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Subject: Clinton Eyes Pension Fund Investments; Infrastructure Plan Stirs Some
Date: Wed, 18 Nov 92 04:53:56 EST
Message-ID: <19.1992Nov18.045356@AmeriCast.com>

Clinton Eyes Pension Fund Investments; Infrastructure Plan Stirs
Some Worries<By David A. Vise=Washington Post Staff Writer=

President-elect Clinton has a bold idea that excites some people
and makes others nervous: Tapping the retirement funds of mil-
lions of Americans to help boost the sagging economy and contri-
bute to rebuilding the nation's roads, bridges and highways.

 During the election campaign, Clinton said he would turn to the
retirement funds to supplement spending by the federal govern-
ment. In contrast to the federal budget's massive deficit, pen-
sion funds, with more than $3 trillion in cash, stocks and other
investments, look like a giant honey pot.  Following Clinton's
election two weeks ago, members of a previously appointed bipar-
tisan government commission suddenly find themselves developing a
cutting-edge economic idea at an opportune moment, and they are
busily finishing up a detailed pension proposal to give the new
president in January.  "We are trying to bring the largest base
of capital in the country into infrastructure. You are talking
about $30 billion to $40 billion of pension fund money," said
Thomas V. Flanagan, a local consultant who is heading the federal
Infrastructure Investment Commission. Flanagan said he has
briefed some of Clinton's advisers on the details of his nearly
completed pension proposal.

 "They think we are right on track," he said.

 Clinton has said that he has made no final decisions on his pro-
gram to boost investment in the nation's infrastructure, of which
the pension proposal is a part. He outlined his ideas on pensions
in his book, "Putting People First," which he has said continues
to be his blueprint.

 Public pension funds have invested money to meet economic needs
in some states, including Arkansas.

 But Clinton's idea is politically sensitive because of fears
among some financial experts and older Americans about the safety
of pension fund money and because it poses a challenge to the
traditional practice of investing solely for the financial bene-
fit of retirees, rather than to meet any other social or politi-
cal goal.  "We're very leery of it because pensions funds are the
last big pot of money in the country," said Mark Ugoretz, who
heads the ERISA Industry Committee, a Washington-based associa-
tion of large employer pension funds. "People are nervous about
the sanctity of pension funds."

 Gordon Gould, principal in the Los Angeles office of the Towers
Perrin Co. consulting firm, said he routinely advises corpora-
tions to invest pension fund money solely for the benefit of re-
tirees. His firm recently issued a statement saying Clinton is
likely to encourage investment of pension fund money in communi-
cations, transportation and environmental systems, and conversion
of the defense industry.

 Asked what advice he would have for Clinton on pensions, Gould
replied, "I'd advise him to keep his hands off."

 Any Clinton plan on pension funds next year is likely to address
major concerns by including two key features, according to Felix
Rohatyn, the senior partner of the Wall Street firm Lazard Freres
& Co., who has advised Clinton on economic issues.  Rohatyn and
others said that rather than mandating pension investments, Clin-
ton likely would adopt a voluntary approach, leaving the final
decision about investments up to individual money managers. In
addition, Rohatyn said any bonds or other infrastructure invest-
ments offered to pension funds would have to offer financial re-
turns competitive with other investments.

 Rohatyn said a mandatory program was not a good idea and was un-
necessary because Clinton could use "moral suasion" so that
pension-fund money managers "will feel some kind of moral respon-
sibility to participate in the rebuilding of our country."

 Momentum for such a proposal on pensions also is building within
the Department of Labor, which over the years has had a strict
policy directing pension fund managers to make investment deci-
sions for the "exclusive benefit" of retirees. A Labor Department
task force on pension investments completed a draft recommenda-
tion last week calling for the agency to take a more flexible ap-
proach that would encourage money managers to consider invest-
ments that provide economic benefits to a region or an industry,
without sacrificing returns for retirees.

 The Labor Department initiative on corporate pension plans was
spurred in part by the growing popularity of "economically tar-
geted investments" by union, city and state pension plans across
the country.

 "We are doing good and doing well at the same time," said New
York City Comptroller Elizabeth Holtzman, who has nearly $1 bil-
lion of city pension money in investments that create jobs, pro-
vide money for small businesses and affordable housing, and, she
emphasized, provide solid returns for retirees too. The New York
funds have gone toward an array of projects ranging from renovat-
ing a historic neighborhood and jazz club in Harlem to helping an
immigrant from Ecuador open a shoe store in Manhattan.

 "The president has a huge deficit and not a lot of maneuvering
room, Holtzman said. "... Private pension funds would be invested
in Singapore or Hong Kong or Argentina. What about putting it to
work in our cities? This is the biggest pool of capital in the
country and we need to figure out how to mobilize it."

 Clinton has had positive experience steering pension fund money
in Arkansas toward in-state investments, according to interviews
with Arkansas government officials.

 In 1985, Gov. Clinton signed a bill that encouraged public em-
ployee pension funds in Arkansas to invest more than 5 percent
but less than 10 percent of their money within the state. Since
that time, tens of millions of dollars of pension fund money has
been invested in everything from small businesses to mega-
retailer Wal-Mart Stores Inc. to a start-up medical clinic in Ar-
kansas.

 "We are looking more at investments that will create jobs," said
Larry Dickerson, who manages millions of dollars of state employ-
ee pension money as chief financial officer of the Arkansas High-
way Department. "If we can do that in a way that protects the as-
sets of the fund, while also creating jobs, then that is what we
would rather do." Dickerson said the financial returns on in-
state investments in the Highway Fund have been competitive with
other investment options.

 Those who oppose Clinton's plans for pensions say they worry
about the spread of the kinds of multimillion-dollar losses suf-
fered by the Kansas state employees pension fund after a decision
was made to invest more to help local businesses in that state.
They also cite the precedent that would be set for potentially
damaging political directives for pension plans in the future.

 Pension plans may have plenty of cash and other holdings today,
but government officials have said that weaknesses in the pension
system may end up costing taxpayers billions of dollars in the
future. That figure could grow if pension fund moneyis invested
unprofitably in infrastructure projects and if the funds are
called upon next to help solve some of the nation's other prob-
lems.

 "When you talk about using that money for broader social pur-
poses, you may be creating an inherent conflict between what is
good for the (retirees) and what may be good for some social pol-
icy," said David Sertner, legislative representative for the
American Association of Retired Persons.

 Ugoretz warned, "You are doing something similar to the pension
industry that you did to the savings and loan industry. You are
opening up the door."

 In his book "Putting People First," Clinton said he wanted to
steer investment toward infrastructure by creating a Rebuild
America Fund with a $20 billion annual federal investment for the
next four years that would be "leveraged" by other sources, in-
cluding "pension fund contributions."

  Robert Reich, the Harvard University professor Clinton picked
last week to oversee economic policy for his transition team, has
said billions of dollars should be aimed at "people and infras-
tructure" - better educating the work force and creating stronger
transportation and communication systems.

 Asked about the role retirement money would play in Clinton's
infrastructure investment program, Reich was reluctant to
respond. He declined to answer several questions about the status
and details of any Clinton pension proposal and then said, "There
was some discussion during the campaign, but in the 12 hours I've
been here at Little Rock, the issue has not come up once."

 Flanagan said he thought increasing amounts of retirement money
would be used to meet the needs of the country in the next few
years. "The politics are changing," he said. "People are starting
to look to pension funds more and more."

Staff writer Ruth Marcus contributed to this report.<02:14 11-
18C9999-----

Copyright 1992, The Washington Post.  This story is from the
Washington Post's Capitol Edition On-Line and is not to be ar-
chived or redistributed.

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