Mr. Chairman and members of the Council, it is a pleasure to join with EBRI you today for a discussion of Social Investment of pension plan assets. As T-16 sufficiently The IUD desirable study urged socialunions purpose to and seek that direct otherineconomic volvementandinsocial fund that there should be the flexibility to make investments where "there is some present problems due to increased transaction costs or restricting trustee you know, this subject, under various definitions, has been discussed for sacrifice objectivesofshould traditional be secondary. investment criteria." But, they conclude that the discreti management on be through yond what the iscollecti reasonable. veBIOGRA bargaining Banning PHY process. investmentsThe report in certain outlined areas a many years. The Institute held a multi-interest group policy forum on the Conclusion which offer attractive returns could affect optimum fund performance. standar number ds of options: of ERISA "are tooDALLAS tight" L.toSALISBURY allow this sacrifice. They advocate subject in December 1979, and published an edited book in 1980 titled: amendments I. As fulltpension ojoint ERISAadministration plan to increase participation flexibility.and the beneficiary population grow the Opportunity costs associated with the inability to act rapidly could further Should Mr. Salisbury Pension Assets is Executive Be ManagedDirector For Socialof /Political the Employee Purposes? Benefit Research political pressure surrounding investment policy will grow commensurately. dampen 2. investment participation performance. in the appointment of fund advisor Proponents of reduced net returns have cited moral, humanitarian and Institute, a Washington, D.C. based public policy research institution Mr. Shotland and Mr. Glover participated in that policy forum and dedicated to increasing knowledge and understanding of employee benefits. Large 3. federal participation deficits in the andspecification retracting government of investment social goalsexpenditures will Opponents of "social investment" that involves greater worker/union political reasons when calling for increased socially dictated investments. contributed to the book. Having reread that book, all back-copies of the Prior to joining EBRI, Mr. Salisbury served as Assistant Executive Director involvement raise a number of issues. Bernard Curry, a senior vice president 4. serve tosecurity increaseinput pressto ures. proxyGovernment voting program retraction or slower growth Increased emphasis is being placed on socially sensitive investments designed for Policy and Planning of the Pension Benefit Guaranty Corporation (PBGC); U.S. DEPART_fl_NTOF LABOR AFL-CIO's "Labor & Investments" publication, and numerous other publications, Assistant Administrator for Policy and Research of the Pension and Welfare will increase the importance of pensions as a source of economic security. of Morgan The IUD Guaranty report Trust contends Company thatof pension New York security and a former willmember not be of adversly this to benefit plan participants directly. Two examples are investments by Benefit Programs, U.S. Department of Labor; and as Assistant Director of the ERISA ADVISORY COUNCIL the "state of the art," so to speak, has changed very little. Office of Policy and Planning, U.S. Department of Justice, in addition to council has written: When EBRI begins publishing quarterly estimates of total pension affected by worker/union participation or by alternative investments. joint-trust plans which encourage unionization, and investments to encourage other positions. Before joining the Federal Government, Mr. Salisbury held The summary of our book notes: public and private sector positions in the State of Washington. assets later this Meeting yearto study to replace issues involved those previously in the Social published by the ec 1. Additionally, onomic if devel the opment itfund citesdoes inspecific areas not perf where examples orm up plan toofexpectations participants actions someasplans live. a result have Investment of already such worker/union intervention, Investment of whopension will make planupassets the deficiency? Who will "Participants in the Forum reached concensus on two Born in Seattle, Washington, Mr. Salisbury attended the University of Securities and Exchange Commission, a regular benchmark will be available of takensignificant to answer support for their points. the locontention. st opportunities? First, they agreed that the primary advocacy of this type has been viewed as sometimes having economic, political Washington and the Maxwell Graduate School in Syracuse, New York. He is a purpose of benefit programs should be to serve participants as frequent author and speaker on employee benefit topics. investment diversification. June 14, 1983 2. people The IUD withreport, out investment however, experience appears will to behave a relati equal velyparticipation conservative and soparticipants. cial components. Second, they agreed that when comparable risk/return investments are available it should be possible to with experts in the investment of pension reserves. At best, a Make document. Pensi The on For debate Assets example, over Workat For thethe the control forum Workers onand "social investment investment" of pension sponsored assets by will EBRI consider multiplicity secondary of views factors. on the making of investments usually results in Statement of the lowest level of performance - and at worst havoc. continue and will become even more controversial. Ultimately, participants in 1979 some union representatives made the following points: Participants Proponents split of "social . . .investing" on accepting hold reduced that alternati risk/ vereturninvestment 3. funds should continue to be invested solely with the interests of investments knowingly in order ABOUT to achieve non-benefit Dallas L. Salisbury* and I. beneficiaries beneficiaries elected officials will in mind dictate and with union the therepresentati level primary of importance goal ves being shouldthat pension havshould e total security. becontrol placed EBRI approaches objectives." can be pursued without harming pension security and that joint Executive Director over investment decision making. con 4. ontrthe olWriting to payment of this achieve in of selecti July benefits any on1982, substantial pras ocess Elliot a social isBredhoff, diversion desirable. objective. General in Studies investment Counsel, have IUD, cothrust ncluded AFL-CIO, would that 2. rate of return may not be as important as other investment require massive disinvestment and reinvestment at substantial cost. The Employee Benefit Research Institute (EBRI) is a Washington-based, * The views considerations expressedtoinparticipants this statement and beneficiaries. are those of the author and do not and plans Special frequently Counsel, exhibit United Steelworkers investment characteristics of America, AFL-CIO, that seem concluded: inconsistent nonprofit, nonpartisan, public policy research institution founded in 1978. necessarily reflect the views of the Employee Benefit Research Institute, Curry also makes three points regarding investment decisions per se. EBRI's overall goal is to promote the development of soundly conceived its Trustees, There ismembers, not, it or would other appear, staff.a clear concensus among the proponents "Social bonus investing occurs where a trustee, confronted with the long term interests of fund beneficiaries and that this provides private and public employee benefit plans. i. taking non-financial factors into account is highly subjective and with a number of prudent investments that are equally o£ "social investment" as to what it is or how it should be achieved. There would make common standards for evaluating investment performance justificati desirable on fofrom r worker the financial participation standpoint, in investment chooses selecti the on.one that Through research, policy forums, workshops and educational publications, EBRI nearly impossible. provides incidental social benefits as well. contributes to the expansion of knowledge in the field and to the formulation is a concensus, however, that worker/union should have greater involvement in Proponents believe that even though employer plan sponsors have the of effective and responsible health, welfare and retirement policies. This 2. the flow of pension assets cannot reverse a contracting economy and Social bonus investing is neither a panacea for all of work is intended to complement the research and education programs conducted other economic conditions. the investment process. ultimatesociety's liability ills for nor fund an deficiencies, instrument for emplradical oyees shochange. uld be concerned The about by academia, the government and private institutions. paramount concern must always be the "conservative" one of rates 3. adv of ocates return of and change therefore must shouldbe haburdened ve a role. with An showing AFL-CIO that Industrial their Preserve Pension Security preserving the security of pension and welfare funds for the EBRI's education and research materials aid the public, the media and benefit particular of the vision participantscan be andaddressed beneficiaries."without diluting the economic decision makers in addressing employee benefits issues before policy Traditionalists interests of present argueand that future "socially pensioners. dictated" investments may involve Union Department report notes that: decisions are made. The Institute seeks a broad base of support among One of the most recent contributions to the literature in this area is interested individuals and organizations as well as those sponsoring employee costs and/or increased risks that should not be borne and are not legal. In short, those who are opposed to "socially dictated" investments and 1. contributions to plans represent deferred compensation and thus benefit plans or providing professional services in the employee benefits a field. book titled employees Social have Invea sting vital For interest. Pension Funds: For Love or Money. The Concentrating funds in geographical areas or specific types of investments greater worker/union involvement believe that the payment of pensions is a 2. concern over rates of return and a desire for involvement in the two authors are lawyers specializing in labor relations. These authors argue More information on the Employee Benefit Research Institute can be obtained may violate reasonable diversification principles. Some approaches may investment process in no way threatens the security of pensions and, by writing: Executive Director, EBRI, 1920 N Street, NW, Suite 520, the goal of higher returns actually promises greater security. Washington, DC 20036 (202) 659-0670. EMPLOYEE BENEFIT RESEARCH INSTITUTE i_20 N Street, N\V Suite 520 \Vashington. D(" 20036_Telephone (202) 6_0-0670