Whose Capital? Our Capital! The Power of Workers’ Pensions for the Common Good

Editors’ note: This piece is from Nonprofit Quarterly Magazine’s summer 2024 issue, “Escaping Corporate Capture.”

Imagine your outrage if you were a public school teacher and your pension fund invested in a company that supported and lobbied for vouchers and charter schools. As a result of their actions, your neighborhood school was closed, devastating the community—particularly the low-income, mostly Black and Latinx students who live in the area; and, after years of paying into the pension fund, you lost your job, benefits, and healthcare coverage because your pension fund invested in this anti-public education corporation. Or consider if the retirement money of our prestigious public universities and their medical centers, where cleaners, cafeteria staff, and medical assistants care for students and patients, was invested in one of the largest corporate landlords in the country, and this landlord doubled their rent or evicted their families.

It leads to the obvious question—why in the world is workers’ pension money invested in companies that hurt the very people who are paying into the pension plan?

Public employee pension funds in the United States have $5.99 trillion in assets—an amount that is larger than the economies of most countries. This money is workers’ deferred compensation—in other words, it is their capital.

Workers’ pension funds, like so many aspects of our society, have become captives of Wall Street. Pension funds were created through struggle by workers, but the financial sector has figured out a way to exercise outsized control of those funds to serve their interests. This is the reality today—but workers and communities have an opportunity to align around their shared interest in thriving communities and to steer where their money goes: affordable healthcare, housing, and education; just and sustainable environmental policies; and so much more.

Pension Funds: Whose Capital? Our Capital!

Public employee pension funds in the United States have $5.99 trillion in assets—an amount that is larger than the economies of most countries.¹ This money is workers’ deferred compensation—in other words, it is their capital. Every month, nearly 15 million workers contribute part of their paycheck to these funds to ensure they have enough income to retire securely.² (Many teachers and public sector workers, by the way, do not receive Social Security benefits, which only adds to the insecurity.³) Ironically, this money is often invested in corporations and billionaire-backed private equity companies that are destroying the planet in near-countless ways, fighting unions that form to empower workers experiencing toxic work conditions, and contributing to and profiting from the housing crisis.⁴ This enormous pool of capital could and should be invested in things that benefit workers and their communities, like affordable housing, renewable energy, and a just transition in terms of combating climate change.

It is a form of assisted suicide for workers’ money to be invested in billionaires and corporations that have eliminated pensions for their own workers, lobbied for tax cuts that threaten public services, and invested in fossil fuels that threaten the planet. Until workers exercise greater control over their own capital and how it is invested, their money will continue to be used to enrich corporations at all our expense.

When workers question the ways in which their money is invested, they are told that pension funds need to get the highest returns on investment in order to make adequate returns for the 14.9 million active working members and 12 million public employee retirees,⁵ because many pension funds are “underfunded.”

The Chicago Teachers Union popularized the phrase “broke on purpose” to describe a corporate and billionaire strategy: avoiding paying their own fair share of taxes and further enriching themselves while saying there is no choice but to make massive cuts to schools and public services, and then turning around and profiting off such “solutions” to the crises they have created through privatization and other financial schemes.⁶ (Central to the success of the CTU was naming this problem, refusing to accept the so-called solutions foisted on their schools by finance capital, and, ultimately, striking to push back against austerity-driven corporate strategies.) The same is true of pensions. Pension funds have been systematically underfunded because corporations and financial interests have pursued austerity policies that led to that underfunding. Once pensions are underfunded, their trustees are more likely to be compelled by the inducements of finance capital to lock up a larger share of their investments in private equity endeavors and pursue other risky investments that promise supposedly higher returns. All too often, this leads to workers’ capital being invested in ways that further enrich these finance interests at other workers’ expense and that are not in line with creating sustainable and safe long-term investments.

So, how do we fix this?

Taking Control and Turning It Around

The housing crisis and the lack of retirement security for most workers are intertwined problems. When workers can’t afford to buy a home and rents are too high, they become both housing insecure and retirement insecure.

Over the last 40 years of union efforts, there have been attempts at addressing these problems—and some have had modest success. Past attempts—from creating new funds to instituting standards for investment decisions that are in line with the common good—struggled to have systemic impact, because they rarely organized significant numbers of union members.⁷ But we can no longer afford to settle for waging primarily defensive fights to protect the declining number of workers covered by pension plans. There is no way to protect existing pension funds from the slow strangulation of the tentacles of finance capitalism unless workers take more control over the uses to which their deferred compensation is being put. It is time to go on the offense by organizing union members themselves to take action and ally with community leaders to break this poisonous, self-perpetuating cycle.

For example, let’s look at housing. When workers had union jobs and pensions, they had the resources to own a home. Owning their own home meant they could retire more confidently. Now, because of the explosion in housing costs, it has become increasingly difficult if not impossible for most workers to purchase a home. The housing crisis and the lack of retirement security for most workers are intertwined problems. When workers can’t afford to buy a home and rents are too high, they become both housing insecure and retirement insecure. Most workers have neither a pension plan nor equity from their home to help fund their retirement.

If we are to be successful in shifting pension fund investment to affordable housing, we can’t have a narrow approach focused on merely protecting our existing pension funds. Doing so will not address the propensity of pension plans to chase risky harmful investments in an attempt to make up for underfunding driven by corporate profiteering. Rather, we have to take control and turn around the harmful dynamic in which we are enmeshed.

To begin, what is needed is a campaign that has inspiring, audacious, concrete goals that capture people’s imagination and both describes their fears and speaks to their hopes for the future. That is why at Bargaining for the Common Good we are starting a campaign that calls for the following:

• Winning pensions for all workers. With record corporate profits and more and more wealth being concentrated in the hands of billionaires, it is the right time to say that workers need pensions and that there is money to pay for them.

• Investing workers’ capital in ways that benefit workers and their communities. Workers need to have greater control over how the trillions of dollars of their deferred compensation are invested, so as to protect their own beneficiaries, manage risk for sustainable returns, provide revenue for jobs that provide public services for communities, and ensure these investments don’t undermine workers’ rights or hurt the environment.

• Investing in affordable housing. Among the socially beneficial uses of workers’ capital, affordable housing is central. By investing billions in affordable housing, we can start to address the growing housing crisis and help workers acquire homes, thereby further building their retirement security while creating construction jobs and stimulating local economies.

• Shifting investments away from things that harm the planet and the most vulnerable communities impacted by unsafe environments and events, including climate disasters. Addressing climate change to protect the planet for everyone is, of course, the priority. But climate change is an existential threat to the financial viability of pension funds and their ability to have the sustainable returns needed to ensure retirement security for their members. Climate change is a major threat to public budgets,⁸ which impacts public pensions; and the pension funds themselves have noted that climate change is one of the greatest risks to the health and stability of their portfolios—if not the number-one risk. For example, officials from the largest education pension fund and second-largest pension fund overall in the United States, the California State Teachers’ Retirement System (CalSTRS), have declared, “We believe climate change is one of the greatest threats to our future, with undeniable links to business and financial investments.”⁹ By shifting investments, we can free up capital to invest in things for the common good. Pension funds should follow other institutional investors that are shifting from investing in fossil fuels to investing in clean, renewable energy.¹⁰

Workers first need to understand that pension funds belong to them, if they are going to feel confident about demanding that the funds operate differently.

The March 2024 strikes and week of action in Minnesota show what is possible when community and labor unite and fight around a broad and far-reaching agenda.¹¹ More than 4,000 commercial janitors who clean high-rise and other buildings in Minneapolis and St. Paul struck and made a breakthrough when they won “a fully employer-funded retirement fund” for the first time, although they did not win a defined pension plan.¹² Making sure that workers have access to a pension is the foundation for ensuring that it’s invested in the right things—and these wins showed that workers can make dramatic breakthroughs when we align our contract expirations, develop powerful demands, and fight for the common good together.

The Bargaining for the Common Good Approach

Bargaining for the Common Good is built around the idea that community and union members should partner around long-term visions for the changes they want to see, and use union bargaining as a critical moment in a broader campaign to win that change.¹³ This requires an alignment of organizations focused on racial justice, community, and labor committed to working together on immediate and long-term fights around a common vision of the world we want.

Blackstone…has spent tens of millions of dollars to block funding for schools to reduce class sizes and housing solutions to protect tenants.

Our strategy is to go on the offense with a broad agenda, and there is much we can learn from local efforts already being undertaken through our approach. In Minneapolis, Chicago, and California, for example, campaigns have already begun to add a focus on pensions. In each of these cases, six key ingredients make up their campaign:

1. Educating and organizing union members. Many workers don’t know the ways in which their pension money is being invested against them; so BCG campaigns have been developing tool kits, slide decks, one-on-one discussion guides, and train-the-trainer materials to demystify and explain how pension funds work. Workers first need to understand that pension funds belong to them, if they are going to feel confident about demanding that the funds operate differently.
2. Making the investment of workers’ capital a central issue in collective bargaining. As unions head into bargaining, they should have fully developed proposals geared to moving pension money away from harmful investments and into good community ones. Bargaining is often the time when members are most involved in their unions, and these demands offer an important opportunity for members to be actively engaged in the fight.
3. Making pension-related bargaining demands bold enough to engage workers’ interest and imagination. If workers don’t come to see their pensions as a powerful tool that can increase their ability to shape central aspects of their and their children’s lives, they will be less likely to engage with the effort. Making bold demands—even if we don’t have the power to win them yet—helps workers to see why it is worth engaging in these struggles and indeed imperative that we do so.
4. Focusing on racial justice. It is often workers of color and communities of color who are most impacted by pension cuts, underfunding, and dangerous investments. By explicitly giving examples of the ways in which the misuse of pension funds produces racialized outcomes, campaigns are making pension justice an issue also of racial justice.
5. Identifying and exposing corporate actors. It is essential to give concrete examples of specific corporations that are profiting from the rigged pension system while lobbying against workers and community interests,¹⁴ and to actively engage and campaign around them.¹⁵ Exposing what they are doing, how they are doing it, and why they are doing it is crucial to the development of a winning campaign.
6. Connecting to broader fights and movements. To win these campaigns, we need to connect to, support, and fully engage community groups and allies who have long led fights vis-à-vis housing, racial justice, and the environment. Connecting pension campaigns to such efforts in a way that builds ongoing alignment gives a campaign much greater power.

Consider the following examples from recent and ongoing campaigns:

Local unions are fighting for demands in their contracts related to how their deferred compensation is being invested. In Chicago, the Chicago Teachers Union continues to demand and fight for housing for tens of thousands of unhoused students in their upcoming bargaining. In addition, CTU’s House of Delegates has approved the following bargaining proposal that calls for the school board to work with the union to move pension investments away from funds that contribute to climate change and otherwise harm their students and into ones that support affordable and sustainable housing. CTU’s proposal states:

The [school] BOARD and the UNION shall collaborate with the CTPF and MEABF [pension funds] to identify and move away from any investments of bargaining unit employees’ deferred compensation that are contributing to climate change and other forces that are harming our students and communities and put our money towards financially sound investments that further an equitable transition to a green future for the benefit of our students, staff and communities. This shall include but not be limited to investments in affordable green social housing that allow our students, their families and our members to live in our city.¹⁶

We have an extraordinary opportunity to unite our movement, fight for a multiracial democracy, and win transformational political and economic change.

In California, American Federation of State, County, and Municipal Employees (AFSCME) Local 3299, whose members include public university cleaners, cafeteria workers, and medical center low-wage workers, has proposed that the University of California system divest from the giant private equity fund Blackstone—which is influencing public policy against public schools and universities and communities and driving up housing prices—and invest instead in affordable housing. Blackstone, which has been buying housing like monopoly pieces and raising rents as much as 200 percent,¹⁷ has spent tens of millions of dollars to block funding for schools to reduce class sizes and housing solutions to protect tenants, and toward a proposed policy that would give wealthy corporations a major loophole to avoid paying their fair share to go toward public education, public services jobs, and programs that provide critical community services.¹⁸ As AFSCME Local 3299 lays it out:

B. University Investment in Affordable and Responsible Housing

a. The University shall divest the UCRP and General Endowment Pool from Blackstone and other housing corporations failing to commit to responsible landlord standards of: freezing of rental rates, no “no fault” evictions, and safe and health [sic] properties.

b. The University shall invest the billions currently invested in Blackstone in truly affordable, social housing for students, employees, and community, including housing on UC land. Such housing shall include substantial allocations for individuals who fall into the “Extremely Low”, “Very Low”, “Low”, and “Moderate” income categories, based on household size, as updated annually by the United States Department of Housing and Urban Development.¹⁹

In Minnesota, the Minneapolis Federation of Teachers has proposed the following:

To address the urgent needs facing our school system, MFT59 wishes to partner with Minneapolis Public Schools on the following efforts [that call for addressing climate change and public housing]:…MPS and MFT shall collaborate with the TRA, PERA, and MSBI [initials for pension funds] to identify and move away from any investments of MFT members’ deferred compensation that are contributing to climate change and put funding towards investments that further an equitable transition to a green future for the benefit of our students, staff and communities.²⁰

MFT and MPS shall convene a quarterly labor-management working group on MPS enrollment, with the express purpose of oversight and recommendation-setting for MPS policy regarding enrollment….Topics to be considered may include but shall not be limited to:…Consideration of how MPS community resources including district investments and public pension funds can be directed toward public housing and other goods that offer stabilization to school-age families.²¹

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The United Auto Workers has issued a call urging other unions to align their contracts with UAW’s 2028 expiration dates.²² One of the UAW bargaining goals is to regain pension coverage for autoworkers who are no longer covered by pensions. This sets the stage for a four-year campaign that started in Minnesota this year and can build toward 2028, when the UAW national auto contracts expire. It is a campaign that lifts up and demands that all workers deserve pensions and that workers should have greater control over how workers’ capital is invested—the result of which should be pension funds investing hundreds of billions of dollars in things that benefit workers, their communities, and the environment, and divesting from things that cause harm.

Imagine if each year leading up to 2028 we had increasing numbers of campaigns like the Minnesota effort, in which community groups and unions align, create common demands, build to a common compression date, and march and strike in greater and greater numbers. Imagine if hundreds of thousands of union members learned that the pension system is rigged to enrich Wall Street, and joined the campaign. Imagine if environmental groups and racial justice and housing organizations joined the struggle, and supporting the campaign became a litmus test for politicians who want our votes.

We have an extraordinary opportunity to unite our movement, fight for a multiracial democracy, and win transformational political and economic change. Imagine that in 2028, millions of people from community, labor, and racial justice groups join together in marches, demonstrations, and mass strikes demanding pensions and control of workers’ capital to ensure our current and future financial security while transforming our communities. As a result, we will not only hope this is possible but also start to taste, feel, experience a world in which our money is used to build affordable housing, fix our schools, and heal our environment instead of lining the pockets of Wall Street financiers and billionaires. Such a world is within our reach—if we dare to fight for it.

Notes

1. The Federal Reserve publishes data on state and local defined benefit assets on a quarterly basis. As of the fourth quarter of 2023 (December 31), aggregate public pension assets were $5.99 trillion, an increase of 7.9 percent from the $5.56 trillion reported for the prior quarter. This is over one-fifth (21.4 percent) of US gross domestic product. (Total US GDP is about $28 trillion.) See Public Pension Assets Quarterly Update (Q4, 2003), National Association of State Retirement Administrators, accessed April 30, 2024, www.nasra.org/content.asp?admin=Y&contentid=200#:~:text=Quarterly%20Update%20(Q4%202023)&text=As%20of%20the%20fourth%20quarter,reported%20for%20the%20prior%20quarter.
2. “National Data,” Public Plans Data, accessed May 16, 2024, publicplansdata.org/quick-facts/national/.
3. Public employees were originally excluded from the Social Security Act of 1935 (SSA) because it was assumed they had existing retirement coverage. In 1950, Congress passed an amendment to the SSA, allowing states to extend Social Security to specified public employees. For teachers, some states have opted in to Social Security and others have not. See “Not All Teacher Retirement is Created Equal,” National Center for Education Statistics, accessed May 16, 2024, nces.ed.gov/programs/mapED/storymaps/TeacherSocialSecurity/index.html.
4. See Hannah Levintova, “The Smash-and-Grab Economy,” Mother Jones, May + June 2022, www.motherjones.com/politics/2022/05/private-equity-buyout-kkr-houdaille/.
5. “National Data.”
6. Steven K. Ashby and Robert Bruno, A Fight for the Soul of Public Education: The Story of the Chicago Teachers Strike (Ithaca, NY: ILR Press, 2016).
7. See, for example, the AFL-CIO’s Ullico Infrastructure Fund: “About Ullico,” Ullico, accessed April 30, 2024, www.ullico.com/about-ullico/; and the work of Heartland Capital Strategies: “Heartland Capital Strategies,” Steel Valley Authority, accessed April 30, 2024, www.steelvalley.org/heartland. See also Michael Totty, “How Unions Tried to Harness Pension Fund Clout to Aid Organizing,” review of Labor in the Age of Finance: Pensions, Politics, and Corporations from Deindustrialization to Dodd-Frank, by Sanford M. Jacoby, UCLA Anderson Review, August 11, 2021, anderson-review.ucla.edu/how-unions-tried-to-harness-pension-fund-clout-to-aid-organizing/; David H. Webber, “Should Labor Abandon Its Capital? A Reply to Critics,” Harvard Business Law Review 12, no. 2 (2022): 215–48; and David H. Webber and Michael A. McCarthy, “Is Labor’s Future in Labor’s Capital? A Debate,” LPE Blog, Law and Political Economy Project, June 12, 2019, lpeproject.org/blog/is-labors-future-in-labors-capital-a-debate/.
8. See Flannery Dolan et al., The Budgetary Effects of Climate Change and Their Potential Influence on Legislation: Recommendations for a Model of the Federal Budget (Santa Monica, CA: RAND Corporation, 2023).
9. “Path to net zero,” CalSTRS (California State Teachers’ Retirement System), accessed May 1, 2024, www.calstrs.com/path-to-net-zero.
10. “NY Common Retirement Fund Announces New Measures to Protect State Pension Fund From Climate Risk and Invest in Climate Solutions,” Office of the New York State Comptroller, press release, February 15, 2024, www.osc.ny.gov/press/releases/2024/02/ny-common-retirement-fund-announces-new-measures-protect-state-pension-fund-climate-risk-and-invest.
11. Sarah Jaffe, “The Most Important Labor Story Right Now Is in Minnesota—It Might Be the Model We All Need,” In These Times, March 2, 2024, inthesetimes.com/article/minneapolis-stpaul-minnesota-unions-labor-strike; and James C. Benton, Patrick Dixon, and Joseph A. McCartin, Aligning for Power: A Case Study of Bargaining for the Common Good in Minnesota (Washington, DC: Georgetown University, Kalmanovitz Initiative for Labor and the Working Poor, 2024).
12. Max Nesterak, “Thousands of Twin Cities janitors and nursing home workers launch strikes,” Minnesota Reformer, March 4, 2024, minnesotareformer.com/2024/03/04/thousands-of-twin-cities-janitors-and-nursing-home-workers-launch-strikes/; and Max Nesterak, “Twin Cities janitors win employer-funded retirement in tentative agreement,” Minnesota Reformer, March 9, 2024, minnesotareformer.com/briefs/ twin-cities-janitors-win-employer-funded-retirement-in-tentative-agreement/.
13. See Bargaining for the Common Good, accessed April 30, 2024, www.bargainingforthecommongood.org.
14. See Luke Goldstein, “University of California Under Fire for Blackstone Investment,” American Prospect, February 28, 2023, prospect.org/education/2023-02-28-university-california-blackstone-housing/; and David Sirota and Andrew Perez, “How California public employees fund anti-rent control fight unwittingly,” The Guardian, October 23, 2018, www.theguardian.com/us-news/2018/oct/23/california-public-employees-unwittingly-fund-rent-control-fight.
15. Amy Schur and Sara Myklebust, “Want to Shift Power? We Need to Take on Real Estate,” NPQ, October 26, 2022, nonprofitquarterly.org/want-to-shift-power-we-need-to-take-on-real-estate/.
16. Chicago Teachers’ Union contract bargaining proposal. Approved by the House of Delegates in March 2024. (Source not publicly available.)
17. Alejandro Lazo and Wendy Fry, “Corporate landlord’s California buying spree alarms tenants: ‘I only earn enough to pay the rent,’” CalMatters, May 24, 2023, calmatters.org/california-divide/2023/05/california-renters-fear/.
18. Bobbi Murray, “Cash of the Titans: Prop 15’s Big-Spending Opposition,” Capital & Main, September 25, 2020, capitalandmain.com/cash-of-the-titans-prop-15s-big-spending-opposition-0925.
19. “Article XX: Affordable Housing,” AFSCME (American Federation of State, County, and Municipal Employees) SX Proposal, February 22, 2024.
20. “MFT Proposal for Memorandum of Agreement: MPS EcoJustice Initiatives,” Minneapolis Federation of Teachers and Educational Support Professionals, Local 59, email to MPS, January 17, 2024.
21. “MFT Proposal for a Memorandum of Agreement to Establish a Working Group on MPS Enrollment,” Minneapolis Federation of Teachers and Educational Support Professionals, Local 59, December 18, 2023.
22. Jonathan Rosenblum, “Shawn Fain’s New Year’s Resolution Is to Lay the Ground for a National Strike,” The Nation, December 28, 2023, www.thenation.com/article/activism/shawn-fain-uaw-organizing-national-strike/.