Money is what drives all major election campaigns. In the run-up to the 2012 presidential election, sharp knives have already been drawn on the issue of corporate and union contributions. In addressing this issue, virtually all roads lead back to the much-contested Supreme Court decision in Citizens United v. Federal Election Commission, which made it unconstitutional for the federal government to restrict any “electioneering communication” to the public by a corporation or a union within 30 days of a primary or general election.
Judging from the near-hysterical response to this case, one might have thought that all corporations were devils, such that their total exclusion from political discourse should be required. But even if those radical critiques of Citizens United are mercifully put to one side, a more serious issue remains. Is it possible, in dealing with this issue, to retain some semblance of the balance of power between corporations and unions? In principle, that outcome is fairly inferred from the majority view in Citizens United. It is a generally salutary principle that in any area of political contention, the federal government should not tilt the table in favor of either side. But in the struggle between management and labor, the execution of this particular plan runs into a set of technical difficulties, given that corporations and unions are, as will become clear, organized under very different principles.
Pension funds and the First Amendment
In a recent op-ed in The New York Times, Harvard Law professor and former assistant general counsel of the Service Employees International Union (SEIU) Benjamin Sachs makes the provocative case that current public employee pension fund practices violate free speech. One key component of both Citizens United and the larger body of First Amendment law is that no individual should be forced to support political organizations or causes against his or her will. In Sachs’s view, that position applies to the contributions that public employees are required to make to their own pension funds as a condition of their employment.
In order to see how his argument works, it is necessary to distinguish first, as Sachs does, between two different types of pension programs. Under defined contribution plans, such as the TIAA-CREF, which are held by most faculties in universities, the employer makes a specific contribution to the separate pension plan of each faculty member, who can then invest it in whatever fund he or she chooses. In these cases, the employees take ownership and control over the fund, bear all the risks of a market downturn, and keep all the gains of a market rise. The obligation of the employer ceases once the contributions are made, and the employees gain protection by choosing the mix of funds, debt or equity, domestic or foreign, in which they invest.
These plans have gained much traction in recent years, because they get the employer out of pension management early on. The plans in question are portable, so that they can move with the employee across jobs. The employee is also in a position to invest in either funds or corporations that represent his or her views. The problem of political accountability under Citizens United is thus at an end.
A defined benefit plan operates in quite a different fashion. In these cases, the employer announces to employees that they will receive certain pensions at certain times. The pension amount is determined by a formula that considers salary, length of service, and age. In these cases, the employer turns over specific amounts of cash to third parties to manage the investments, subject to this caveat: If the specified funds and the earnings produce amounts of money in excess of those needed to fund the future pension plans, the employers may usually withdraw some or all of the excess. Conversely, if the funds in question fall short of what is needed, the employer is required to contribute fresh funds to make up for the shortfall. Simply put, the risks of profit and loss in defined pension plans lie with the firm, not with the employee, as they do in defined contribution plans.