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2 Trends in Pensions , U.S. Department of Labor, PWBA, 1989, p. 338.
3 Current Taxation of Qualified Plans: Has the Time Come ?, presented to the Pension Policy Conference of the American Law Institute/American Bar Association on October 25, 1991.
4 "Over the same period of 1982-1989, companies bought back a net $495 billion in equities as a result of mergers, leveraged buyouts, and stock-purchase programs." Zielinski and Holloway, Unequal Equities , Kodansha International 1991, at p. 14.
5 "In the course of the 1980s, FORTUNE 500 companies shed some 3.5 million jobs." FORTUNE, April 20, 1992, p. 50.
6 Business Week, May 11, 1992, at p. 16 (emphasis added).
7 Diversification is the only substantive provision in ERISA respecting investment. Sec. 404(a)(1)(C).
8 Brancato, ibid. , at p. 14 provides a substantial basis for this assertion in concluding "As a percent of total equity.. indexed equities rose to 62.0 percent in 1990.."
9 An investor can select any market based indicator of value, like for example the Dow Jones or the Standard and Poors Averages and can hire a manager to replicate the exact performance of the chosen index. The investor chooses to take the risk that a particular index at a particular time will provide superior performance; the manager's only responsibility is to duplicate the index's performance with the least volatility and the lowest cost.
10 Harvard Business Review, March-April 1990, p. 54.
11 There was extensive commentary during the "hostile takeover" epidemic of the 1980s concerning the incompatibility of the interest of the trustee shareholder in achieving short term profit and the managers in having a long term perspective.
12 Brancato, op.cit.supra , at Table 10.
13 ERISA requires trustees to approach the objective of safety "..by diversifying the investments of the plan so as to minimize the risk of large losses, unless under the circumstances it is prudent not to do so." Section 404 (a)(1)(C). Diversification refers to geography, industry and type of security. What seems to be meant is an aliquot portion of the economy as a whole. What will soon become the largest single pension fund, the Federal Employee's Retirement System, is required by law to limit its equity portfolio to an index fund, based on the Standard & Poor's 500. In addition to the safety of indexing as an investment matter, this restriction addressed Congress' concern about possible political manipulation of the fund.
14 Louis Lowenstein, Sense and Nonsense , (1991), at p. 221.
15 Walker, David, Executive Director of the Bank of England, Speech to the NAPF Conference on 27 February 1987, at p. 10.
16 Note FERSA prohibition.
17 See Campell, Beverly Ross et al., Public Pension Trustees' Pursuit of Social Goals , 24 Journal of Urban and Contemporary Law 43,91 et.seq. Supra , which refers to the importance of federal tax exemption for public plans and the inclination of the IRS to make such favored treatment conditional on compliance with the Department of Labor governance standards.
18 I am indebted to Richard D. Crawford for much of the material that follows relating to small business.
19 Tim W. Ferguson, Pension Funds as Yeast for Rising Companies , Wall Street Journal, 4/21/92, at A17.
20 A sum substantially in excess of the $32.2 billion invested by the largest pension funds, mentioned above.
21 Scott's Abridgement of the Law of Trusts (Little Brown, 1960), Section 227.6
22 Bevis Longstreth, Modern Investment Management and the Prudent Man Rule , (Oxford University Press, 1986) at p. 130.