During the first meeting of the 12-member pension advisory board, one member, Alicia Munnell, who is the director of the Center for Retirement Research at Boston College, predictably said:
I don’t think the private sector is what we want to emulate. I strongly believe that because what you have seen in the private pension system is movement from old-fashioned defined-benefit plans to 401(k) plans. The employer puts in 3 percent; the employee puts in 6 percent—people have such inadequate balances in those accounts …That’s not anything we want to duplicate.
The private sector learned years ago that defined benefit plans were simply not affordable. That lack of affordability is the reason private pension systems moved to 401(k) plans, and it’s the reason the public sector, in trying to become more like the private sector, should be moving towards them too. Saving for retirement isn’t about dependence on only a 401(k) or a pension. It needs to involve savings in other accounts, through which, at a very young age, you learn to do without by putting off instant gratification and putting money in the bank. The virtue of investing in oneself and being responsible at a young age is the key to retirement savings.
So in response to Ms. Munnell’s comments: It shouldn’t be up to Rhode Island taxpayers to fill the gap. Taxpayers can ill afford to be on the hook for an unfunded liability that is much larger than the reported $6.9 billion, and that is the result of a greedy political class and investment missteps by a union-stacked pension board and irresponsible investment managers. Ms. Munnell is wrong in saying 401(k) plans are at fault for inadequate balances and that the public sector shouldn’t emulate the private one. The last thing Rhode Islanders need in solving this pension crisis is someone who’s an apologist for personal financial irresponsibility. The right solution begins with individuals taking more responsibility for their retirement savings, including current public employees.
Government Picks the Winners
Rhode Island pension advisory group member Harry Wilson was the auto task force architect behind the bailout of GM. Prior to joining the task force, Mr. Wilson worked at Wall Street hedge fund Silver Point Capital. Regarding his departure from Silver Point, the New York Post’s Josh Kosman wrote, “Harry Wilson, who leads the auto deals and diligence team, used to be a partner at hedge fund firm Silver Point Capital before, according to two sources, he was forced out last year following a string of bad bets that triggered significant losses for the fund.”
Part of Harry Wilson’s task force work involved the sale of Delphi Automotive, where UAW pensions were saved and salaried worker pensions were not. He also faced conflict-of-interest claims because his old employer Silver Point Capital emerged as a debtor in possession when Delphi Automotive emerged from a four-year bankruptcy in late 2009. In May of this year, Delphi’s filed an S-1 announcing its plans for an IPO. Josh Kosman and Mark DeCambre write in their New York Post article “Delphi’s Back from Brink with $1B IPO”:
It would also be a major coup for a group of lenders led by Elliott Management and Silver Point Capital that won a battle in bankruptcy court to buy the auto supplier.
The hedge funds successfully blocked a rival plan by the government’s auto task force to sell Delphi to private-equity firm Platinum Equity for $3.6 billion. Now it is valued at 2.5 times more and the hedge funds are set to reap billions.
“How the federal government could give away a company to a PE firm is still beyond me,” a Delphi shareholder said.
Obama Administration Picks Sides
The Daily Caller has obtained new emails that contradict claims by the Obama administration that the Treasury Department would avoid “intervening in the day-to-day management” of GM post–auto bailout and reports, “These messages reveal that Treasury officials were involved in decision-making that led to more than 20,000 non-union workers losing their pensions.” The article continues, “But the emails TheDC obtained show high-ranking Treasury Department officials, including Matthew Feldman of Treasury’s Auto Task Force, corresponding with senior GM officials on how to make certain decisions regarding who was going to win and who was going to lose.”
In his testimony before members of the Finance Committee field hearing, James Frost, a Delphi non-union retiree who worked for Delphi and its predecessor GM for 31 years, told of the past 18 months being devastating to him, his family, his community and many other Delphi retirees. He lost in excess of 30% of his already modest pension:
I can’t walk you through the volumes of testimony and evidence that verifies abuses of bankruptcy and labor laws that allowed the PBGC and U.S. Treasury to get away with this “government taking” of our pension, but I would like to briefly paraphrase the testimony of Harry Wilson and Matthew Feldman of the Auto Task Force as they discussed how they crafted and executed the termination and subsequent disparate treatment of the various Delphi pension plans:
When questioned about the disparate treatment of different groups, Mr. Wilson admitted that certain groups of retirees were more politically sensitive than others leading to the decision of whether or not they would be compensated by payments from GM and funded by the U.S. Treasury. The salaried retirees and non UAW represented hourly retirees were obviously not considered “politically worthy.” UAW President Ron Gettelfinger decried this as morally wrong and asked the Federal Government to make it right.
When asked about the termination of the Delphi pension plans, Matthew Feldman confirmed that one of his primary tasks was to resolve the Delphi pension plan disposition so that GM could exit bankruptcy rapidly. He made it no secret that he never considered any other scenario than termination of the salaried plan and moving the hourly plan intact to GM. When that scenario failed, plan B was to terminate all plans but then have GM (using US Treasury funds) make up the loss for UAW represented retirees in a separate payment. This was clever “work around” the prohibition against successor plans established after a pension plan has been terminated and trusteed to the PBGC.
The Delphi salaried retirees (delphisalariedretirees.org) are not done fighting. Yet Harry Wilson has moved on. He ran and lost as the Republican candidate for Comptroller of New York in 2010, campaigning as the voice of reason for pension reform. And in addition to his work with Rhode Island, he’s been hired by the International Brotherhood of Teamsters to help them save union jobs at ailing trucking and freight company YRC Worldwide. Teamster president James P. Hoffa, in retaining Mr. Wilson, wrote in a letter to union members dated February 28: “This team was led by turnaround expert Harry Wilson, the lead architect of General Motors’ restructuring, and they drove a great deal of progress in the last several weeks.… A critical reason for bringing in Harry’s team is to fully scrutinize the company’s operating assumptions and plan—this was one of his key roles in restructuring GM.”