Commentary from The Defined Benefit
Public pension assets are workers’ deferred compensation. In our view, two proposals now before the Securities and Exchange Commission would weaken the safeguards that protect those assets and the voice pension funds have as investors. The SEC should preserve both.
Last month, NPPC previewed a potential SEC rule change that would roll back pay-to-play protections. The SEC issued its proposal to rescind the rule on September 3. It was published in the Federal Register on September 10, and comments are due November 9.
Political speech does not entitle firms to pension contracts
Chairman Paul S. Atkins argues that “People should not have to choose between their political speech rights and a job in a particular industry.”
The thing is, that framing leaves out the rank-and-file workers whose savings these asset managers want a cut of. Firms seeking public pension business are asking government decision-makers to entrust them with workers’ retirement assets. That relationship deserves scrutiny, especially when campaign contributions can create an actual or perceived conflict of interest.
Labor’s objection to Atkins’ argument is straightforward: the right to participate in politics does not create a right to earn fees managing public pensions without safeguards against influence peddling. Public employees did not spend their careers earning a pension so that their deferred compensation could become a source of political leverage for Wall Street.
Jamie Dimon of JPMorgan Chase deserves zero empathy for his supposed lack of political clout on account of his unfashionably puny campaign donations. While pay-to-play rules may make bank executives mildly lonely every other autumn, Dimon is accidentally admitting something absurd about the American political system. The more we keep our defined benefit pensions shielded from players who yearn to play and pay even more than they already do, the better off those who earn a paycheck through actual labor will be. If that makes CEOs like Dimon – who earn their millions flying around in private jets – feel temporarily unpopular at the club, all the better.
The existing rule does not impose a blanket ban on political contributions. Subject to exceptions, certain covered contributions trigger a two-year restriction on an adviser receiving compensation from the affected government client. That is different from a lobbyist-registration system or a general campaign-finance limit. Some firms impose broader internal restrictions on employee donations, but those policies should not be confused with what the SEC rule itself requires.
The SEC says other antifraud and fiduciary requirements would remain in place if it rescinded the rule. We do not believe those general protections justify removing a specific safeguard designed to keep political contributions from influencing investment manager selection. Wall Street firms seeking public business should be able to maintain a serious compliance program.
Workers’ capital deserves a voice
On September 16, the SEC also proposed rescinding Rule 14a-8, which provides the federal framework for including qualifying shareholder proposals in companies’ proxy materials. The Commission argues that the rule exceeds its statutory authority and would leave the role of shareholder proposals to state law and company governing documents.
From the perspective of organized labor, removing that federal framework would weaken an important tool pension funds use to hold corporate boards accountable. The SEC seems intent on finding reasons not to do its job.
Both the SEC and the firms managing these dollars should remember one key fact: public pension funds own shares in these companies on behalf of workers and retirees. That is part of the combined power of public pensions and the labor movement that fought and won them. Defined benefit pensions are a foundational element of union employment. Our combined assets deserve a meaningful voice, like any other major investor or institution.
Investing workers’ retirement savings should come with the ability to question corporate decisions and press for accountability. Weakening shareholder participation risks letting firms profit from union members’ money while reducing workers’ influence over the equities held for their retirement.
The SEC should keep the pay-to-play rule and preserve a meaningful federal pathway for shareholder proposals. Public employees’ voices deserve protection and equal weight as any other investor.