Using pensions to pay debt Unconstitutional breach of faith


January 21, 1996|By Robert L. Ehrlich Jr.

THE CLINTON administration has been playing a shady game with the retirement funds of millions of Americans.

It has raided the federal workers' retirement funds as a means of artificially extending the debt limit. President Clinton is also tinkering with private pension plans to finance his own social agenda. Both actions constitute a historic breach of faith and contract to millions of working Americans.

Just last month, U.S. Treasury Secretary Robert E. Rubin converted $61.3 billion in federal retirement funds into cash to prevent the administration from defaulting on the national debt.

The Treasury is required to invest assets of those trust funds in government securities, which count against the debt limit. Nonetheless, after President Clinton vetoed the debt ceiling extension bill passed by Congress, Secretary Rubin directed that $39.8 billion in securities held in the Civil Service Retirement and Disability Fund, and $21.5 billion held in the Federal Employees Retirement System's Government Securities and Investment Fund, be converted into cash to preserve the government's short-term borrowing ability. Federal workers have been left with IOUs to fund their retirement years.

This self-serving political maneuver by the administration jeopardizes millions of pension dollars and violated the Constitution and federal law. The Constitution grants Congress, not the Treasury secretary, the power to decide how much debt the government may undertake and gives Congress sole "power to borrow money on the credit of the United States."

My colleagues and I sent to the White House a well-crafted debt ceiling extension bill, which the president vetoed. The congressionally authorized limit on the debt is $4.9 trillion. However, Mr. Clinton has disregarded the debt ceiling law, allowing the nation to spiral further into debt. I urge the administration to find a more appropriate and forthright solution to the budgetary and debt extension issues at hand.

The Clinton administration has also been looting the $3.5 trillion private pension system. As Congress seeks to balance the budget by slowing the growth of federal spending, the Clinton administration has found a new source of revenues to finance its agenda: private pensions.

Labor Secretary Robert B. Reich has been pressuring the investment managers to place millions of pension dollars in "economically targeted investments," or more appropriately, "politically correct targeted investments."

ETIs are investments in an array of so-called "socially beneficial" projects such as public housing construction or infrastructure building that create union jobs. These projects are not selected to provide a financially sound return for pensioners, but rather to achieve liberal social engineering goals, and therefore, place private sector workers' pensions at greater risk.

By promoting ETIs, the Department of Labor has abdicated its role as the "nation's pension watchdog" chief enforcer of fiduciary standards under the Employee Retirement Income Security Act (ERISA).

Several months ago, the department awarded a contract to Hamilton Securities Advisory Services -- at a cost to taxpayers in excess of $1 million -- to design, develop, and operate a clearinghouse for the collection and distribution of ETIs.

The clearinghouse is intended to assist plans with their investments in ETIs through the use of a database created by the clearinghouse. This clearinghouse will encourage and pressure plans to invest in certain projects favored by the administration, and to select projects "worthy" of such investment.

Despite repeated congressional inquiries, the criteria employed by the clearinghouse in determining the appropriate investments remain unknown. The Department of Labor has left the clearinghouse with sole discretion to establish the criteria. Therefore, there is no guarantee of prudence by the clearinghouse -- and no check on its level of politicization.

Moreover, investing pension trust funds in ETIs violates legal fiduciary standards (established by ERISA) requiring pension plans to invest and manage their assets exclusively for the benefit of plan participants -- the employees and pensioners.

The Department of Labor has taken the long-standing position that nonfinancial factors or incidental benefits should not take precedence over providing retirement income to participants. Nonetheless, the Clinton administration is now encouraging fiduciaries to consider the benefits to outsiders. These underlying political and social demands compromise the interest pensioners and violate the intent of ERISA.

The president's actions imperil the $3.5 trillion in trust contained in the nation's private pension plans. The history of social investment is one of higher risk and lower return. Public pension funds have experimented with such investments and have sustained huge losses.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.