Wednesday, January 23, 2008

Labor Department to Crack Down on Union Pension Abuse?

The Wall Street Journal reports that the Department of Labor has issued an unwelcome reminder to the managers of the AFL-CIO pension fund: while they may wish to use pension funds to advance political goals, the law forbids them from doing so:

The Labor Department letter addressed a reported AFL-CIO plan to promote shareholder proposals that press companies to offer more generous employee health-care benefits, and that would require companies to disclose political contributions so shareholders could see if support was being given to candidates who don't share labor's views on health care.

Before undertaking "to monitor or influence the management of corporations," the department said, fiduciaries "must first take into account the cost of such action and the role of the investment in the plan's portfolio, and cannot act unless they conclude that the action is reasonably likely to enhance the value of the plan's investments."

The Labor Department letter comes at an important time. A recent University of Chicago study showed that union-affiliated funds do indeed systematically exercise their proxies to support labor objectives rather than simply to increase shareholder value. This was already evident in unions' statements about their shareholder power, in corporate campaigns such as the attempted ouster of Safeway's leadership during its 2004 labor dispute, and the refusal of some union health and welfare plans to do business with Wal-Mart, despite its low prescription drug prices.

The Department of Labor is required to protect the interests of workers and Union members, not to turn a blind eye to efforts by Union bosses to steer member contributions to their favored goals. If legal action is required to get unions to comply, it would be welcome.

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