With $4.1 trillion, the total assets of the 1,000 largest U.S. pension funds are enormous. Some comparisons put the size in perspective. Just looking at dollar value, the total comes close to the $6 trillion combined gross domestic product of Germany, India, France, United Kingdom and Italy. Of all countries, only the United States' GDP is bigger. The pension total is close in size to the intimidating $5 trillion of U.S. federal government debt. It is bigger than any equity market in the world, except for that of the U.S.
The vast amount serves as a keen reminder that pension funds are in a powerful position of influence, more so in this era when capitalism is pre-eminent in economic and public policy around the world.
But that influence is useful only so long as pension funds stick to their mission: to advance the interests of pension participants in building and securing retirement income.
It's easy, however, for pension funds to lose focus because their size can appear to give them influence in so many areas. Those areas include the capital markets, corporate governance, the money management industry, academic fields, politics (through campaign contributions) and public policy on retirement.
Their size, too, increasingly makes them targets by those who have other agendas. For example, Jesse Jackson, the civil-rights activist, long has called for the use of pension money for social investing. He neglects the immense social value of the pension funds already to the economy and individuals. Some states and municipalities have had pension fund social investing program for years, with questionable results.
Rhetoric such as this clouds the purpose of pension funds. Pension funds should be open to new investment ideas, but should only consider those ideas on their investment merits.
The funds' potential to influence corporate governance can lead to potentially risky areas. The idea by the California Public Employees' Retirement System to seek to put its own representatives on corporate boards of directors would take a pension fund beyond an investment vehicle into directly helping to make corporate policy. The idea at this time, fortunately, is only in the discussion stages.
But even when pension funds could, and should, take a stand that would advance the goal of secure retirement income, or on economically targeted and social investment issues, they often are timid in doing so.
Perhaps it is because they know their role in retirement, but are uncertain with other agendas.
Pension funds have in general handled their role prudently and well. But pension fund executives could be more active in some areas without losing their focus on their common goal. They could work more with Congress and the Department of Labor to improve defined benefit plans, which are threatened as a long-term retirement vehicle as sponsors give more endorsement to defined contribution plans. They could shape public policy to reconcile the advantages and disadvantages of each, and to extend pension fund coverage to more workers.
They could speak out more in the debate to improve Social Security, whose benefits often directly affect the value of private pensions. They would seem best to relate the advantages of a privatized system.
Pension funds still have much untapped influence they need to learn to use. They should continue to use it wisely.
