Monday, August 01, 2005
New York Times Business Section Malpractice
The point of her piece seems to be that a series of Wall Street money managers collected $125mm in management fees while United's pension assets failed to keep pace with United's pension liabilities. It is a long article with many words. It has a catchy title which impugns the credibility of a number of fancy money management firms. It lists them and the fees they collected. It has one chart which shows the widening gap between the plan's assets and liabilities between 1999 and 2005. If you go to look at the article, click on the graphic button on the first page.
That's it. There isn't one shred of data to support a single thing alleged either by the title of the article or the words themselves. There is no data describing the performance of the plan's assets in aggregate or by individual manager. There is simply nothing there, no facts at all.
Here is her attempted point, I think, incompetently and incorrectly made: that allocation to equities ("Wall Street") broke the pension. Bull---t.
Here is what made it impossible for United's pension plan to keep pace with liabilities:
1) Rather than the assets, let's focus on the liabilities for a moment: look at the rate of growth. Of course, the data isn't there, but they substantially outpaced the growth of any income stream of acceptable risk. Why? An archaic defined benefit plan structure coupled with an overly generous management bent over by the Airline Pilots Association. For decades, management rolled over to union demands and gave employees ridiculous retirement benefits.
Eventually, the company cannot produce sufficient economic wealth to fund its retirees lifestyle. This is a non-trivial issue in any maturing industry with union labor -- like the auto industry.
2) This leads to the asset problem. Faced with a rapidly growing set of defined benefit liabilities and an adverse industry environment, pension managers face little choice but to take more risk and extend duration to seek higher returns.
Frankly, it looks like the United Pension managers picked some outstanding money managers. But they all faced an impossible task.
United defined benefit plans, of which there is not a single structural mention, were completely incompatible with economic reality.
So why did she write this article this way? Is she a fool? Is the NYT editorial board so stupid? Well, maybe.
On the other hand, we know they are opposed to seeing Social Security reform. And this topic is directly in that path. SO here, says the NYT business section, is what happens with private sector management of pension assets.
Her article is appalling. It is poorly researched. It lacks any facts whatsoever to support any of her claims. It is complete malpractice. I seached her name in the NYT index and found she is the writer who seems to cover corporate pension issues. I don't know what her axe is. Maybe she doesn't have one and is simply incompetent. But how could she not once even mention the notion comparing defined benefit plans with defined contribution plans? Not once? How could she implicitly criticize United's money management decisions without citing performance data? How could she not observe the growth of the plan's liabilities? How?
2 Comments:
By 
Cardinalpark, at
Mon Aug 01, 11:10:00 AM:
Most folks would just buy their bs. i view it as a resposnibility to try to call some of it out. But I take your point.
By Robert, at
Mon Aug 01, 01:21:00 PM:
Exactly. No mention at all of liabilities.
The story could have been a starting point for why defined benefit company pensions are inherently risky because 1) they tie employees to the fortunes of a company long after they have any incentive or ability to improve its performance, and 2) they hamper companies with the obligation to devote cash, capital, and management resources to a task far removed from maintaining their competitiveness and profitability in the marketplace.
It could have further made the point that the PBGC actually perpetuates the system by insulating the companies and employees from these risks and transferring them to the taxpayer.
Instead we get a piece that wanders all over the map and blithely throws around "conflict-of-interest" in place of serious analysis.
Maybe someone should investigate the NYT pension plan.
