By Phil Angelides
Monday, February 07, 2005
Phil Angelides is Treasurer of the State of California.
Gov. Arnold Schwarzenegger says getting rid of public pension plans for California's state and local government workers is about helping to balance the budget. Peel back the budget wrapping on his plan, though, and you will find the governor's real agenda: the California prong of a national attack on the pension funds that have stood up for corporate reform and the interests of ordinary families and investors hurt by the recent wave of corporate scandal.
The governor has proposed privatizing government pension plans and replacing them with individual 401(k)-style private accounts. His proposal strikes at the power of public pension funds, which have used their financial clout to protect the retirement savings of 2 million Californians — teachers, police officers and other public servants.
The governor says his proposal is necessary because pension costs are out of control. Pension costs are certainly worthy of public debate, but his plan requires running two pension systems: one for current workers, a second for new workers. That would cost California taxpayers billions more in years to come — $5.9 billion in the first 10 years in the California State Teachers' Retirement System alone. Tellingly, even four of the governor's own six appointees to the teachers retirement fund oppose his proposal.
Why this proposal then? Because for the right-wing ideologues behind his plan, the issue is not saving money. It is about draining public pension funds of their clout.
As recent news reports explain, the driving force behind the proposed pension ban is the same crew of "anti-tax advocates, free-market enthusiasts and Wall Street interests" that is pushing President Bush's Social Security privatization plan. They include Grover Norquist, the president of Americans for Tax Reform, and Stephen Moore, president of the Free Enterprise Fund. They see the governor's proposal as "one of our highest priorities," and the governor agrees. "This is a national battle," he told reporters as he laid out his plans to collect millions of dollars from wealthy out-of-state political contributors.
Across the country, the governor's ideological soul mates are targeting public pension funds for elimination because those funds — with the California Public Employees' Retirement System and the California State Teachers' Retirement System at the forefront — have stood up for ordinary investors against the rampant corporate abuses.
"Just 115 people control $1 trillion in these funds," Norquist said. "We want to take that power and destroy it." What bothers him and others is that these funds have rallied other institutional investors to protect the market from abuses and fraud and to support such corporate reforms as linking executive pay to performance, requiring auditor independence, separating stock analysis from investment banking at financial firms, ending insider trading at mutual funds and opening corporate board elections to shareholders.
Moore calls such actions a "witch hunt against corporate excess and corporate accounting scandals," as if the abuses at companies like Enron, WorldCom and Tyco had never happened. Jon Coupal, president of the Howard Jarvis Taxpayers Assn., which also supports the governor's attack on pension funds, denigrates the corporate reform efforts as "straying from bottom line of the benefit of members."
But protecting the bottom line for members is precisely the goal of the corporate reform movement. To ensure long-term returns and reduce risk, large pension funds must invest to mirror markets. When scandal hits those markets, the pension funds — made up of taxpayers, teachers, police and firefighters — get hurt. CalPERS and the teachers retirement fund lost more than $1 billion in the WorldCom and Enron frauds.
In pursuing corporate reform, the pension funds are operating not just in their own self-defense. They are also giving a powerful voice in the boardrooms to the interests of millions of families that have invested their savings in the markets.
That's why the governor and his right-wing ideologues have targeted the pension funds: not because the funds have strayed, but because they are leading the fight on behalf of ordinary shareholders to put transparency and accountability back into American capitalism.