Who Benefits from Benefits?

Benefits and pensions are undoubtedly a complicated subject. In the “public sector,” they’ve also become a rather heated one. The debate is a well rehearsed one, one that usually follows a scripted battle between deregulated privatization versus government redistribution. A common rhetorical question is, “If most workers must provide for their own post-employment futures, why can’t teachers, police officers, and civil servants do the same?” What often gets lost is the potential of collective bargaining as a means for protecting the futures of both public and private sector workers. Instead, we get locked into a struggle for resources managed by laws of false (or, at least, manipulated) scarcity. While the entirety of this debate is beyond my interests (and abilities) here, I want to point to a few relatively recent sources that present some interesting challenges to the commonsense assumptions that undergird a lot of the arguments. Most crucially, these sources problematize the easy identification of “public-sector employees” (via public pensions) as exploitive of, and separate from, the “tax-paying public.” They suggest that someone is greatly benefitting from public sector pensions, it just might not be who you think it is.

The Labor Notes blog has a recent review of Ellen Schultz’s book Retirement Heist that looks at the recent history of retirement benefits and their relationship to speculative finance. According to the review, Schultz narrates the ways in which pension funds and retirement benefits have been mobilized by fund managers, investors and corporations as a liquid profit stream. In other words, companies can reduce benefit obligations and claim such cuts as actual profits that could be redistributed to things like executive pay:

In 1999 IBM, for example, reduced its pension obligations by $450 million. That was $450 million the company could count as income. Hundreds of millions of dollars in profits were “added” and millions of dollars in executive compensation were doled out without the production of a single product or service.

According to a 2010 report in the New York Times, we should be questioning what a “public pension fund” actually is, and who is capitalizing on it:

Private equity owes its explosive growth largely to America’s pension funds. Buyout funds raised $200 million in 1980 and $200 billion in 2007. According to Prequin, a financial data provider, public pension funds were the biggest contributors over that period and now have $115.9 billion invested in private equity.

The sociologist William Domhoff discusses the broader political economy of pension funds on his website, where I found the link to the NYTimes report above. Domhoff notes the sheer monetary value of public pensions for speculative finance:

With 40% of all public pension funds investing some of their money in hedge funds in 2008, a cool $78 billion overall, they were a huge source of investment funds for hedge fund managers.

Along with Schultz’s book, Domhoff’s historical account of pensions—within the ideals of “economic democracy,” the false belief that pension funds could be used to direct corporate policies through “shareholder influence”—is a useful antidote to the idea that public workers have been the primary beneficiaries of pensions as a form of economic redistribution.

One response to “Who Benefits from Benefits?

  1. Dear Ryan,

    This is an important post. Unfortunately, the subject of pensions really makes people’s eyes glaze over, until they closer to retirement and start wondering “what was that about?” and “why wasn’t I paying attention?” A couple of things to remember, at least from my perspective: the privatized plans (501K style) that faculty are increasingly be offered (I would say pushed toward) are riskier and have higher expenses than the traditional defined benefit pensions. They are not, overall, as good as Social Security, unless you make a huge salary. And UI employees are not eligible for Social Security. The 501K styles require more active management and are riskier. Over all, when we are being offered “pension reform” in the form of more privatized plans, we are being offered less for more. And the stock market and fund managers are being offered (in the management of our pensions) more for less.

    Sorry to be so gloomy!

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