Dubious dividends

Labor opposes Wall Street grab for Social Security funds

Labor unions took to the streets on March 31 in a National Day of Action for Retirement Security. The AFL-CIO coordinated demonstrations targeting the Wall Street brokerage firms of Wachovia Securities and Charles Schwab Corp. in more than 70 cities, including San Francisco—home to Schwab headquarters—New York, Boston, Chicago, Austin and Washington, D.C.

Charles Schwab, company founder and CEO, is a leading proponent of private accounts and a major Republican donor. His discount brokerage house has been a favorite among many labor unions and their members. No longer.

Labor is taking aim at a broad swath of the financial giants that support President Bush’s plan to privatize Social Security, cut benefits and swell the deficit by $5 trillion over the next 20 years. The firms exert their influence the old-fashioned way—with money discreetly donated to front groups that then launch multimillion-dollar, pro-privatization ad campaigns. The front groups have names like the Alliance for Worker Retirement Security and the Coalition for the Modernization and Protection of America’s Social Security, but security for workers is not their goal. They work for business (see sidebar on facing page).

How much do the brokerages stand to gain if the public is forced to divert their Social Security payments into private accounts? Potentially billions, say economists. The president’s plan is still sketchy, but he has said it could be modeled after the Thrift Savings Plan offered to federal employees. People would have a limited choice of broad-based investment options with low administrative fees. As their holdings increase in value, they might exercise an option to invest in a greater choice of private sector funds. University of Chicago economist Austan Goolsbee estimates that over the next 75 years, this proposal would generate fees worth $475 billion under the Thrift-type option or $940 billion under the private sector fund option.

In Washington, D.C., a throng of hundreds, including 50 AFT staff and activists, picketed Schwab and Wachovia offices. They heard AFL-CIO president John Sweeney call the Bush plan “a flimflam scheme” that would reduce the standard of living of tomorrow’s retirees and saddle the young with an exploding federal deficit. Sweeney warned the firms not to “try to pick our pockets while you line yours.”

In addition, AFT president Edward J. McElroy wrote to the president of Charles Schwab, one of the firms that manage the AFT staff pension plans. McElroy notified him that pension fund trustees are considering taking AFT’s business elsewhere, and asked to meet with him.

Earlier in the month, the AFL-CIO asked insurance companies, which sell annuities, a primary instrument of retirement savings, to clarify their stance on Social Security privatization and disclose any support for groups promoting private accounts. At a rally in Hartford, Conn., the insurance capital of the United States, AFL-CIO secretary-treasurer Richard Trumka said, “The public deserves to know whether insurance companies that would benefit from privatization are actively promoting this dangerous scheme.”

There is evidence that labor’s voice is making itself heard. So far, two investment firms, Edward Jones and Waddell & Reed, announced that they have withdrawn from the Alliance for Worker Retirement Security.

The AFL-CIO also is raising the pressure through an online information campaign at www. wallstreetgreed.org. The site features extensive background and research information, fliers and questions for individual and institutional investors to ask the firms funding the privatization campaign.