The federal government is going to allow retirement investments to be subjected to politically correct funny business due to a new guidance issued by the U.S. Labor Department that puts the government’s thumb on the scale in favor of so-called “socially responsible” investments.
Prior to the Obama administration action, these politically correct investment vehicles needed to match their peers by meeting the same fiduciary standards in order to qualify for inclusion in a 401(k) or pension plan. In fact, in previous guidance offered the financial services industry, the Labor Department flatly stated that the occurrence of these funds in a qualified pension plan should be “rare.”
All that changes now, as the Labor Secretary flanked by the Chief Financial Officer of the Service Employees International Union opened the floodgates for investment schemes whose first priority is political change rather than return for the investor.
Why would the Obama administration allow pension fund managers and indeed, individual investors who control their own retirement accounts to gamble on politically motivated investments?
$8.4 trillion is why.
That’s how much money is in the retirement funds (primarily 401ks and pensions) covered by the federal government’s Employee Retirement Income Security Act, which previously were protected from being invested in politically motivated funds.
Now, union pension plans will be able to gamble their member’s retirement security on Solyndra-like schemes and avoid the Exxon-Mobils of the world that pay a dividend and have an actual real business. Those depending upon retirement payouts won’t realize twenty years from now when their pension payments have to be cut because the money isn’t there, that their future was traded for transitory political whims.
This is not to say that people should not be able to invest in whatever they want with their money, but pensions and 401(k) plans are different. People depend upon pension fund managers to invest wisely so they can receive a promised amount each month when they retire. They expect that money to be there because it was promised. They don’t care if the pension fund manager is investing in FritoLay or Charmin, they just want their payout when they retire.
401(k)s are different in that the individual directs his or her investment under the presumption that every one of the offerings has at their heart, the fiduciary interest of the employee. Now, that assumption will no longer be true as mutual funds with social change as their primary goal will litter portfolios at the expense of other more solid investments.
Most perniciously, the opportunity for political chicanery has not been lost on the left, as divestment mania is being fed by their minions all over college campuses — a movement to dump stocks of companies deemed socially irresponsible — divorcing pension funds from fiduciary responsibility opens the doors for political pressure to dictate investments not the needs of pensioners.
For those who claim that fiduciary responsibility is still the key element of investing under the new Labor Department guidance one only has to ask, then why was the new guidance needed? So-called socially responsible investing was allowed under the old law, but it could only be considered after fiduciary factors, not before. The new Labor directive makes it clear that these political and social factors can and perhaps should be part of the fiduciary analysis baking the cake in favor of whatever social outcome is desired.
After all, the American taxpayers “invested” more than half a billion dollars in Solyndra, because it was a can’t miss solar panel manufacturer, only to lose everything. If the full weight of the federal government at a time when propping up green energy firms against the markets was the norm could not keep this type of socially responsible investment alive, then nothing can. Only if it happens to pension funds or mutual funds in a 401(k) it won’t be taxpayer dollars lost, but the retirement security of millions of Americans.
Investing is risky by nature, and the Labor Department’s actions are designed to create additional risk to workers’ retirement security. Congress should take action by defunding the implementation of their new politically motivated investment guidance before retirees get hurt.