Public pension fund and union groups are pressuring money managers and other financial services firms to disclose support for replacing public defined benefit plans with defined contribution plans.
While organizers are not directly threatening loss of contracts to managers that make contributions to, or otherwise support, groups that favor shutting down the nation's public defined benefit plans, that's the implicit message.
"I think it's their (trustees') choice what they do with the information," said Frederick H. Nesbitt, executive director/legislative counsel for the National Conference on Public Employee Retirement Systems, Washington. "But, as a trustee, if you're doing business with a company, and in another state they're trying to destroy public plans, (you) should be aware of that information."
This week, NCPERS members will receive a letter asking to press their money managers on whether the firms help groups pushing the move to defined contribution plans.
Meanwhile, the AFL-CIO, Washington, has developed a lengthy list of contributors to groups the trade union umbrella organization views as anti-public plans. Firms identified include Alliance Capital Management LP, American Express Co., American International Group Inc., Fidelity Investments, Merrill Lynch & Co. Inc. and J.P. Morgan Chase & Co.
In its report, titled "Wall Street Greed," the AFL-CIO also identified a laundry list of firms that have contributed to or participate in organizations that promote partial privatization of Social Security. The issues of converting public defined benefit to defined contribution plans and Social Security reform are viewed as inextricably linked by groups on both sides of the debate.
"It's clearly an attack on retirement security here that's being driven by right-wing ideologues, using vested interests in the business community to fund the efforts," said Steven Weingarten, spokesman for the AFL-CIO Office of Investments, New York.
AFL-CIO officials already credit their campaign with causing brokerage firm Edward Jones & Co., St. Louis, and money manager Waddell & Reed Financial Inc., Overland Park, Kan., to drop out of the Alliance for Worker Retirement Security, a trade group that backs individual Social Security accounts.
An Edward Jones spokeswoman said the firm had withdrawn from the group because the affiliation had created confusion; a Waddell & Reed spokesman said the firm had not renewed its membership.
Last month, three union trustees of the $35.3 billion New York City Employees' Retirement System wrote a letter to major investment firms, asking them to detail their support for proposals to partially privatize Social Security, and to disclose financial contributions they made to organizations that favor the proposal.
Tangentially, the letter also mentioned the issue of converting public defined benefit plans into defined contribution plans, said Mike Musuraca, assistant director, department of research and negotiations, in District Council 37 of the American Federation of State, County and Municipal Employees.
Mr. Musuraca is an aide to NYCERS trustee Lillian Roberts, executive director of District Council 37 and one of the three signatories. Mr. Musuraca said the union is not focused on conversion of public defined benefit plans, but it could pursue the issue.
Managers' actions affecting retirement security issues is a part of their fiduciary duty, in addition to investment performance, acting in the best interests of plan participants and good corporate citizenship, he said.
"This is a vital debate in American society, and we're trying to make people understand whose money they're investing, and what it means for the retirement security" of workers, Mr. Musuraca said.
The AFL-CIO report cited four organizations that the labor group views as being opposed to public defined benefit plans:
• the American Enterprise Institute, a conservative think tank that favors Social Security privatization and President Bush's ownership society concept;
• the American Legislative Exchange Council, whose members include a third of state legislators and which has promoted a model bill that would adopt public defined contribution plans;
• the Manhattan Institute, another think tank that has voiced concerns over public funds' corporate governance tactics; and
• Citizens to Save California, a group that plans to raise $50 million to support Gov. Arnold Schwarzenegger's proposed ballot initiatives to reform public pensions, education and elections in the state.
Leading contributors to the last group include: John Gunn, president and chief executive officer of Dodge & Cox, San Francisco, who gave $500,000; Carl H. Lindner, chairman of the board of American Financial Group, Cincinnati, $200,000; and A. Jerrold Perenchio, chairman and CEO of Univision Communications Inc., Los Angeles and owner of Chartwell Partners LLC, $1.5 million.
Mr. Gunn said his contribution was personal, and the firm never makes contributions to try to win business. Almost all of the firm's funds are closed to new business anyway, he said. "Our balanced fund and stock fund are closed. If I made that contribution for that reason, I should have my head examined."
The AFL-CIO report cites numerous financial firms that have contributed to the organizations or whose officials have served on their boards.
Alliance Capital Management's vice chairman, Roger Hertog, serves on AEI's board, but spokesman John Meiers said the firm has no position on the merits of defined benefit and defined contribution plans. "As far as Alliance employees are concerned, they are free as private citizens to take a position as they wish. But, in doing so, they are not speaking for the firm," he said.
Not all of the information is up to date. For example, the report says an official at American Express serves on the American Enterprise Institute's board. Paul Johnson, an American Express spokesman, said only retired Chairman Harvey Golub serves on AEI's board. Mr. Johnson added that the firm's contributions focus on financial education. The AFL-CIO report said American Express or related foundations had contributed to AEI and ALEC.
The report also lists Fidelity Investments as a contributor to ALEC. Fidelity spokesman Vincent LaPortio said: "We're not currently a member of ALEC. I think we've had some participation, but not for years now. We are fully neutral on the terms of plan type and structure, so there is no position favoring one over the other."
Officials at several firms said making contributions to an organization did not mean they agreed with all the group's views. Said Mary Sedarat, a spokeswoman for JPMorgan Fleming Asset Management: "The firm's affiliations are not in direct support of any initiatives that would undermine our asset management business."