Using pension funds to save the labor movement
Organized labor, reeling under the surrenders unions are being forced to make at many bargaining tables this year, hopes to regain much of its lost muscle by insisting on a dominant voice in the investment of hundreds of billions of dollars in employee pension reserves.
This treasure pile, now totally under management command in more than 80 percent of all pension funds and growing at a rate of 12 to 14 percent a year, is by far the richest source of capital available to meet the modernization needs of American industry and to restore its competitiveness in world markets.
The AFL-CIO and its principal affiliates have decided that the best chance for triumphing over their current avalanche of troubles lies in assigning priority in the 1980s to a push for control over decisions on which corporate stocks and bonds will receive preference and which will be shut out in channeling the golden tide of pension cash.
Victory for labor in this push would represent a giant stride toward recapturing the economic leverage stripped from unions by the precipitate recent decline in the effectiveness of their strike weapon and in their ability to count on powerful allies in government for succor in emergencies.
History may record it as a supreme irony if money power, that classic weapon of the bosses, does become the instrument of salvation for a labor movement skidding downhill, but unionists see in just such a reversal of the tenets of both Adam Smith and Karl Marx the key to checking the large-scale exodus of jobs from union strongholds in the Northeast and Middle West to the ''right to work'' states of the Sunbelt or to low-wage sanctuaries overseas.
Union leaders are under no delusion that corporations will readily share, much less abdicate, the sovereign power they now have to determine where pension assets will be invested. Actual placement of the money is usually left to such Wall Street titans as Morgan Guaranty, Citicorp, Chase Manhattan, Equitable Life , and Prudential, and a transfer of authority to labor would constitute a colossal redistribution in the nation's economic power balance.
That is especially true since the $650 billion now squirreled away in pension reserves is expected to cross the trillion-dollar mark by mid-decade and to be just short of $3 trillion by 1995. Another trillion will be held in the pension funds of state and local governments by that time, according to Labor Department estimates.
A hundred of the country's biggest companies have formed a coordinating committee to resist the union drive for injection of ''social values'' into the decisions on where to invest this huge reservoir of assets. Their united front makes it probable that the fiercest labor-management battles of this decade will be fought on the pension front. But formidable governmental hurdles will also have to be surmounted if labor is to make any significant change in the criteria that govern the placement of money held in trust to guarantee workers' security in old age.
The Employee Retirement Income Security Act of 1974, better known as ERISA, prescribes rigid fiduciary and actuarial standards designed to ensure that pension fund portfolios satisfy the requirements of prudence on safety and yield and that every investment decision is made ''solely'' in the interests of the plan's participants and beneficiaries. The abuses that turned the $2.5 billion Central States Pension Fund of the International Brotherhood of Teamsters into a happy hunting ground for racketeers were a potent spur to Congress in its passage of the pension reform law eight years ago.
During the Carter presidency initiatives by the White House to promote ''reindustrialization'' through use of pension funds backed up by federal guarantees, plus administrative interpretations of ERISA that seemed to open up considerable latitude for social investment, gave union leaders grounds for optimism that they could carry through their drive for a bigger say in pension investment without running afoul of the law.
The ''reindustrialization'' project, an echo of the depression-era Reconstruction Finance Corporation, came to an abrupt stop with President Reagan's inauguration. A further damper on union hopes for a more relaxed official view on using pension reserves to advance social goals is embodied in a declaration by the Labor Department's new ERISA administrator, Jeffrey Clayton, that ''the prudence standard is inviolate.''
Undiscouraged, labor strategists point to their successful use of pension pressure two years ago to isolate the J. P.Stevens textile empire from support by pillars of the financial community - an estrangement that helped impel Stevens to end its long resistance to signing its first union contract. Another labor breakthrough was Chrysler's agreement, as a quid pro quo for concessions by the United Automobile Workers to keep it out of bankruptcy, to put 10 percent of all new pension money into housing, day care centers, and similar undertakings in Chrysler plant communities. The union also designates five companies each year whose stock it considers unsuitable for pension investment because of their racial policies in South Africa.
John H. Lyons, senior vice-president of the AFL-CIO and chairman of its pension committee, says flatly that labor cannot tolerate continued use of funds collected for the protection of unionized workers to bolster companies that are among unionism's bitterest foes, that persistently violate the labor laws, and that export American jobs to foreign subsidiaries. ''This situation must be turned around,'' he declares.