Union leaders haven't served working people particularly well in the investment management of pension funds. This neglect is especially a problem in defined contribution plans, where individuals rather than the pension sponsor bear the investment risk.
As in the non-union world, defined contribution plans are becoming an important part of the pension benefits for employees under collective bargaining agreements.
The investments for most defined contribution plans for unionized employees are directed by trustees, rather than by the individual members themselves. By and large, the investments are managed too conservatively. This risk-averse stance likely will leave employees over a long time horizon with far less of a pension than had they taken more reasonable risk with a higher potential return.
As labor commemorates the 100th anniversary of the historic Pullman strike, it is practicing paternalism in defined contribution plans. As a result, the plans are managed to protect the more risk-averse investors. Many trustee-directed funds have no equities.
But this situation is changing because of increasing worries about liabilities by trustees, the advent of 404(c) regulations suggesting diversified investment choices, and the interest of members, who have seen the wider choices other employees, typically non-union, have.
In the spirit of the Pullman days, unions should have anticipated 404(c) to promote better diversification. Instead, corporate sponsors and the government more quickly embraced the investment enhancements.
Unlike with other labor causes, the obstacles to improving defined contribution investment are mostly union leaderships' own making. Unions promote collective action. But one-size-fits-all investing of trustee-directed plans can't accommodate the diverse investment needs of most members.
Defined contribution plans need communication. But unions have become poor communicators, in contrast with their heyday when they could influence public opinion.
On a macro level, unions tend to be reticent about their activities, especially with the media. So there are few stories about innovative union funds from which trustees of other funds can glean ideas, or hold as exemplars of change to be emulated.
When he was executive director, George Lehr sought to hold up the rehabilitated Teamsters, Central States pension fund as a model, not only for union funds but also for all funds. But his ideal died with him. His successors have turned inward and become closed mouth.
On a micro level, unions haven't devoted the same attention to investment education that they have for training, or retraining, members in trades. Trustees justifiably worrying about the capability of members to invest more often than not have succumbed to paternalism rather than provide education to assist members to take control.
This lack of communication hardly furthers union organizing, especially among the young, who see little innovation coming from joining. It might be a part of the reason unions have declined in membership.
Unions have striven to ensure the benefits of invention, management innovation and earnest labor are distributed fairly to the workforce. But they have yet to distribute the benefits of modern portfolio theory to the people for whom it matters most, the man and woman participating in a defined contribution plan.