Pension funds from unionized industries in the older industrial states are sometimes invested in nonunion firms out of state and in the Sun Belt, harming the interests of the pension beneficiaries, a Senate staff study has concluded.
"There is a troubling body of evidence that pension fund assets are being invested in ways that undercut beneficiary interests," the Senate antitrust subcommittee staff report asserted.
Private pension funds now total about $280 billion in assets and are an important source of capital.
The study said a research firm, Corporate Data Exchange of New York, had looked into 101 pension funds, most union-related, with more than $10 billion in total assets and found they had invested hundreds of millions in companies with frequent labor law violations.
In addition, "Large sums of pension fund assets were flowing into predominantly nonunuionized industries," the research firm reported.
The subcommittee report cited testimony from Jack Nicholl, commissioner of economic development for the city of Cleveland, that the Ohio Public Employes Retirement System had invested 92 percent of its $3.9 billion assets out of state, nearly half in southern utilities like Alabama Power and Light, Duke Power and Southwestern Bell - instead of putting a substantial portion back into Cleveland and other Ohio-based enterprises.
The subcommittee staff report said Nicholl attributed part of Cleveland's economic decline to "30 years of...[this kind of] disinvestment" in the city.
The report also cited the investment policies of the pension fund of Republic Steel, which had invested only 6.3 percent of its entire $525-million portfolio in Ohio companies.
The subcommittee also cited testimony from Machinist Union President William Winpisinger that funds being set aside for the pensions of some workers were financing "their own loss" through investment in competitive firms overseas or in other states.
Jacob Sheinkman of the Amalgamated Clothing Workers told the subcommittee there was evidence some pension funds of some unions had been invested in the J. P. Stevens Co., with whom Sheinkman's union has been battling on organizing matters.
The subcommittee report called on the Department of Labor to undertake a systematic study to determine how frequently pension funds are invested in a way that undercuts the jobs and industries of the workers for whom the funds are set up.
However, the subcommittee staff backed away from a demand that pension funds be invested in "socially useful" projects, as proposed by some critics of pension investment policies.
It said that "security of retirement income clearly is the overriding objective" and "all investments of pension funds must be based on economic factors," namely, the aim of getting the maximum return without undue risk to the assets, so that the most money possible is available to pay the pensions when due.
However, it said that "Where two investments are equally profitable, beneficiaries, with the permission of plan sponsors, may direct trustees to choose the most socially useful investment."
The report said there is one small mutual fund that specializes in socially useful but prudent investments, the Dreyfus Third Century Fund, and over the past five years it has outperformed the market by a wide margin, advancing 78.3 percent while the Dow-Jones Industrial Average was advancing only 16.9 percent and the Standard and Poor 500-stock average only 17.7 percent.
"Social investments can be profitable," the report said.