What Are Pensions? And Why Are They Powerful?

Defined Benefit Pensions are a promise from your job that you’ll have money upon which to retire. Unlike a 401k that is dependent upon market returns, your monthly pension payments are set by a formula. This amount is usually based on how long you worked and your average salary. Having a pension means that you can count on a steady amount of income in your retirement years.

During your active working years, money is deducted from your paycheck and put toward your pension. Your employer also contributes money. This money is pooled with contributions from other workers across your state, this can total in the billions of dollars. This big pool of money doesn’t just sit there; it’s invested in various things like stocks, bonds, real estate, and other types of investments to help it grow over time.

Because these pooled pension funds are so large, they have significant power when they invest. For example, if a pension fund decides to invest heavily in green energy, it can provide the capital needed for these companies to expand, innovate, and lower energy production costs. Where pension funds choose to invest can influence which industries thrive and which ones don’t. They can also push for positive changes in the companies in which they invest, like better environmental practices or better labor standards. This way pension funds can have an enormous impact on the economy and society based on their investment choices.

Learn About Your Pension:

Other Terms to Know:

Trustees

Pension trustees are the guardians of your retirement money. They’re in charge of overseeing the pension plan to make sure it’s run correctly, and that the money promised to you for your retirement is there when you need it. They have a few key jobs:

Setting Investment Policy: They decide the major investment priorities for the fund.
Overseeing Staff: Trustees appoint the head of the pension fund staff.
Looking Out for Your Best Interests: Pension trustees are fiduciaries, which means that they have a duty to ensure that their decisions are based solely in the best interest of the beneficiaries (you). They make sure the fund doesn’t take unnecessary risks and that it’s able to pay out the pensions promised.

Most trustees are chosen in two ways: some are elected by their fellow pension participants, and some are appointed (usually by the governor). You can become a trustee!

Trustees

Pension trustees are the guardians of your retirement money. They’re in charge of overseeing the pension plan to make sure it’s run correctly, and that the money promised to you for your retirement is there when you need it. They have a few key jobs:

Setting Investment Policy: They decide the major investment priorities for the fund.
Overseeing Staff: Trustees appoint the head of the pension fund staff.
Looking Out for Your Best Interests: Pension trustees are fiduciaries, which means that they have a duty to ensure that their decisions are based solely in the best interest of the beneficiaries (you). They make sure the fund doesn’t take unnecessary risks and that it’s able to pay out the pensions promised.

Most trustees are chosen in two ways: some are elected by their fellow pension participants, and some are appointed (usually by the governor). You can become a trustee!

Proxy Voting

Because of the large amount of money pensions have invested in certain equities (stocks), pensions can have an unusual amount of power over companies. At annual shareholder meetings, different proposals are voted on by the shareholders, and since pension funds hold a large amount of shares- their votes carry a lot of weight.

Thousands of these votes occur every year at many different companies, making it a logistical nightmare for pension systems to participate in every vote. Therefore, the systems can appoint a “proxy” to cast their votes for them. These proxy votes allow pensions, even without being physically present, to influence company policies. In this way, pension funds have helped remove directors of companies, voted to implement racial equity audits, and voted for companies to reevaluate their labor practices.

The Newest Attack on Pensions: Anti-ESG Legislation

Fueled by fossil fuel money, familiar enemies (ALEC, The Heritage Foundation, Foundation for Government Accountability) are working to pass legislation that limits pension investments. By putting limits on pension investments (and forbidding retirement systems from making climate-friendly investments) these bills have huge costs and consequences for public employees. These bills have already cost some states millions of dollars, and are predicted to cost other states billions of dollars.

To learn more about these bills and see if they’re being pushed in your state, follow the tracker and report at Pleiades Strategy.

Want to make sure your pension is working for YOU? Join the Pension Power network.