Getting it Wrong -- Now Magazine on the CAW and Pensions

This week's Now Magazine includes a piece by Alice Klein on the GM and Chrysler bankruptcies. For the most part there is not much that is original -- it is more or less a laundry list of the problems that are likely to arise as these former giants proceed through bankruptcy.

Toward the end of the article, however, Klein strikes out in a new direction that seems both bizarre and either factually wrong or unaware of the position of the CAW on co-managing investments . She seems to suggest first that unions (presumably the CAW) have some control over investment of pension funds, or should and second, that given taxpayer funding of pension shortfalls, they have a responsibility to invest according to ethical standards. She does not define these standards, nor does she suggest who should.

Where to begin?

First, the CAW has no say in how these funds are invested. Nor does it want one. These are not "union plans." Investment decisions are made by the employer. Moreover, these are defined benefit plans, and given the recent near death experience, the paramount concern of the CAW must be that these pensions are paid in full. And second, it would seem likely that government money will be used in large measure to fund current liabilities and not to pursue other policy goals, however worthy they may be.

Therefore, if Ms. Klein is suggesting that the CAW has the power to control pension fund investment, she is factually wrong. If instead she is suggesting that they should participate in a way that pursues diverse and, let's face it, often conflicting goals, then she is asking workers who are facing a possibly cataclysmic future to shoulder an additional burden.

Perhaps it would be more productive to ask the banks, who have benefited from a $200 billion backstop through the EFF program that dwarfs pension fund bailouts, to look to their investment portfolios. After all, unlike auto workers and their employers, these institutions are tripping over themselves in painting a rosy picture of their well-being and are paying unprecedented dividends.