Reforming Pensions While Retaining Shareholder Voice
The Harvard Law School Forum on Corporate Governance and Financial Regulation 2019-09-16
In my article, Reforming Pensions While Retaining Shareholder Voice, published in the Boston University Law Review as part of the symposium on Institutional Investor Activism in the 21st Century: Responses to A Changing Landscape, I argue that the ongoing shift in the public sector from defined benefit to defined contribution pension plans is taking place in the worst possible way, at least from a shareholder rights perspective, one that silences the shareholder voice of millions of workers. I also offer alternative defined-contribution formulations that would help retain that critically important shareholder voice.
Some background: across the country, states and cities face enormous pressure to reform traditional defined-benefit pension plans and replace them with defined-contribution plans. Defined-benefit pension plans promise workers fixed payments in retirement. Defined-contribution plans, like the familiar 401(k), do not guarantee any benefit, instead offering workers a chance to save and invest on their own. The push to shift from defined-benefit to defined-contribution funds is motivated by concern over underfunded pensions, shifting the risk of underfunding from the employer to individual workers. The extent and scope of such underfunding is highly controversial.