Wednesday, April 18, 2012

Is ALEC Behind Efforts to Disrupt Defined Benefit Pensions on Behalf of its Wall Street Sponsors?

As the years have passed we couldn’t help but notice how all the organizations against Defined Benefit plans for public employees use arguments that closely resemble each other. The arguments don’t usually attach any specific empirical evidence, only generalized ‘good for the goose, good for the gander’ or ‘governments spend too much’ arguments. After a little digging, we now think we know why.

Our break in the case came with recent article by Bloomberg about the American Legislative Exchange Council and how it operates.

The article tells how ALEC creates ‘model’ bills on behalf of its industry-backers and pushes those legislative efforts out to other like-minded organizations for various insertions into law at local, state and federal levels. In itself, this mode of operations is not uncommon. It’s surely a tactic used by other groups that push their agendas through various legislative means.

But in this case it’s good to know where the legislation is coming from, especially because the ultimate benefactors of a move from defined benefit to defined contribution plans would be the Wall Street firms that would administer the assets of public sector employees’ retirement accounts. They would be the ones collecting the management fees that are typically calculated yearly, as part of an assets under management calculation for mutual funds. Indeed, every mutual fund investor knows to look at their selected funds’ admin fees, which ranges from 0.25-2 percent of their invested assets. That’s the yearly fee that the manager takes off the top, so to say, regardless of whether the mutual fund makes or losses money. A 10 percent return that you see may actually have been 11 percent without a 1 percent fee. A 10 percent loss would have been a 9 percent loss, except for the 1 percent fee.

The Bloomberg article noted that a few large corporations have been pulling back from their sponsorship of ALEC, but the full list of corporate sponsors is closely kept by the organization. It’s entirely possible – and indeed likely – that Wall Street corporations are sponsors of legislation to convert Defined Benefit plans to Defined Contribution plans. We can only speculate, but the combination of facts certainly lead us in that direction. – Max Patterson

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