The Privatization of Teacher Retirement
At my university, a very substantial portion of my salary (a minimum of 9%) is shaved off to be sent to a retirement fund. Those numbers are very high by the standards of the private sector, where the normal range is considerably lower. I suppose that this arrangement has its benefits and drawbacks. The obvious benefit is that we improvident academics can leave these matters to someone else so we don’t die in abject poverty. (Unless, that is, you are one of those well-paid Canadian professors.) Financial savvy is not really what we are known for. In fact, this post might appear a little unseemly at first: a humanities professor writing about finance? Yet one of the things I’ve liked about PostAcademic is the willingness to dig into the nitty-gritty, unglamorous aspects of the academy, so here goes.
It seems to me that there are significant drawbacks to the now widespread use of retirement investment funds. It is becoming the only choice nowadays, as pension plans are being phased out. (On my first day, I was told that if I wanted to choose a state pension, I would have to work a minimum of ten years…and who can look that far in advance, especially since we can be laid off—i.e., denied tenure. And I was also told that the decision I made could not be changed back.)
So I was reminded of the drawbacks of retirement funds today when I looked at the proxy vote information for the latest election of my retirement fund’s board of directors. Thanks to years of ad campaigns touting their “not-for-profit” status (a slogan that encourages confusion with the very different term “non-profit”), the fund I’m in is considered the virtually “automatic” choice for teacher retirement funds in our privatized age. In fact, it’s just one of two choices at my institution (which is one more than most academics get), and if you’d asked me a couple of years ago about my impression of this company, I would have probably said that they were just beneath the angels in the moral hierarchy (that’s just how powerful their advertising campaign is!).
But the more I look into it, the more skeptical I’ve become of this private fund. Essentially, $5000 a year is being sent in my name to trustees whose job it is to throw that money into the stock market and hope that it doesn’t vanish. Who are these people? Their smiling profiles, provided in the proxy materials, reveal a few salient points:
1. Only three of the ten are academics.
2. Each earns about $200,000 a year just from being a trustee. (One as high as $262,500.)
3. Not one of them works exclusively for the fund.
In other words, the salaries earned by trustees from our retirement fund are probably just a drop in the bucket of their total salaries. I suppose one could go further in this demographic research, like the fact that many of them seem to have some connection to Harvard, few have any experience at or with state schools, and so forth, but I don’t really have the tools needed to find out what these people are being paid to do.
What do retirement fund trustees actually do, other than attend an annual meeting? I’d like to know! According to the confession of one such trustee, “one of the biggest risks facing most funds is the level of ignorance among the trustees. Most of them simply do not know enough to be effective at what they do.” Doesn’t sound promising.
Sure, the teacher’s retirement fund on which I depend has some positive features. It is heartening to see that my retirement fund has stuck to its policy of ensuring gender and racial diversity in its trustee pool, and that it has a “Social Choice” option for investors seeking to avoid investing in objectionable businesses. But there are other ways that this organization may actually be less progressive than market funds at large. They are virtually guaranteed a large percentage of teachers’ salaries, since there is usually no other option. They deal with a pliable customer base, behind whose noble profession they can shield themselves. They probably don’t need to manage portfolios aggressively and can avoid heat-of-the-moment decisionmaking.
If the general public often wonders about what professors do, maybe professors (and all teachers!) need to start wondering what their retirement fund administrators do.