By Edward Zelinsky
March 4, 2013 OUPblog - Even before the events in Newtown, I supported the strengthening of gun control laws. Advocates of gun rights correctly assert the need for better enforcement of existing laws as well as the urgency of confronting the violent nature of our culture. But General McChrystal is also correct. There is no compelling reason for civilians to own or possess high capacity weaponry designed for military missions.
The case against the divestiture by public pension plans of the stocks of gun manufacturers is as strong as the case for stronger gun control laws. Such divestitures have been undertaken by public pension plans in New York City, Chicago, and California. If individuals want to avoid gun stocks in their personal investments (including their own IRAs and self-directed 401(k) accounts), they have every right to do so. However, pension fiduciaries are not investing their own money. Such fiduciaries should not use the funds under their control to pursue political agendas — even political agendas with which I agree.
For public pension fiduciaries to divest gun stocks is both futile and troubling. In a competitive market, such divestiture is an economically meaningless gesture. When the New York, Chicago, and California pension plans sold gun stocks, someone else bought them. The net result was an ineffectual game of musical chairs which simply shifted the ownership of these gun stocks from one owner to another.
Moreover, there is no principled limit once political criteria are introduced into the investment of public pension funds. If pension trustees should divest the stocks of gun manufacturers to advance a political agenda, why don’t they also divest the stocks of companies that make the unhealthy foods that New York Mayor Mike Bloomberg correctly identifies as a severe public health problem? Or why do they not sell the stock of the media and software companies which make violent movies and video games?
To avoid this slippery slope, fiduciary law declares that pension funds should be invested, not to further anyone’s social agenda but to exclusively benefit the financial capacity of pension plans to fund the retirement payments they owe. The exclusive benefit rule, as it has become known, precludes the fiduciaries of pension plans from pursuing objectives which, no matter how worthy, divert pension resources from the mission of providing retirement income. Once that diversion starts, there is no convincing place for it to stop.
Many public pension plans confront serious problems including underfunding unrealistic rate of return assumptions and the ongoing retirement of the Baby Boomer workforce, that will stress such plans in unprecedented numbers. In this challenging environment, the exclusive benefit rule serves the salutary purpose of assuring that pension funds are invested with a single-minded focus on producing economic returns. Pension plans should not pursue social agendas which, however worthy, are irrelevant to pensions’ mission of providing retirement benefits.
Our elected officials should push for additional laws to control gun violence and for stronger enforcement of existing laws. The executives of media and software companies should act responsibly to reduce the violent nature of their products. But pension trustees should not divest gun stocks to further the gun control agenda.
Edward A. Zelinsky is the Morris and Annie Trachman Professor of Law at the Benjamin N. Cardozo School of Law of Yeshiva University. He is the author of The Origins of the Ownership Society: How The Defined Contribution Paradigm Changed America. His monthly column appears on the OUPblog.