Safe and Secure Retirements Threatened by Politics
By Tim Hill, president of the Alliance for Prosperity and a Secure Retirement and a former director of the International Association of Fire Fighters (IAFF) Pension Resources Department
Pensions form the backbone of the covenant between communities and the men and women who serve them as firefighters, police officers and teachers. In return for their years of dedication to others, these public servants deserve a secure retirement. The mechanics of retirement funds differ in the private sector but the idea is the same: Work hard, save for your future and you can retire comfortably. Now, however, a disturbing trend of attacking pensions in the name of partisan politics is spreading, threatening even the retirement funds of private-sector companies like American Airlines.
A troubling ruling in a class-action lawsuit illustrates the damage that can happen when politics are injected into decision-making about retirement assets. On Jan. 10, Judge Reed O’Connor of the U.S. District Court for the Northern District of Texas inexplicably found American Airlines breached its fiduciary responsibility to participants in its retirement plan — by employing an asset manager that allegedly considered environmental, social and governance (ESG) objectives.
The asset manager in question, BlackRock, is one of the largest and most successful investment companies. Curiously, American did not even offer BlackRock funds with an ESG focus to its retirement plan participants, preferring instead a slate of index funds that track broad swaths of the market at low cost. In fact, the judge himself declared the airline went above and beyond in its duty to carefully select an investment manager and did not find any of the funds underperformed their benchmarks, meaning the airline’s workers didn’t suffer financial harm from BlackRock’s alleged ESG goals.
Yet, O’Connor’s decision could set back retirement plans and open up many more employers to similar, politically motivated lawsuits, further harming workers who just want the best return on their savings. This suit is just one of many examples of how partisan groups seeking to score points by demonizing ESG are imposing political litmus tests on firms managing retirement assets — substituting their views for the wisdom of the free market. By federal law, American Airlines and other employers are already required to place the financial interests of their retirement plan participants above other considerations. Eliminating large investment managers who offer well-regarded funds at rock-bottom costs hardly seems like a recipe for ensuring workers’ retirement security.