Going Back to the Text on Pension Trusts
Why does this matter?
Money.
Vast sums of money.
Money with a purpose.
So much money with such a purpose, that how this money is deployed shapes the world that all of us must live our own best lives within.
So, it is really, really, practically and pragmatically, important to each of us, in our living our own best lives, that we all of us get this money right.
And we are not.
We have lost the thread and become confused. We need to go back to the beginning, and reboot the code that has become corrupted, to purge that corruption and correct the code.
The code in this case is the law of fiduciary duty as it applies to pension trusts as mutual aid societies designed according to actuarial science.
We can start here, in the United States (because that is where the corruption of the code originates) with the United States Employee Retirement Income Security Act (ERISA), which tells us:
The prudent person standard requires that a fiduciary act with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.
The weakness in this code, that allows the corruption to creep in, can be found in the failure to define with sufficient precision the aims, character and capacity of the pension trust (language is really important in the law, and agreement on the meaning of words in the way they are being used is essential to good lawyering).
It takes a little bit of legal forensic work to find the missing meanings (which is where the corruption finds its opportunity to creep in), but fortunately the law of fiduciary duty and the design of pension trusts are both remarkably uniform across legal jurisdictional boundaries all around the planet. So even though the expressions can be somewhat idiosyncratic and fragmented in their sources, the rules are actually well-established and widely agreed.
As to aims, we find that the purpose of the pension trust is:
The word "investment" in the above statement of aims requires further definition, because sloppiness in the use of this word is the primary point of corruption of this code.
In common parlance "investment" is widely understood as meaning the provision of stuff to people so that they have the power to do something. A more technical expression of this understanding might be:
flowing money into enterprise for its use in doing its work, for a time, at a cost and on terms.
This definition leaves undefined the key details of, What work? At what cost? and, On what terms?
We know from the code of the law (per ERISA) that these questions must be answered with
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care, skill, prudence, and diligence under the circumstances then prevailing
We also know from the code of the law (per ERISA) that the standard of care, skill, prudence and diligence is what:
a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.
We know with precision what the aims are, from of legal forensic research, piecing together fragments from different sources, above:
"investment of money for income as well as safety to assure income security in a dignified retirement to workers".
What we still need to know are details as to the capacity and character of the pension trust. These are not issues of law. They are questions of fact, that must be determined by investigation into the facts.
The facts are that pension trusts control vast sums of money for very programmatic purposes across the generations into an indefinite future that can be said, for all practical purposes, to be forever.
The additional facts are that these characteristics of vast size, programmatic purpose and forever time give pension trusts the capacity to use desktop computer technologies that first became available to humanity in 1983. These include spreadsheet math, desktop publishing and digital communication.
A further fact is that this capacity to use these technologies give pension trusts the power to negotiate with enterprise of any size, in any business, anywhere on the planet.
This combination of law and fact, character and capacity, should bring us to a fiduciary practice that pivots around these two questions:
But it does not.
Instead contemporary fiduciary practice pivots around Asset Owners allocating Assets across Asset Classes, and within asset classes, selecting Asset Managers qualified by Consultants for extracting the highest possible purely pecuniary risk-adjusted returns through gain on sale of shares of ownership in large scale, long dated financing agreements negotiated by investment bankers to meet the needs of the capital markets for volatility and growth to deliver liquidity to market participants, to other market participants at market-clearing prices in markets for maintaining market-clearing prices on such shared.
The aim of the pension trust, to assure income security in retirement to workers, has been replaced by the aim of the capital markets, to deliver liquidity to market participants, and the aim of capital market professionals, to extract maximum fees and profits for themselves, through volatility and growth in share prices, and transaction volumes in the capital markets.
Growth in the capital markets has come to replace income security in a dignified retirement as the aim to the pension trust, and through the pension trust (because of their vast size) the whole of the economy, and society.
This is not right.
It needs to be rectified.
We need to go back to the text, on aims, and back to the facts on character and capacity, to update and upgrade our shared common sense of what is possible and prudent for pension trusts in their deployment of fiduciary money entrusted to their care, skill, prudence and diligence to flow money into the right enterprises, for their using in doing the right work, at the right cost and on the right terms, to form the right businesses for forming the right technologies for forming the right choices for forming the right economy for forming a cohesive society, and keeping it ongoing into a dignified future, through change, and prosperous adaptation to life's constant changes, forever.
Because only in the right economy can workers retire in dignity.