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How Pensions Violate Free Speech

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July 12, 2012

How Pensions Violate Free Speech

Cambridge, Mass.

A CENTRAL principle of American political life is that everyone gets to choose which candidates to support. The idea that the government could force us to support those we oppose is anathema. But this unacceptable state of affairs is one of the unintended consequences of the Supreme Court’s decision in the 2010 Citizens United case.

That’s because the vast majority of people who work in the public sector — state, local and federal employees — are required to make contributions to a pension plan. Nearly all states make participation in a pension plan mandatory and a “condition of employment” for public employees. To get and keep your job with the government, you have to give some of your paycheck to the pension plan.

Public pensions, moreover, are so-called defined benefit plans, which means that employees don’t have a say in how their mandatory contributions are invested. The employees cannot request, for example, that their money be used only to buy government bonds or that it be invested only in certain mutual funds or only in select corporations.

Instead, the employees’ money is invested according to whatever decisions the pension plan’s trustee makes. And, not surprisingly, pension plans invest heavily in corporate securities: in 2008, public pensions held about $1.15 trillion in corporate stock.

Here’s the problem. In its Citizens United decision, the Supreme Court held that companies have a First Amendment right to make electoral expenditures with general corporate treasuries. And they’ve done so, with relish, pouring millions into the political system.

What Citizens United failed to account for, however, is that a significant portion of the money that corporations are spending on politics is financed by equity capital provided by public pension funds — capital contributions that the government requires public employees to finance with their paychecks.

This consequence of Citizens United is perverse: requiring public employees to finance corporate electoral spending amounts to compelled political speech and association, something the First Amendment flatly forbids.

Contrast this situation with how the court treats political spending by unions. In many states, public employees are required to pay dues to a labor union. If the public employees union were to spend any of the money raised through dues on politics, the court has ruled, the dues requirement would amount to forced political speech and association. To prevent this First Amendment violation, the court has held that no union may use an employee’s dues for political purposes if the employee objects.

The same should be true for pension funds and corporate politics. In a world where corporations can use their general treasuries for political spending, no government should be allowed to require employees to finance the purchase of corporate securities through a pension plan, unless the government provides those employees with a meaningful way to object to financing corporate politics.

The good news is that the rules governing union dues and political spending provide a road map for restructuring public pensions in order to bring them back into conformity with the First Amendment.

Here’s one way it could work: Pension plans would determine the number of employees that object to financing corporate political spending. They would then negotiate “opt out” rights with the corporations in which they invest. These corporations would calculate the percentage of their annual expenditures that go to politics and promise to return to the pension plan an amount equal to the objecting employee’s pro rata share of the corporation’s political budget.

Whatever the route to reform, however, public pension plans need to ensure that employees are not compelled to finance corporate political speech. Until they do, these pension funds will be vulnerable to the challenge that they are violating the First Amendment.

Benjamin I. Sachs is a professor at Harvard Law School.


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