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 …