The WALL ST JOURNAL story below details how labor unions are increasingly using their shareholder status to bully corporate management into supporting only liberal causes. This excellent article inadvertently highlights perhaps the biggest problem with defined benefit (DB) guaranteed pension plans — yet it’s the one DB pension problem that is seldom mentioned. DB plans are the back door for socialists to legally control businesses for collectivist goals.
The unions have two main avenues for gaining corporate political influence:
1. The pension funds vote the shares to elect directors, pass resolutions, or otherwise move the corporation in a more PC (if less profitable) direction.
2. Funds can sell off corporate stock in recalcitrant companies all at once for political reasons, materially driving down the price — or they can refuse to buy such companies simply for political rather than economic reasons.
Here’s how it works. DB plans take all the pension money and put it under centralized management. The entity formed to direct the investment of the contributions is largely made up of union officials and allies. The “shareholder” manipulations described in the article will only grow over time, as these funds grow as a percent of corporate ownership.
Ironically, most of today’s DB plans — which invest in the private sector — are GOVERNMENT worker pensions. Few true private companies have DB plans any more — and those that do have scaled down the size. In essence, we are shifting the control of corporate businesses to government unions and their bosses — and we know what they want.
On the other hand, earmarked 401k-type plans are controlled by individual workers who care much more how well their personal retirement account performs than about dictating unprofitable political policies to corporations. 401k’s remove the centralized, collectivist nature of DB plans.
And here’s the final, maddening aspect — the government labor unions really don’t much care about the profitability of the businesses in which they invest their members’ DB pension funds. That’s because they have a 100% pension payout guarantee from taxpayers if the DB pension fund earnings fall short of projections.
My solution? BAN all DB plans — or at least all government DB plans. For so many, MANY reasons. Politicians simply cannot resist giving away higher benefits today that won’t have to be paid for until after they move on. This characteristic seems to be a universal weakness around the globe.
Phase out the DB plans. Better yet, close ’em down completely — paying the existing workers fair lump sum amounts in IRA’s that reflect the current promises to date, but not for future years. Sadly, that means taking on some one-time major debt to “get ‘er done” — but we ALREADY owe that money. Let the workers control their lump sum IRA’s, and then start up 401k’s for future years’ work (if the market “demands” it).
Of course, the BEST solution is to privatize damn near every government function, but we aren’t ready for that step. Yet.
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Intimidation by Proxy
The campaign against corporate free speech targets WellPoint.
The campaign to intimidate companies from exercising their free-speech rights is in high gear as shareholder proxy season arrives, and the most prominent early target is health-insurer WellPoint. The arc of this attack will be one of the election year’s political leitmotifs, and it should be on the radar of every corporate boardroom.
In the favored new tactic of the left, unions and activists are using politicized shareholder resolutions to send a message to corporations: Drop support for free-market and conservative causes, or you’ll take a political beating. Last month saw the smear campaign labelling the American Legislative Exchange Council …
Comments 19
Are you really opposed to a business (in this case, an employee union) using their financial resources to improve their business???
“Are you really opposed to a business (in this case, an employee union) using their financial resources to improve their business???”
Only if it’s a monopoly.
Author
Alger, you’re not some waif in this matter. You well know that these private DB pensions (presumably including union pensions) are insured by the Pension Benefit Guaranty Corporation, a government backed agency that collects premiums to guarantee the pensions, much like FDIC, FSLIC, etc. But more and more of these private pension plans (and the companies that back them) are failing. It appears to be a Ponzi scheme that is running out of new suckers.
When PGBC runs out of money to pay the pensions, who do you think is on the hook to make up the shortfall? No, NOT the Tooth Fairy — though admittedly a common misconception.
That being said, if such private union pensions are TRULY private with no taxpayer guarantee, I have no problem with that — as long as there are no requirements that can be imposed to mandate that we taxpayers HIRE exclusively such workers and pay into such pensions, even when we hire nonunion workers.
Shouldn’t the left be opposed to unions being allowed to vote when they own shares of a company? After all, corporations (unions) aren’t people. Right?
Good point, Michael — IF principles were important to the left. They are not.
The end justifies the means. End of story.
Richard,
Does the same hold true for any business that has government guarantees?
Brian,
Private unions such as those found in the construction industry are certainly not monopolies. Putting that fact aside, how do you feel about restricting the rights of other businesses that clearly are monopolies: SDG&E, for example?
“Private unions such as those found in the construction industry are certainly not monopolies”
Sure they are if one has to join it to be employed.
“how do you feel about restricting the rights of other businesses that clearly are monopolies: SDG&E, for example?”
I”m all for it. I’d prefer to restrict their “right” to exclusivity because introducing competition improves quality and lowers prices for all. We don’t need government managing businesses because it always evolves to a monopoly or cartel, protected by the threat of force. I prefer more peaceful and positive ways to improve the quality of life for all.
Brian,
You do not have to join a construction union to be employed in construction. Don’t you read the propaganda put out by the Associated Builders and Contractors? 80% of the construction work in this town is done non-union.
Companies that have government guarantees? I presume you mean utilities, as they are the only companies that have long term “guarantees,” and even then those guarantees are subject to change at the whim of the regulators. (Granted, too often the regulators are in bed with the regulated, but that’s another problem.
But we can have fun if make the case that the San Diego Chargers, who got a 20 ticket guarantee, should have not been make into a public utility and heavily regulated.
Of course, that begs the question — What the HELL was the city doing, guaranteed the sale of football game tickets?
Some day I’ll come back to this amazing topic in detail, as our younger readers don’t know much about the deal. Such as the fact that — as draw up — the Chargers could net 85% more net by NOT selling a ticket. They had a NEGATIVE incentive — the fewer people showed up for the games, the more profit the Chargers made.
And indeed, in the 7 years of the Charger ticket guarantee, the Chargers never had a SINGLE winning season. Not one! And the year they ended the deal (at HUGE taxpayer cost) the Chargers started to again regularly go to the playoffs.
Just a coincidence, of course.
CORRECTION: But we can have some fun if if we make the case that the San Diego Chargers, who got a 20 year ticket guarantee, should have not been converted into a public utility and heavily regulated. The Spanos family would have freaked out.
Richard,
Again you wander off topic and you also forgot about banks whose government guarantee of its customers’ money is more analogous to the government guarantee of individual pensions.
I’m 101.5 degrees and a wuss — making mistakes in my writing here. Sorry.
The CORRECTION should say “SHOULD have been converted.”
FDIC is still a corporation and banks do pay for the insurance they get.
Michael,
And any company that provides a defined benefit pension pays into the Pension Benefit Guarantee Corporation. Very analogous to the FDIC.
Good point. I see what you are saying now.
Alger, the FDIC and the PBGC are government agencies. They work fine as long as there is not “a run on the bank.” When the “insurance” money runs out, we taxpayers doubtless are on the hook. Moreover, bank guarantees are only for FRAUD or BK — they do not guarantee a return, as PBGC does for defined benefit plans. Mark my words, PBGC is doomed to a taxpayer bailout.
I oppose such government “unfunded liabilities.” We have many, MANY examples of the government getting into the insurance business and underestimating the risks — with the taxpayer providing the unwilling backstop for such meddlings in the market place. Mortgages, hurricane insurance (Florida is playing with fire with it’s underfunded hurricane fund), FDIC, SFLIC, CUNIC, SIPC and on and on.
Of course, the feds guarantee the individual pension accounts (IRA’s, 401k’s, etc.) only against FRAUD and BK — they do NOT guarantee the RETURN — as do thousands of U.S. governments offering defined benefit plans.
Richard,
Actually FDIC guarantees the present value. PBGC generally pays much less than 100%.
Author
Actually Alger, PBGC DOES guarantee full pension value — up to a cap. Just as FDIC and other such programs have account caps.
Currently PBGC guarantees age 65 pensions up to $55,841 annually. Hence career airline pilots, for instance, often get short-changed — but it’s better then getting 100% of nothing.
http://www.pbgc.gov/wr/benefits/guaranteed-benefits/maximum-guarantee.html
What percent of private sector employees can expect to get a guaranteed pension exceeding this amount? 3% maybe?