Are teacher pension funds undermining labor unions? That provocative, irony-tinged question is the focus of an article on the Education Post website.
The crux of author Max Marchitello’s argument is that public sector pensions are increasingly investing in private equity, which promises greater returns for debt-burdened funds. Private equity tends to operate like a shark, cruising the cool waters of the business world looking for wounded fish.
“Do dues-paying teachers realize that their pension funds may be invested with private equity firms that destroy unions as they buy and sell companies?” Marchitello asks.
He uses Hostess Twinkies as a cautionary tale. In 2012, Hostess declared bankruptcy, sold ownership of many product lines, and fired thousands of workers.
Shortly thereafter Apollo Global Management, a private equity firm that manages billions from teacher pension funds in states such as Illinois and Texas, acquired the company and four years later sold it for an incredible 1,300 percent return on its original investment.
There were winners and losers, as is usually the case in such transactions. But losers outnumbered winners by a wide margin:
The private equity-backed Hostess rehired only 1,200 of its former employees, a fraction of the 8,000 people who had previously worked there. Furthermore, those people who were rehired joined the company without the benefit of a union and its labor protections. Apollo was not obligated to invest in the company’s pension fund or honor severance packages, leaving workers in a significant financial bind.
In a few short years, union membership, which had been common in Hostess plants, plummeted to a mere 30 percent. In fact, union membership is actively discouraged by the new holding company. When Hostess employees in Schiller Park, Illinois, voted to rejoin a union, the plant was closed shortly thereafter.
Where does Colorado PERA stand in terms of private equity investing? According to PERA’s 2015 Comprehensive Annual Financial Report, 8.2 percent of PERA investments — about $3.5 billion — are allocated to private equity. That’s a lot of money.
Do Colorado teachers, many of whom belong to unions, realize that a portion of their retirement investments are tied directly to union-killing enterprises? Can they see that this may ultimately undermine their own job and retirement security? Here’s Marchitello’s conclusion:
By funneling billions of dollars in pension funds through private equity, teachers are, in effect, contributing to the demise of organized labor. And although private equity won’t be buying a struggling school district anytime soon (at least one hopes), the consequences of their contributing to the de-unionization of the low-wage and low-skill workforce could signal serious problems for teachers, their pensions and their unions.
Whatever your opinions about organized labor and private equity, this is thought-provoking stuff.