The N.Y. Times on
"How Wall Street Wrecked United's Pension"

      On summer Sundays, novels and naps entice more than news. Iraq, the energy crisis, global warming, the Patriot Act ... all slip away in the mind-fogging scents of barbecue and sun screen.

      So, it's a grand time for newspapers to publish stories of great length and immense importance which, if read at all, will be forgotten by dusk. On Sunday, July 31, the New York Times published "How Wall Street Wrecked United's Pension," one of those stories soon to be 'buried in plain sight.'

      But this article -- on the destruction of United Airlines' employee pension plans -- must be read now and saved for study in the rainy autumn. For the issues it raises are -- without exaggeration -- fundamental not just to our financial services industry but to our social, economic and political systems:

• What are the fiduciary duties of plan sponsors to their beneficiaries? To others such as the public?
  
  
• What are the fiduciary obligations of the managers and consultants pensions hire? To the extent these obligations exist, are they sufficient, and are they enforceable by the right interested parties?
  
  
• To what extent should observing generally accepted financial/economic theories, say, the Modern Portfolio Theory on diversification, offer immunity to fiduciaries who follow them into disaster?
  
  
• Why, when the process of destruction began -- and United was only one of many companies in the same situation -- was there no outcry from other pension funds? The pension regulators?
  
  
• Has the intertwining of our financial and pension systems -- particularly in the area of stocks -- created a perverse incentive to destroy certain pension plans in order to benefit others? Do the 70+ year-old statutory prohibitions on pension investments in equities have a strong contemporary rationale?
  
  
• Should pension trust beneficiaries bear the costs of business catastrophe, while the shareholders and managers who profited in and during its making keep their gains and benefits?
  
  
• Since the system of pension insurance and regulatory supervision fails so routinely (as with the airline and steel industries), why should it exist? Is our current approach to regulators' conflicts of interest sufficient and responsive enough to crises such as United's?
  
  
• Could a public, national pension scheme along the lines of those in Western Europe be run with fewer conflicts of interest and protect more people while at the same time removing a corrosive agent loose in our socio-political infrastructure?
  
  
• Does the structure of extra-constitutional administrative agencies developed over the last 125 years merely provide the predictable structure corporations need or does it have a broader public purpose?

      I could go on, but the bike path calls....

      The NY Times article disappoints in its failure to identify -- and discuss -- the "business needs" which led in the mid-1980s to the conversion of the United pension scheme from an annuity-based plan to one in which the company promised the benefits. The business need was to fend off corporate raiders who wanted to "maximize shareholder value." The means was "over-funded" pension plans.

      As we enjoy summer's bounty of barbecues, we should remember that there are no such things as a free lunch -- except for those who promise it -- and a maximization of shareholder value without cost to someone. We should resolve to act accordingly come fall.