I was professionally raised in an era where retirement plan law was considered very much as a sub-specialty; and a backwater one at that. Even in law school, the tax professors did not teach the retirement tax sections, saying that it was so specialized that it would be of little use or interest to the tax law student. Even my eventual ERISA mentor, the late Roger Siske (of Sonneschein, now Denton’s), used to joke that that the “deal” lawyers in his firm would only bring him out of the closet minutes before the closing of a corporate deal-often ending up with late-minute (and disruptive) surprises.
A lot has changed since then. When President Ford signed ERISA into law on Labor Day, September 2, 1974,* he noted that “From 1960 to 1970, private pension coverage increased from 21.2 million employees to approximately 30 million workers. During this same period, assets of these private plans increased from $52 billion to $138 billion. And they are now increasing at a rate of $12-15 billion a year. It will not be long before such assets become the largest source of capital in our economy.”
President Ford’s statement was prescient. That $138 billion number? Well, the Investment Company Institute, the main mutual fund trade group in Washington DC, issued last month its retirement report for the 2020 fourth quarter with $22.7 trillion attributable to retirement plan assets alone, which is virtually the same size of the the market capitalization of the companies traded on the New York Stock Exchange as of years’ end 2020, reported to have been $24.49 trillion. Adding in the 12.2 trillion held in IRAs, these assets constitute over 2/3 of the reported value of all publicly traded securities in the US., at $50.9 trillion.
What does this mean? Well, it means that when the DOL or the IRS sneezes, so to speak, the capital markets have no choice but to listen. If you are wondering why the DOL’s rules regarding Economic, Social and Governance Investing (ESG) garnered a lot of attention, or why its proxy voting rules actually generated excitement, it is because of the practical influence those rules have on the operation of the U.S. capital markets. If you ever wondered why the prohibited transaction rules need to be taken seriously (other than the obvious, legal reasons), its that this massive sort of capital generates massive sorts of investment and distribution income-the payment and receipt of substantial portions of which will be governed by these rules. With this, of course, comes an ever increasing bar of attorneys and consultants needed to address these growing complexities. What a change a few decades will make; I would guess that law students hear little about retirement law being a sub-specialty any longer….
This influence seems to be rarely discussed and, in practice, it seems to operate as in a sort of shadow-like way over the larger economic world which we can so easily otherwise dismiss or ignore when we are focusing on our own “little,” discrete techie issues. But the influence is there, and has the hallmarks of being substantial.
*My thanks to Wayne McClain for sharing this photo, which he found on his way to looking up other things……