In one of the biggest pieces of irony since – well, ask me the one about New York's Irish firefighters collecting money in their boots for The Cause in the 1990s some time – it turns out that the biggest threat to some workers hoping to get pension benefits may be pension plans themselves.
Businessweek did a bit of connect-the-dots investigation into the lives of some workers in Massachusetts who found that by being downsized and having their jobs neutralized and outsourced for a third of the pay, it actually benefited their own pension plans – in a case of cannibalism gone wild.
Consider the case of a former school custodian, who made $20 an hour doing his job, until his rural school district bid out the maintenance contract. Aramark Corp., who you frequent fliers mostly recognize for its bars and restaurants in America's airports, also runs a major facilities management business, which scooped up the contract.
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The custodians were offered their jobs back at $8.75 an hour, and decided they'd rather work at McDonalds. Or just simply call it a day and collect their school pensions.
And what entity profited from Aramark's fortunes? None other than the Massachusetts Pensions Reserves Investment Trust, whose significant private-equity investments were invested in companies such as Aramark – and yielded more-than-15-percent earnings, as they were apparently good investment (ask the now also-looking-for-work Mitt Romney how that all works).
"It's a cruel irony to think that for some workers, their pension money is being invested in a manner that could ultimately strip them of their pension or drastically reduce their pension benefit," said union rep Jim Durkin, to the magazine. "We would like to see a more thoughtful and considerate approach to future investments of public pension funds and we will be encouraging that here in Massachusetts."
Besides all that talk of irony, it is something to consider as the private-equity industry suddenly got under the spotlight during those turbulent days of the presidential campaign. Days that seem like a hundred years ago, by the way.
Public retirement funds find themselves in a tough situation: Invest in a prudent but plain-vanilla fashion and they don't make any money at all, resulting in this year's dreadful 1 percent earnings for even massive funds like the CalPERS system.
CalPERS, by the way, does its investment math hand-in-hand with its social welfare work, and won't do private-equity investments with companies that outsource government jobs – unless the investment guys say that will make a whole pile of money. Then, apparently, they have to think about that.
The Massachusetts retirement fund, by the way, has no similar limitations, though it will rather thoughtfully avoid investments in companies that do business in Iran, Sudan or the tobacco industry. The axis of investment evil, of sorts, I guess.
Other pension funds are a little more cavalier about their objectives, such as the Teacher's Retirement System of Louisiana, which sounds like it's setting itself up for a good dose of investment irony.
"We take a kind of hands-off approach, which is from a fiduciary responsibility," said the fund's CIO, Phil Griffith, to Businessweek. "The only thing we look at is the security of the trust, not whether or not it creates jobs or takes away jobs. I'm not happy that folks don't have jobs, but I don't think it's a direct impact of our investment."
Is there some middle ground? Perhaps. I'd just take a little more time to consider the ethical implications of your private-equity investments. That might be a nice holiday gesture.
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