Jurisprudence

How the Janus Ruling Might Doom Public Pensions Next

The Supreme Court building at sunrise.
A person walks by the U.S. Supreme Court building on July 9.
Tasos Katopodis/Getty Images

The Supreme Court’s decision to overturn 40 years of settled law in Janus v. AFSCME was surely bad news for organized labor.

The ruling may be similarly bad news for public pensions.

To understand why, consider the hypothetical case of a police officer who, like most, works in a unionized workplace. Let’s say that this officer doesn’t like body-worn cameras and really doesn’t like that his union is negotiating to increase their use. He resents that a “fair-share fee” is deducted from his paycheck to fund these negotiations.

Thanks to Janus, he no longer has to pay his union anything (even though he is still covered by a union-negotiated contract—and the union must continue representing him).

But on the next line of that same paycheck, there remains another, far larger, mandatory deduction: a contribution to his public pension. And it may well be that his pension money is invested in a company that manufactures body-worn cameras. This company lobbies for these cameras, supports politicians who promote them, and advertises their advantages—in sum, like the union, it uses Officer X’s money to express views he opposes.

If our police officer cannot be required to “subsidize private speech on matters of substantial public concern,” as Justice Samuel Alito wrote in Janus, why does this protection stop with his union fee? Why does it not also extend to his pension?

One might counter: Public pensions and unions are different. For example, those mandatory pension contributions come with a significant upside: retirement income. State and local pension beneficiaries collect, on average, approximately $27,000 each year.

But union membership also brings considerable rewards. In 2017 the salary advantage of being represented by a union for public employees was, on average, $179 a week, or $279,240 over 30 years, not to mention better employee benefits.

Consider too that most public pension members, like employees in unionized workplaces before Janus, cannot simply “opt out” of the system; contribution is mandatory. And unlike the private sector, the vast majority of public pension funds continue to be defined-benefit plans that base their payout on factors other than an individual employee’s investments or returns.

Janus suggests that a public employee could withhold payment to a pension plan because of a First Amendment dispute—notwithstanding the employee’s own status as beneficiary. Even if states were to move to deny benefits to those who don’t contribute (as some may now try to with unions), pension funds would still face potentially destabilizing withdrawals.

There is also something troubling in any suggestion that employees who do not wish to subsidize corporate speech on public matters should simply forgo their pension. After all, the court could have held that Janus was not injured because he could have always found a different job in a nonunionized workplace. But it did not, presumably because the justices don’t think that an employee seeking to exercise his or her First Amendment rights should bear such a cost for doing so.

In fact, the law has always drawn close parallels between corporations and unions, especially when it comes to money and speech. Until Citizens United, corporations and unions faced virtually identical restrictions on political spending. The court’s ruling there created an asymmetry, because earlier cases still barred unions from using their general funds for political spending. Union political activity (the contours of which have been debated through the decades) must be funded by voluntary contributions from members who earmark this money for political expression.

What safeguards similarly protect investors who do not want to support a company’s political spending? Justice Anthony Kennedy’s answer in Citizens United was “the procedures of corporate democracy.” But even if “corporate democracy” existed—and 22 prominent corporate law professors delicately undertook to inform the court in Janus that it doesn’t, really—this argument hardly justifies privileging subsidies to corporations over those to unions.

If anything, it would suggest the opposite. Unions provide many more opportunities than corporations for members to participate in decisions. They are also far more transparent—and thanks to Congress continuing to block regulations that would require companies to disclose their political spending to investors, likely to remain so. There is even less “democracy” in pension funds. Investment decisions are made by an intermediary, not the employee who earned the money.

And yet pension funds have massive clout. The nation’s largest public retirement systems hold more than $3 trillion in assets. The roughly 15 million active members of defined-benefit plans at the state and local levels are typically required to contribute between 6 and 8 percent of their salary to their pensions—in most cases, an amount several times greater than the agency fee at issue in Janus. In contrast to the 1950s, when 96 percent of state and local pensions were in fixed assets or cash, today 50 percent or more of public pensions are invested in companies that engage in all manner of expression that, even putting aside purely “political” speech, affects “matters of substantial public concern.”

There are, of course, very good reasons to require public employees to contribute to a pension—much as there were sound reasons supporting union agency fees. But as Justice John Roberts memorably explained in his confirmation hearings, courts are meant to apply the law evenly, not to baldly pick winners and losers.

As the Supreme Court continues to “weaponize” the First Amendment, it has struck another serious blow to efforts to address complex collective action problems. If mandatory pension contributions become the next battleground, challengers will find support in Janus. In creating a death spiral for organized labor, the court may have created a maelstrom that threatens to pull down our public pension system, too.