WALL STREET, MUTUAL FUNDS GET REMINDER OF LABOR’S PENSION CLOUT: UNIONS TARGET SOC SEC REFORMERS

Unions are turning up the heat on the nation’s biggest financial firms to keep them from supporting the use of payroll taxes to fund individual Social Security accounts.

Top officials of the AFL-CIO, the American Federation of State, County and Municipal Employees and other unions have written letters to chief executives of nine firms, including Fidelity Investments’ parent FMR Corp., J.P. Morgan & Co. Inc., State Street Global Advisors and Merrill Lynch & Co., which manage billions in investments for pension funds of their members.

The letters ask firms to detail their position on Social Security reform. Officials hint that pension funds may yank business from firms that want to use a portion of payroll taxes to fund private accounts.

Of the companies targeted, State Street Global in Boston has been the most prominent advocate of doing just that, through its resident Social Security ambassador, William Shipman. A company principal, he is co-chairman of conservative Washington think tank Cato Institute’s Social Security Privatization Task Force.

Other companies on the list include Morgan Stanley Dean Witter & Co., American Express Co., Chase Manhattan Corp., Citigroup and Bankers Trust New York Corp.

Both the AFL-CIO and the government employees union deny that the campaign is intended as a threat. But they make it clear that they will inform their members about the companies’ positions.

“We’re talking to the unions who do business with State Street and the trustees of the pension money to let them know this is the practice of State Street and to see if this is in the best interests of retirees that are supposed to be the sole beneficiaries of this money,” says Ronald Blackwell, director of corporate affairs for the AFL-CIO in Washington.

Unions control about $371 billion of assets of the top 1,000 funds in the U.S., according to InvestmentNews sister publication Pensions & Investments. Public employee pensions total more than $1.3 trillion, says Stephen Regenstreif, AFSCME’s director of retirement programs.

State Street Global, which manages $485 billion, handles $4.6 billion for union funds, according to Standard & Poor’s 1999 Money Market Directory of Pension Funds and their Investment Managers.

The federation’s letters, signed by president Gerald McEntee and mailed late last year, say using even a portion of payroll taxes for private accounts would require cuts in basic benefits and expose workers to “unaffordable risk.”

Paraphrasing the letter, Mr. Regenstreif says: “It disturbs us that your firm or its officials may be helping to underwrite pro-privatization organizations and campaigns and we would like to know directly from you if this is the case so that we can correctly inform our local leaders and membership.”

He says a few firms he would not name have already responded but responses were “very general,” and the union wants more information.

In the wake of the union effort, there are hints a rift is developing between Mr. Shipman and State Street Corp. CEO Marshall Carter.

One Washington lobbyist who opposes individual account carve-outs says Mr. Carter told him at the White House Conference on Social Security in December: “If you want State Street’s position on Social Security, talk to me. Bill Shipman is not representing State Street’s current position.”

“He hasn’t said that to me,” Mr. Shipman responds. “He and I chat all the time.”

Mr. Carter was out of the country last week and could not be reached, says a State Street spokeswoman.

Mr. Shipman and Mr. Carter, co-authors of a book on Social Security reform, “signed off” on State Street’s position, she says. “We favor allowing all Americans to invest part of their Social Security tax in individual accounts -ones that they would own and would be their personal property.” State Street and AFL-CIO officials have met to discuss the issue, she confirms.

While unions oppose carve-outs, they’ve supported President Clinton’s plan to use a major part of the budget surplus to buttress Social Security.

As for Mr. Shipman’s position, the AFL-CIO’s Mr. Blackwell says: “It’s in the financial interest of his firm and many such investment management firms who stand to gain a lot of business if these funds are privatized.”

Wall Street has quietly pushed for reform through political contributions and the Securities Industry Association’s lobbying, but firms contacted about the letters say they merely support the Investment Company Institute’s posture.