Vetoing Financial Security

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President Joe Biden is widely expected to issue the first veto of his presidency in response to a bipartisan congressional resolution aimed at protecting pension funds from politically motivated investment managers. While it’s obviously not surprising for a president to side with his own administration’s regulators, this puts the White House on the wrong side of what has become one of the most important topics in the word of finance and investing.

The backstory to what we’re hearing about this week goes back over 50 years, so a little history lesson is in order. In the mid 20th century, there were widespread worries that both corporations and labor unions were mismanaging their pension funds and putting the financial future of retirees in jeopardy. In 1961, for example, President John F. Kennedy created the President’s Committee on Corporate Pension Plans to investigate and issue recommendations. Not too long after, in December 1963, the Studebaker-Packard Corporation defaulted on its pension promises to workers, making many Americans more aware of the threat. Teamsters boss Jimmy Hoffa being sentenced to prison in 1967 for defrauding his own union’s pension fund also attracted policy-makers to the idea of new legislation that could protect workers. Partially in response to these and other scandals, Congress eventually passed the Employee Retirement Income Security Act in 1974, and President Ford signed it on September 2 of that same year.

ERISA set rules for how corporate and labor-union pension plans should be managed, and charges the Department of Labor with implementing them. One of the most important provisions built into the law was that pension plans focus exclusively on generating financial return for pension beneficiaries, not be run for the benefit of those managing them. They weren’t to be looted and used by corporate managers to benefit shareholders, and they weren’t supposed to be the private slush funds of unions bosses. Importantly, this central goal wasn’t some new idea dreamed up by a post-Watergate Congress. The idea that a trustee or fiduciary has an obligation to manage assets solely for the benefit of a trust’s (or pension fund’s) stipulated beneficiaries is a very old one in Anglo-American law. ERISA merely created a specific mechanism for enforcing this ancient obligation.

Read the full article on National Review.