While unions resent layoffs and jobs moved overseas, some are realizing their own retirement plans encourage these actions. As Walt Kelly's Pogo put it, "We have met the enemy and he is us." But labor is waking up to the power of its $7 trillion in worker pension funds and has formed a new alliance, the Heartland Labor Capital Network, to tap that power. As AFL-CIO Secretary-Treasurer Richard Trumka put it at the group's first conference in 1996, "There is no more important strategy for the labor movement than harnessing our pension funds…so we can stop our money from cutting our own throats."
The Heartland Network views pension funds as capital to be invested to "create and retain good U.S. jobs" and fund worker-friendly companies, says executive director Tom Croft. The organization is creating a network of funds to make "economically targeted investments" (ETIs). The first is the Landmark Growth Capital Fund, a million pool-building toward $75 million-financed by multi-employer and public employee pension funds, which will make direct investments in smaller, worker-friendly enterprises. "Where you have employee ownership and higher levels of participation you have higher levels of productivity," Croft said.
Efforts to redirect pension investments are the subject of Heartland's new book, Working Capital: The Power of Labor's Pensions, published by ILR Press/Cornell University Press (800/6662211). A chapter by Michael Calabrese, director of the public assets program at the New America Foundation in Washington, D.C., and former counsel at the AFL-CIO, describes 17 investment programs with combined assets of more than $18 billion. Union-built real estate remains the most common of these. But Calabrese points to the success of direct equity investments in nonpublic firms by ULLICO (Union Labor Life Insurance Company). In its first three years through 1998, its Separate Account P (for Private Capital) had annual returns averaging 39 percent. By the end of 1999, Account P had $100 million in assets and had made 57 private equity deals. Most of these involved collateral benefits for labor, Calabrese notes.
Another example is the insurer CIGNA, which manages $15 billion in private placement debt, of which $250 million resides in the CIGNA America Fund, a separately managed account for Taft-Hartley pension plans (where half of trustees by law are labor appointed). This fixed-income fund targets loans to union employers and other U.S. operations that maintain jobs. It has extended loans to more than 6o companies with at least a 25 percent unionization rate, Calabrese notes. CIGNA executives "insist that the fund's existence prompts the insurer's team of analysts to more aggressively seek out unionized employers who need capital," he says.
Looking northward, other examples are the Canadian Labour Sponsored Investment Funds (LSIFs), venture capital funds that control $5 billion, or 51 percent of all venture capital in Canada. A chapter of Working Capital by Tessa Hebb and David Mackenzie describes how LSIFs pool individual retirement savings and invest these using a broad social approach, focusing on issues like worker participation, employee ownership, and concern for stake-holders. "The Quebec program is one of the most progressive investment models in the world," Croft says. When investing in companies, it sometimes requires employee board seats, or features economic literacy education to teach employees about financial statements.
One obstacle blocking progress like this in the U.S. is confusion about the law. "The Labor Department has largely failed to make it clear that economically targeted investments are permissible," Calabrese said. Jayne Elizabeth Zanglein of the Meany Center, the Labor College of the AFL-CIO, wrote in Working Capital that trustees can be reluctant to consider ETIs because of an unfounded fear of violating fiduciary duty. A widespread education program for trustees is required that covers "ERISA fundamentals, investment basics, fiduciary duties and shareholder activism," she wrote. "Unless trustees can visualize their role in the overall scheme, they will be paving dead-end roads leading off the ETI superhighway."
Another obstacle is lack of employee voice in pension management. "More than 90 percent of the $7 trillion in pension money is in plans such as single-employer plans where labor has no trustee representation," Calabrese said. Even in jointly trusteed settings, "at least half the trustees must be appointed by management," he added. To increase labor's say over its own pensions, we must change the law, Croft emphasized.
He's encouraged by progress so far. When the Heartland Network held its second conference in 1999, a lot of pension fund "gatekeepers" attended, and since then more than $2 billion in new investments has moved into labor-oriented ETIs from Taft-Hartley funds alone. A future target will continue to be the Taft-Hartleys, which total $380 billion. Other public pension funds with some labor representation total $2 trillion, he noted. So the potential pool of social change dollars is large.
Labor pension trustees are beginning to listen to proponents of economically targeted investing. "It's labor talking to labor, so in general they're open to progressive ideas," Croft said. "Trustees are learning how to look at fund managers' actions to understand if they really are a friend of labor."
