For Immediate Release
Sunday, June 16, 2002
AFSCME Testifies on Impact of Enron Collapse on Public Pensions
Worker retirement security requires more corporate accountability and employee input
WASHINGTON —Future Enron scandals will only be avoided and the retirement security of workers protected if public pension funds demand more accountability from major corporations and more input from workers, an American Federation of State, County and Municipal Employees (AFSCME), AFL-CIO, public pensions trustee testified before members of the U.S. Senate Commerce Committee today.
Michael Musuraca, assistant director of the Department of Research and Negotiations, AFSCME District Council 37 in New York City, and a designated trustee of the New York City Employment Retirement System (NYCERS), said to help ensure that public funds trustees manage retirement assets in the interest of average plan members and retirees, half of these trustees should have to be appointed or elected from among the plan members and beneficiaries.
"Clearly Americans, who as members of defined benefit pension plans like NYCERS or who participate in their company's deferred contribution plans, are rightly concerned that the deck is stacked against them as they seek to invest a portion of their earnings for their children's college educations and their own retirement," Musuraca testified. "In order for Americans to regain a sense of confidence in the nation's capital markets and the security of their retirement funds equal representation of workers and retirees on public pension funds is vital."
AFSCME members nationwide lost more than $1.5 billion of their retirement assets as a result of the Enron scandal through their participation in 150 public pension systems, with 110,000 Florida public service employees losing a stunning $330 million on Enron stock - the biggest loss of any state retirement fund in the nation. Alliance Capital Management, one of the pension fund's money managers until the end of last year, continued to put money into Enron stock even as news about Alliance's financial instability became clear and the company was being investigated by the Securities and Exchange Commission.
The Florida State Board of Administration (SBA) violated investment guidelines by allowing purchases of Enron stock to exceed the six percent limit the SBA had set for its Florida portfolio, and a top Alliance Capital Management executive was a member of Enron's board of directors.
"The SBA trustees must take a large part of the blame for this loss because they continued buying Enron stock even as the accounting scandal was publicly unfolding. Governor Bush and the other trustees were busy rearranging deck chairs on the Titanic while other fund managers were looking for lifeboats," AFSCME President Gerald W. McEntee said.
"The Enron scandal has raised real concerns and that's why AFSCME is aggressively working to protect the retirement security of working families in Florida and nationwide," McEntee added.
Earlier this month, AFSCME's Florida Council 79 filed a Freedom of Information request with the SBA for all documents and communications with Alliance to get to the bottom of what took place.
"AFSCME believes that the structure of the SBA may, in fact, be a source of the trouble," Musuraca testified. "Most retirement systems have an independent board of fiduciaries, which include worker representatives or plan participants. Such representation helps to create a non-partisan environment where loyalty to the plan is the most important consideration, ensures a board's independence, and more easily allows for the necessary oversight of the investment process."
The AFSCME representative recommended that the Commerce Committee consider three changes that could help prevent future catastrophic losses in investment portfolios and strengthen the role of employees as fiduciaries for worker retirement assets:
- Require all public funds to have half of the system's trustees appointed or elected from the ranks of the plan members and beneficiaries;
- Institute some type of pay to play requirements that prevent political contributions to trustees from investment managers that do business with the public fund on which they serve; and
- Provide incentives for states to close the revolving door between asset managers and political leaders.
