Corporate Retirement Security Other Blackwell titles on Business and Society The Ethics of Executive Compensation, edited by Robert W. Kolb (2006) Corporate Retirement Security: Social and Ethical Issues, edited by Robert W. Kolb (2007) The Ethics of Genetic Commerce, edited by Robert W. Kolb (2007) Corporate Retirement Security Social and Ethical Issues Edited by Robert W. Kolb © 2007 by Blackwell Publishing Ltd BLACKWELL PUBLISHING 350 Main Street, Malden, MA 02148-5020, USA 9600 Garsington Road, Oxford OX4 2DQ, UK 550 Swanston Street, Carlton, Victoria 3053, Australia The right of Robert W. Kolb to be identified as the Author of the Editorial Material in this Work has been asserted in accordance with the UK Copyright, Designs, and Patents Act 1988. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by the UK Copyright, Designs, and Patents Act 1988, without the prior permission of the publisher. First published 2007 by Blackwell Publishing Ltd 1 2007 Library of Congress Cataloging-in-Publication Data Corporate retirement security: social and ethical issues / edited by Robert W. Kolb. p. cm. — (The Leeds School series on business and society) Includes bibliographical references and index. ISBN 978-1-4051-5048-4 (hardcover : alk. paper) 1. Pension trusts—United States. 2. Social responsibility of business—United Stages. I. Kolb, Robert W., 1949– HD7105.45.U6C67 2007 331.25’.20973—dc22 2007000201 A catalogue record for this title is available from the British Library. Set in 10/12.5, Minion by Charon Tec Ltd (A Macmillan Company), Chennai, India www.charontec.com Printed and bound in XX by XX The publisher’s policy is to use permanent paper from mills that operate a sustainable forestry policy, and which has been manufactured from pulp processed using acid- free and elementary chlorine-free practices. Furthermore, the publisher ensures that the text paper and cover board used have met acceptable environmental accreditation standards. For further information on Blackwell Publishing, visit our website: www.blackwellpublishing.com Contents Preface vii List of Contributors viii Introduction ix Part I: Ethical Issues in Pension Plan Structure 1 1. Pension Plan Design: An Examination of Corporate Social Responsibility 3 Joanne H. Gavin and Ken Sloan 2. The Pension That Isn’t: The Defined-Contribution Retirement Plan 19 Barry Bennett 3. Corporate Retirement Security: A Bankrupt Oxymoron 33 Patricia H. Werhane 4. Trust, Portability, and Sustenance in Pension Plans 45 Robbin Derry Part II: Pension Plan Changes 53 5. Markets, Promises, and Responsibility: Reconsidering Pensions and Ethics 55 Eugene Heath 6. Not How Much But How: The Ethics of Cash Balance Pension Conversions 77 Michael E. Johnson-Cramer and Robert A. Phillips 7. Ethics of Corporate Retirement Program Changes 95 Duane Windsor 8. Reflections on Markets, Retirement, and Corporate Responsibility 111 Jeffery Smith Part III: Investing Pension Plan Funds 119 9. Pensions and the Companies They Own: New Fiduciary Duties in a Changing Social Environment 121 Peter D. Kinder vi Contents 10. Pension Funds and Socially Responsible Investing: More Risky Than Responsible Business 151 Sarah Fuhrmann 11. Why Social Investing Threatens Public Employee Pension Funds 174 Jon Entine Index 191 Preface In the spring of 2005 a group of scholars gathered in Boulder, Colorado to address the topic of corporate retirement security – one aspect of the entire system of providing retirement income in the United States. By focusing on retirement funds provided under the aegis of private employers, we hoped to make a meaningful contribution to the continuing public policy debate con- cerning the broader question of how workers (and non-workers and unpaid workers) in the United States are to secure sufficient funds to make possible a retirement income that is in some essential way consistent with their expecta- tions and their lifetime of achievements. Contributors came from many backgrounds, including business schol- ars and business ethicists, philosophers, attorneys, and business people who provide services to corporations struggling with the problems of managing their retirement programs in an era of rapid change. These diverse perspec- tives, drawn from representatives of many disciplines and walks of life, led to a wide-ranging exchange of ideas and the opportunity to learn from those who have a different outlook. The contributions to this volume reflect our society’s widespread disagreement on the most fundamental aspects of the employment relationship in general, as well as the proper design of corporate retirement programs and the allocation of responsibility for retirement among individu- als, their employers, and other entities, such as the federal government. The symposium was directed by the Center for Business and Society at the Leeds School of Business at the University of Colorado under the leadership of Deans Steven Manaster and Stephen Lawrence. Major funding to support the symposium was drawn from the Leeds School, the Boulder County Business Report, and through the generosity of George and Judy Writer and their fam- ily. Vincent Snowbarger, Deputy Executive Director for Legislative Affairs of the Pension Benefit Guaranty Corporation, attended the entire conference and made a public address to an audience of scholars, students, and members of the Boulder community. Robert W. Kolb Boulder, Colorado, USA List of Contributors Barry Bennett Bonneville Power Administration, Portland, OR, USA Robbin Derry Northwestern University, Ivanston, IL, USA Jon Entine Miami University, Oxford, OH, USA Sarah Fuhrmann v-Fluence Interactive Public Relations, San Diego, CA, USA Joanne H. Gavin Marist College, School of Management, Poughkeepsie, NY, USA Eugene Heath State University of New York at New Paltz, New Paltz, NY, USA Michael E. Johnson-Cramer Bucknell University, Lewisburg, PA 17837, USA Peter D. Kinder KLD Research & Analytics, Inc. Robert W. Kolb Mountain Ridge Place, Boulder, CO, USA Robert A. Phillips University of Richmond, School of Business Administration, San Diego, CA, USA Ken Sloan Marist College, School of Management, Poughkeepsie, NY, USA Jeffery Smith University of Redlands School of Business, Redlands, CA, USA Patricia H. Werhane DePaul University, Chicago, IL; University of Virginia, Charlottesville, VA, USA Duane Windsor Rice University, Houston, TX, USA Introduction Robert W. Kolb In the United States, individuals draw funds for their retirement from many sources beyond savings made at their own initiative, including entitlements from the federal government, transfer payments from a variety of sources, and funds from their employers, whether public or private. As with so many institutions, these various providers of retirement funds reflect a long history during which the sources of retirement savings have evolved. In the 19th century, very few individuals could rely on government payments or employer-provided pen- sions. Instead, funds for retirement came from the savings of individuals, or in more cases, from support by younger family members. Starting in the latter part of the 19th century and continuing to evolve well into the 20th century, more and more employers sought to attract and retain employees by making promises, sometimes quite generous promises, of lifelong pension payments upon retirement. Much of this implicit, or even explicit, con- tract was predicated upon the assumption that an employee would complete a full career with a single employer, and that the employer was sufficiently stable and financially viable to make a credible long-term promise of those pension payments. The first half of the 20th century witnessed the development of vari- ous government programs and entitlements that attempted to provide a floor of retirement income for all citizens. In the last third of the 20th century, and continuing into the 21st century, the nature of work in U.S. society has con- tinued to change in ways that vitiate previous implicit employment contracts and prior understandings regarding retirement arrangements and pension pay- ments. Today’s young employee can anticipate numerous changes in employers, or even careers, over a lifetime of work. Further, the “creative destruction” of capitalism seems to accelerate, with firms arising, flourishing, and passing out of existence with a rapidity that was not contemplated at the mid-20th century. All of these changes have caused, and promise to continue to cause, vast changes in both the structure and levels of retirement income for America’s workers. Corporate Retirement Security in the United States The concept of corporate retirement security refers most directly to employer- sponsored pensions and other retirement income of workers retiring from careers in private sector U.S. businesses. These employer-sponsored plans come in two basic types: defined-benefit and defined-contribution plans. x Introduction In a defined-benefit plan, the employer promises a series of payments and other benefits to the employee that commence upon retirement and continue throughout the employee’s life, and sometimes through the life of the employ- ee’s spouse. Thus, these promises represent a continuing obligation that the employer undertakes. These plans are often structured in a way that become richer for the long-term employee, thereby creating incentives for lengthy service and