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Retirement

Is My Union's Pension Fund Hypocritical?

It's not uncommon for a pension plan's sponsoring organization to give the trustees general guidance on unacceptable investments.

Q. I recently learned that my union's pension plan has raised the percentage of its assets invested in private-equity funds from 5% to 10%. At the same time, the union is increasingly critical of private-equity firms -- including some that our plan invests in -- for trampling on workers’ rights and laying off workers unnecessarily at the companies they buy, restructure and sell. I think this contradictory stance is hypocritical and we should steer clear of these assets in our plan. What do you think?

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I agree with you that in this case the union is being hypocritical, but the ethical solution could be either to dump the private-equity funds (as you prefer) or keep them and cease criticizing them publicly.

When asked about this paradox by the press, pension trustees and managers note that they are independent of the union brass and have a fiduciary responsibility to the plan's members -- current and retired workers -- to seek the highest returns. That's why they're heavily into private-equity funds, which have vastly outperformed U.S. stock indexes in recent years. The trustees say they're doing this for you, a future pensioner, to make sure the plan can meet its obligations to you and other plan members.

But it's not uncommon for a pension plan's sponsoring organization, such as a labor union or municipality, to give the trustees general guidance on unacceptable investments, some of which might be highly profitable. For example, the sponsor could instruct the trustees to avoid the stocks of tobacco and casino-gambling companies, or companies that have been implicated in child labor or environmental offenses at overseas facilities. Some high-performing mutual funds veto stocks on this basis, and many pension plans own these "socially conscious" funds.

If a union's leadership publicly disapproves of the role that private-equity firms play in the U.S. economy, it should poll its members on the issue. If a majority of members disapprove, this should be communicated to the pension-plan trustees as investment guidance.

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