Whose Power? Whose and Which Duties? Pension Fund Investments and Fiduciary-Related Duties in the United States and India

Abstract

This paper is set within the context of the challenges (and opportunities) posed by significant demographic changes; an associated heightened concern for the well-being of older generations of people especially as they make a transition from being among the workforce; the corresponding need for an economy which enables younger generations to create wealth to sustain themselves sufficiently well while providing the goods and services required to support those older generations over and after that transition; and the need for institutions, policies, and practices – overall what we refer to as the “retirement system” – commensurate with the foregoing which on an ongoing basis enable individuals over their working lifetime to accumulate claims for those goods and services as they leave the workforce in their later years. A retirement system typically encompasses several different clusters of institutions, policies, and practices which we refer to as “retirement plans”. The more specific context for this paper is that of retirement plans which involve members in deriving claims directly or indirectly from financial investments made by them or by others on their behalf. In conventional terminology such plans might be referred to as “funded” ones as contrasted with, for example, “pay-as-you-go” plans.Almost by definition, central to the efficacy of funded plans are the roles and responsibilities of those individuals with ultimate authority to make the required investment-related decisions and effective fulfillment of them. (Here, we will refer to such individuals as “investment decision-makers”.) Central to the reference to “efficacy,” of course, is whether and how decisions are calculated in appropriate ways to enable realization of the sought-for claims. Practically speaking that might mean claims to an income stream in retirement – what is often referred to as a “pension” – or claims to the availability at various times of an amount of accumulated financial assets which can be a source of income or which can be withdrawn (“cashed out” so to say) to meet certain retirement-related needs and expectations. However, whatever individuals’ worries about financial security in general or as it relates to retirement, they may well have other concerns which beyond that – for example the import or impact of the behavior of the enterprises in which investments are made – which bear upon their investment decisions or how others acting on their behalf invest in their name. Moreover, as implied above, retirement plans and the retirement system as a whole are nested in the larger economy and society. Especially when the scale of funded plans of the system is great relative to the size of the economy, the economic and other implications of plan-related investment decisions overall – and perhaps in some cases on an individual basis – may loom large. If so, that poses issues as to the interplay of those implications with the roles and responsibilities of investment decision makers.