[Congressional Record Volume 140, Number 146 (Saturday, October 8, 1994)]
[Extensions of Remarks]
[Page E]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: October 8, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                    A RAID ON AMERICA'S PENSION FUNDS

                                 ______


                            HON. JIM SAXTON

                             of new jersey

                    in the house of representatives

                        Friday, October 7, 1994

  Mr. SAXTON. Mr. Speaker, I have recently introduced an important 
piece of legislation, the Employee Benefit Plan Security and Protection 
Act of 1994. This bill will reiterate Congress's original intention 
that pension funds should only be invested in the best interest of the 
participants.
  I have received hundreds of phone calls and letters from all over the 
country commenting on the importance of this issue. I believe that 
Congress needs to address this issue in the 104th Congress.
  Below is an article that I wrote that appeared in the Wall Street 
Journal on September 29, 1994. I believe it helps explain why this 
legislation is needed.

                   A Raid on America's Pension Funds

       How many ways can the government lighten your wallet? The 
     list is long, but a new threat just arrived: Your pension is 
     now at risk. In a little-noticed passage of his 1992 campaign 
     document, ``Putting People First: A National Economic 
     Strategy,'' President Clinton promised to create a ``Rebuild 
     America Fund,'' with a $20 billion federal investment 
     annually for four years, leveraged with state, local and 
     private-sector pension funds. Revenues from road tolls, solid 
     waste disposal fees and public housing rents would 
     ``guarantee'' a return from such investments.
       Little was heard of this idea until this June when Labor 
     Secretary Robert Reich issued a new regulatory bulletin to 
     ``clarify'' the Employee Retirement Income Security Act of 
     1974, known as ERISA. For two decades, this law has protected 
     participants in private pension funds by codifying the 
     principles of the common law on the duty of a fiduciary, 
     namely, to ``discharge his duties with respect to a plan 
     solely in the interest of the participants and beneficiaries 
     and for the exclusive purpose of (i) providing benefits to 
     participants and their beneficiaries; and (ii) defraying 
     reasonable expenses of administering the plan.''
       Thanks to these protections, today some $3.6 trillion is 
     invested in private pensions and another $1.4 trillion in 
     public pension funds, about one-quarter of the stock and bond 
     markets. The president is entrusted with the impartial 
     administration of ERISA in order to assure the safety and 
     security of participants' retirement incomes, but the Clinton 
     administration wants to risk private pension money on high-
     risk, low-return political projects.
       According to Labor Secretary Reich and his assistant 
     secretary of labor for pensions and welfare benefits, Olena 
     Berg, private pension funds should be ``encouraged'' to put 
     money into ``economically targeted investments.'' Funding 
     ETIs means investing for ``collateral benefits'' like 
     infrastructure, affordable housing, job creation, or 
     enterprise development. Secretary Reich parses his words 
     carefully to insist that ETIs are not ``social investments'' 
     that pursue a political or social goal at the expense of 
     maximum risk-adjusted returns. Yet this circumlocution turns 
     out to be a distinction without a difference. Experience with 
     the pension funds of public employees, which remain outside 
     the scope of ERISA fiduciary, regulation, demonstrates why. 
     Their track record on ETIs is dismal:
       In 1980 the Alaska public employees and teachers retirement 
     system funded loans of 35 percent of assets ($165 million) to 
     make mortgages in the state. When oil prices fell in 1986, so 
     did home prices and 40 percent of loans became delinquent or 
     were foreclosed.
       In the late 1980s the Kansas Public Employees Retirement 
     System was held up as a model for its ambitious ETI 
     investments. KPERS has since written off about $200 million 
     in ETI investments.
       In 1989 the Connecticut State Trust Funds invested $25 
     million in Colt Manufacturing Co. to save 1,000 jobs. In 1992 
     Colt filed for bankruptcy, endangering the whole investment.
       Not all ETIs have been disastrous, but most have yielded 
     subpar results. For example, by order of the Missouri 
     Legislature, the Missouri State Employees' System used about 
     3 percent of it s assets to put venture capital into small 
     companies in Missouri, Three years and $5 million later, the 
     program was terminated because of unsatisfactory returns and 
     two lawsuits.
       Statistical studies on ETIs support this anecdotal 
     evidence. A 1983 study by Alicia Munnell, then with the 
     Federal Reserve Bank of Boston and now a top U.S. Treasury 
     official, found that public employee plans with targeted or 
     social investments had assets that were significantly 
     riskier, less liquid and earned lower yields. A 1993 study by 
     Roberta Romano of Yale Law School found that the greater the 
     political influence on the investment decisions of public 
     employee pension funds, the lower the return. And a 1994 
     study by Olivia Mitchell of the University of Pennsylvania 
     and Ping Lung Hsin of Cornell University concludes that 
     ``public pension funds required to devote a portion of their 
     assets to in-state investments * * * experienced lower 
     investment returns.''
       ETIs are really PTIs--Politically Targeted Investment--and 
     use the participants' money in ways that would not occur 
     except for political pressure. Who pays for this party? You 
     do. Lower returns imply lower incomes for retirees. Unless 
     more is paid into plans from wages or other sources, defined 
     benefit plans cannot fulfill their promises.
       ETIs should be banned, not encourage. Yet the Labor 
     Department has started an ``ETI Clearinghouse'' to begin 
     operation before the end of the year ``to help fiduciaries 
     and investment managers choose appropriate ETIs'' and to 
     showcase ``future opportunities and past successes'' (not 
     past failures).
       Today, I am introducing a bill that will reiterate 
     Congress's intent, laid out in ERISA, that pension funds be 
     invested solely in the interest of their participants and 
     beneficiaries. Mr. Reich, kindly take your ``interpretative 
     bulletin'' and shelve it!

                          ____________________