The Odd Couple: Wall Street, Union Benefit Funds, and the Looting of the American Worker

Readers of this journal are familiar with the contemporary struggles of American workers to retain health and pension benefits, long promised but now often denied. The painful and shameful treatment of retired auto and other industrial workers—who have seen their pensions and health insurance eviscerated and ridiculed as undeserved "Cadillac" legacy benefits—has recently occupied center stage.

What has received less notice is the amount, status, and use of the money that unionized workers have accumulated to pay for health and pension benefits in labor-affiliated benefit funds.¹ The sums involved are huge. Before the market crash of the "Great Recession" in the last quarter of 2008, defined-benefit pension funds that are affiliated with unions and unionized public employers held assets in excess of $3 trillion.² Even with the downturn in financial markets and the attacks on the safety net that workers built through collective bargaining, assets of labor-affiliated benefit funds serve as important providers of capital for the U.S. and global economies.

The fundamental role of labor-affiliated funds is to provide decent benefits for the worker participants. Yet in their efforts to provide and safeguard these benefits, these funds have invested with Wall Street in ways that have been, for the most part, indistinguishable from those of any other large investment pool. Labor-affiliated funds are universal investors; that is, as a group, they invest in every nook and cranny of the economy, in every type of asset, and with nearly every major investment manager. Their collective, though often unfocused, decision-making has a major effect on the economy.

By their nature, nearly all labor-affiliated funds are long-term investors, though they often do not act like it. These funds invest in order to protect and grow the assets necessary to pay off benefit liabilities that stretch out for years in the future. An understanding of the real potential of progressive capital strategies for these funds, and a concerted effort to implement a coherent approach across the labor movement, could dramatically affect the current dynamics of the capital markets, and, indeed, the overall economy. Instead of being at the mercy of financial gyrations, we could build and truly protect assets held in trust for those who labor.

Comparing the assets in labor-affiliated funds to the falling union density rates, it is obvious that the labor movement has the ability to punch significantly above its weight in the capital markets, as it has in its engagement in electoral politics. Yet labor has not exercised this ability; it should.

A Problem Recognized but Unaddressed

For some time, advocates for labor have noted the inherent potential available to labor in this arena. Three decades ago Jeremy Rifkin and Randy Barber wrote The North Will Rise Again, a book which marked the beginning of labor's contemporary consciousness about the nascent power in these labor-affiliated funds.³ Writing in 1978, as the economic decline of the unionized Midwest was in its youth, Rifkin and Barber argued that labor's capital could and should play a central role in protecting the interests of workers and a just society. They also recognized what could happen if this issue were not forcefully addressed. Speaking of workers and the labor movement, Rifkin and Barber wrote, "[T]he question is whether they will continue to allow their own capital to be used against them, or whether they will assert direct control over these funds in order to save their jobs and their communities."⁴

Over twenty years after the Rifkin/Barber book, Leo Gerard, the perceptive president of the United Steelworkers of America (USW), wrote that the "use of workers' capital is one of the key challenges facing the labor movement today."⁵ In 2001 he pointed out that, in spite of the huge pool of assets that sits in benefit funds in which worker representatives are trustees, labor's efforts had "not altered financial market operations in any significant way. All too...