Rolling Stone’s Matt Taibbi’s recent and controversial article on public employee pensions struck me as having a basic illogic: hedge fund managers, he says, are plundering hundreds of millions in management fees from public pensions while at the same time some funding efforts to reform – in Taibbi’s world, shut down – these plans. Talk about killing the goose that laid the golden egg.
Taibbi responds, saying:
Biggs leaves out the fact that pension-reform advocates are not trying to “stop” pensions, they’re mainly trying to convert them from a defined-benefit model to a defined-contribution model. The gravy train they’re trying to “stop” is for workers, not money managers, who will actually earn more under reform, as states move more toward alternative investments. In no way is the financial services sector campaigning for an end to its pension gravy train. This is a pretty big thing to forget in this particular argument. It’s actually the whole argument, isn’t it? Readers, if I’m missing something, please let me know.
Matt, you actually are missing something. What Taibbi seems not to understand is that, as far as hedge funds are concerned, converting DB pensions to a DC, 401(k) model is stopping them. DB pensions are the nation’s largest holders of alternative investments; DC pensions, by contrast, hold almost none. One of the talking points that publics plans and unions use in opposing DC pensions is that they don’t invest in alternatives. So how can shifting from DB to DC pensions possibly benefit hedge fund managers? You’d think they’d want to shut down DC plans instead. And if you look at the membership of the National Institute for Retirement Security, which promotes public plans and strongly opposes DC reforms, you’re going to see a lot of money managers there.
As I said before, this basic lack of motive suggests that the story is more complex than Taibbi thinks.