CNN’s headline says it: “Edward Johnson III, Fidelity CEO who revolutionized investing, dies at 91.” He certainly did. He destroyed good pensions.
Son of a mutual fund entrepreneur, Johnson took over from his father and, according to CNN, “helped revolutionize the way Americans save and plan for retirement by making Wall Street more accessible to all investors.” Yes, you the little guy could now play the stock market with help from Fidelity Investments.
CNN quotes Sanjiv Mirchandani, a former president of Fidelity Investments’ National Financial Services, from a company memorial video.
“He [Ned Johnson] was playing three-dimensional chess when other people were playing checkers.” Actually, Johnson and the mutual fund trade association extracted most of the money gathered under their management from Defined Contribution retirement accounts. DC accounts depend on how much you choose to put in, how well you play the stock market while you try to do your job and get a promotion, and how much you let mutual funds like the ones in Fidelity Investments play with your money.
Until the mid-70s, retirement benefits were mostly Defined Benefit pensions. Your employer guaranteed you a monthly benefit upon retirement. The exact amount was set by your years and level of earnings, but it was up to General Motors or U.S. Steel or whomever to maintain the fund so it would pay the obligated benefits. If your workplace had a trade union contract, it was a collective struggle that helped boost and maintain set the benefit levels.
During the 1970s Defined Benefit pensions fell victim one after another to Defined Contribution accounts. Ned Johnson and the mutual fund industry tasked a young lawyer-lobbyist, Matthew P. Fink, to have Congress pass the legislation that resulted in Individual Retirement Accounts. He achieved what the industry paid him for. In a tell-all book, The Rise of Mutual Funds: An Insider’s View,” Fink boasts, “ERISA enacted the mutual fund industry’s entire wish list.” He wrote tax advantages for Individual Retirement Accounts into the law. He secured tax advantages for mutual funds and therefore for the limitless array of stocks and bonds and other financial papers they run through their portfolios; saner voices had wanted tax help limited to insurance annuities. Finally, the law spared Fidelity Investments from virtually all fiduciary responsibility to the workers who put their money into its mutual funds.
When the crash of 2008 hit, countless teachers, truck drivers, and other workers who hoped for a “middle class” retirement lost a quarter or a third of the money in their Fidelity and other IRAs. Overnight their retirement date receded five, ten or more years into the future.
Now the media laud one of the key drivers of the inside legislation that paved the way to that disaster and Ned Johnson’s multi-billion-dollar personal fortune.
A true hero would be someone who raised Social Security to all you need for retirement and guaranteed it to every worker. But there is no such individual. The heroes of that achievement will be the working people who replace capitalism with socialism.