let’s place the fault where it really belongs—the real responsibility for this disaster rests with Wall Street.
Lerach points out that it was Wall Street fund managers who coaxed pension funds to bet heavily on corporate stocks rather than on bonds and other more conservative investments—with the fund managers taking a cut of every stock sale—based on the sales pitch that the stocks they were promoting would outperform the market and the fund would not lose. Of course, we now painfully know, in Lerach's words, "This conventional wisdom was neat and very profitable for Wall Street. And it was completely wrong!"
Yet, Wall Street fund managers, like addicts released too early from a treatment program, are rushing back into their old patterns, now telling funds they have to go back into equities to make up for the losses they experienced from their last foray into equities.
Pension fund trustees – fiduciaries are still relying on Wall Street money managers – and are taking even greater risks. “Double-up to catch up.” “Reaching for yield.” - Going to Vegas. They are playing right into the hands of the avaricious bankers, who having put them in equities and other exotic investments that blew up – are now only too happy to put them into even riskier investments to try to make up for losses. More Private equity. More hedge funds. Commodities. Even buying “toxic waste” from the banks. You can always create greater returns from greater risks -- for a while. But, these kinds of strategies have produced huge losses before – and they likely will again.
Lerach proposes some policy solutions, including
- Prohibiting Wall Street money managers from speculating with workers’ retirement savings.
- Creating a new, inflation-indexed U.S. Treasury retirement-plan bond with staggered maturities of between five to 25 years, that must be held to maturity and can only be purchased by qualified retirement plans. Yields could be set at about 6 percent to 7 percent.
- After a transition period, requiring 70% of all pension retirement plan assets to be put into these U.S. Treasury retirement-plan bonds.
"This restructuring of retirement plan investment portfolios will provide safe, low cost returns to
funds and stop Wall Street speculation with the life savings of workers, And this will also help finance the huge federal deficit we face. At least the interest payments on these bonds that will be paid by U.S. taxpayers will go to support U.S. retirees – not China and other foreign governments," Lerach writes.
"It’s a simple, elegant solution," Lerach concludes, "but Wall Street and the politicians they control will never permit it."
What the public can do is force a debate that holds Wall Street accountable and continues the press for reform rather than allowing conservatives and Wall Street to destroy your retirement, while telling you that it's your greed, not theirs, that's the problem.