This article originally appeared in the Chief-Leader on June 22, 2020.
In this time of economic turmoil, firefighters deserve stable pensions, not political gamesmanship.
The COVID-19 crisis has put an incredible strain on public pension funds. State and city governments will be under enormous budget pressure as leaders scramble and struggle to recover from the pandemic and bring our economy back to “normal.” Meanwhile, our dedicated public servants—firefighters, law enforcement, health-care workers, and others—continue to uphold their duty in the face of these overwhelming challenges.
Having served on the FDNY for 28 years, I’ve witnessed first-hand the hard work that my fellow firefighters have poured into our community. We each took an oath to serve, accepting the risks of the profession. As a part of our compensation, we were fortunate enough to have a pension guaranteeing a secure retirement. In many cases, this meant sacrificing pay during our working years.
Across the country, nearly 3,000 public-pension plans provide retirement and disability benefits to over 350,000 career fire service and EMS employees. But chronic under-performance and unfunded liabilities in our public pension systems continue to intensify. Meanwhile, institutional investors have become increasingly reliant on proxy advisory firms to guide them on votes affecting company performance and returns on our pension investments.
Given the sheer volume of proposals which investors must consider when voting, proxy advisory firms offer direction by informing and making recommendations on the resolutions. However, two firms, Institutional Shareholder Services (ISS) and Glass Lewis, control 97 percent of the proxy advisory market. With a duopoly, there is very little market choice for plans to choose from.
Pension funds are some of these firms’ customers, which means our retirement security is directly impacted by their advice. Too often, this advice seems aimed at solving society’s perceived political and social ills rather than increasing returns.
Private investors may choose to structure their portfolios around such considerations, as they are solely affected by the financial strategy they implement, but public pensioners are not granted the choice to enter or exit a fund’s investing strategy. Because of this, pension boards must make prudent investment decisions that meet one goal—maximizing returns.
While investment managers are supposed to adhere to their fiduciary responsibility, proxy advisory firms do not have the same obligation. Given their outsize impact, this disparity is very concerning. To combat some of the problems associated with proxy advisors, the SEC is currently reviewing reforms to the industry in order to boost transparency—clearly a move in the right direction.
When young firefighters assume the risks that are associated with the position, their first thought isn’t always their public pension. It’s the fiduciary’s responsibility to ensure that our public servants’ retirement is safe, so that they can focus on the immediate situations in front of them, not the ones at the end of their careers.
Richard Brower is the former Vice Chairman of the New York City Fire Department’s Pension Fund and an Advisory Board member of the Institute for Pension Fund Integrity. He is also the former president of the Uniformed Fire Officers Association.