Reforming Pensions While Retaining Shareholder Voice

The Harvard Law School Forum on Corporate Governance and Financial Regulation 2019-09-16

Posted by David Webber (Boston University), on Monday, September 16, 2019
Editor's Note: David H. Webber is Professor of Law at the Boston University School of Law. This post is based on his recent article, recently published in the Boston University Law Review.

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.