By David H. Webber

Public pension and labor union funds have been the driving force in diversified shareholder activism. They have also fended off attacks on jobs and proactively created jobs for fund contributors. These funds currently represent almost $4 trillion in assets over which workers have substantial control. That worker control – and the collective nature of defined benefit pension plans – is the necessary precondition for their shareholder activism. Both worker control and collective investment are directly threatened by the rise of defined contribution funds, particularly by well-funded efforts to promote the 401(k) in the public sector, the last bastion of the traditional pension plan (unlike traditional pensions, defined contribution funds do not guarantee fixed payments to retirees). Due to a purported nationwide underfunding crisis for public pensions in particular – a crisis whose scale, scope and even existence is contested by economists and actuaries – many states and cities have wholly or partly abandoned, or are contemplating abandoning, collectively managed defined benefit pension plans in favor of 401(k) plans that are outsources to existing private mutual funds. Far more than legal reforms, like changing shareholder voting thresholds or the prospect of mandatory arbitration provisions, these reforms pose an existential threat to the ability of workers to wield the collective shareholder voice they now wield via defined benefit pension plans.

Source: SSRN