Evaluating Labor-Friendly Investment Strategies for Taft-Hartley Plans

Evaluating Labor-Friendly Investment Strategies for Taft-Hartley Plans
May 14, 2026 15 mins

Evaluating Labor-Friendly Investment Strategies for Taft-Hartley Plans

Labor Friendly Investment Considerations for Taft Hartley Plans

Taft Hartley plans sit at the intersection of fiduciary duty and labor priorities. As interest in labor friendly investments grows, plan fiduciaries must only consider them while remaining firmly grounded in ERISA requirements.

Key Takeaways
  1. Labor-friendly investments generate interest
    Some Taft-Hartley plans have a special interest in labor-friendly investments—those investments that not only seek financial returns, but also align with the values, economic interests, and goals of the labor community.
  2. Motivations matter under ERISA
    Goals to improve risk‑adjusted returns or directly benefit plans are most defensible, while values‑ or impact‑driven goals are riskier if they hurt performance.
  3. Governance and execution are critical
    Labor friendly strategies require strong governance. Clear guidelines, rigorous due diligence, conflict of interest controls, and legal review are essential to pursue these investments while managing fiduciary, regulatory, and audit risk.

Taft-Hartley plans are a cornerstone of the American labor landscape, representing a unique intersection of financial prudence and social responsibility. These plans, established under the Taft-Hartley Act of 1947, are collectively bargained retirement plans serving workers from multiple employers within a single industry or geographic area. Some Taft-Hartley plans have a special interest in labor-friendly investments—those investments that not only seek financial returns, but also align with the values, economic interests, and goals of the labor community. Such investments can even be considered to benefit the plans and participants beyond their returns by driving union employment, plan participation, and contributions. This paper delves into how Taft-Hartley plans seek to invest in labor-friendly investments, the criteria for such investments, and the challenges surrounding these practices.

For Taft-Hartley plans wanting to consider the merit of investments in labor-friendly mandates, first and foremost, they must ensure alignment with their fiduciary obligations to act solely for the benefit of plan participants and their beneficiaries. To do this, the plan fiduciaries should establish clear investment guidelines, conduct rigorous due diligence, and engage with stakeholders.

Many Taft-Hartley plans seek labor-friendly investments, and their motivations for this typically fall into four main categories, each of which have different considerations with respect to fiduciary duties.

  1. Improve portfolio risk and return:
    Asset managers often include considerations about labor relations in their investment decisions when it is financially material.
  2. Have a real-world impact:
    This may include investments which directly bring about changes to labor practices, such as increasing the number of union jobs and projects.
  3. Drive beneficial increases to plan membership and contributions:
    Some investments can create new jobs, and if those jobs increase plan membership and contributions, that potentially creates a direct benefit to the plan.
  4. Align investments with the plan’s values:
    Selecting securities or assets that are in line with values, or excluding those not in-line with values, can be a simple approach sometimes seen as addressing this motivation. ERISA fiduciary requirements present challenges to this type of values-based investment motivation if it would require any sacrifice to expected returns or risk.

Labor-Friendly Investment Criteria

Labor-friendly investments are generally characterized by their support for worker rights, fair labor practices, and community development. The criteria for such investments may include:

Support for Unionized Workforces: Investments in companies, funds, assets and projects that recognize and work constructively with labor unions.

Fair Labor Practices: Emphasis on companies that adhere to fair wage policies, safe working conditions, responsible hiring, contracting and training and employee benefits such as healthcare.

Community Development: Investments in projects that promote localized economic growth and job creation in underserved communities.

Four Motivations for Labor-Friendly Investments

We see four primary motivations for Taft-Hartley plans to have labor-friendly investment strategies.

  • 1. Improve Portfolio Risk and Return

    Labor-related issues can be financially material for many investments, and considering these factors in security selection have the potential to be beneficial to the portfolio’s risk and return. There are many examples of companies where financial value has been destroyed or impaired due to labor-relations issues, such as strikes; active managers with a strong understanding of these dynamics may be able to use that understanding within their portfolios.

    Considering this type of factor is not unique for Taft-Hartley plans or new in the investment world. Many investors incorporate Environmental, Social, and Governance (ESG) risks and opportunities to inform asset valuations and selection, and while seeking to improve long-term risk adjusted returns. Labor relations is part of the ‘S’ in ESG.

  • 2. Have a Real-World Impact

    There are times when Taft-Hartley plans want to invest in labor-friendly investments to have real-world impact. This is not as simple as finding labor-friendly enterprises and investing in their securities. To create impact, investors must consider the change caused by their decisions—their “additionality.”1

    For example, consider a Taft-Hartley plan that wants to strengthen unions and create more union jobs. Is it effective for the investor to divest from companies that have low levels of union participation in their workforces and invest in companies with high levels of union participation? Unfortunately, such a strategy may not change the workforce composition of either type of company. Investing in labor-friendly companies doesn’t necessarily cause those companies to create more unionized jobs.

    From a practical perspective, it is typically impossible to be 100% certain about the real-world impact caused by an investment, but some investments are likely to have greater impact than others. For example, investing in public equity and fixed income markets may not have a strong impact because investors are typically trading assets with each other, rather than providing additional capital to the companies to expand their businesses. Investors in private markets are more likely to be providing additional capital that the underlying enterprise would not have otherwise received (or would have received at a higher cost).

    All that said, because of ERISA fiduciary requirements, a general impact investing motivation like this could not be implemented by Taft-Harley plans if it sacrifices the financial outcomes for the plan.

  • 3. Drive Increases to Plan Membership and Contributions

    This can be thought of as a special category of impact investing, in which the desired impact is to create more union jobs that increase plan membership and contributions. That is, the intended impact has a direct financial benefit to the plan. For example, the plan might invest in a construction project that would use a lot of labor from plan participants. Many Taft-Hartley plans currently have built-in excess contributions to either pay down unfunded liabilities or to build a cushion of excess funding for a rainy day. In these situations, additional contributions to the plan benefits all beneficiaries, not just active participants.

    If a union-friendly investment would meet the expected risk/return criteria for inclusion in the portfolio, then considering additional benefits to the plan may be a straightforward tie-breaker.2 If the investment could not qualify for the portfolio based on traditional risk/return considerations, then it should only be considered if, after careful analysis, the plan could demonstrate how much it would benefit from the additional members and contributions resulting from the investment. This might involve analysis such as:

    1. Estimating the number of additional jobs (or hours worked) associated with the plan that would be created.
    2. Estimating the impact of those jobs (or hours worked) on plan finances, such as contributions and benefit accruals.
    3. Prorating that impact based on the portion attributable to the plan’s investment.
    4. Making further adjustments to account for any uncertainty about whether that impact would have happened without the plan’s investments.
    5. Other analysis metrics deemed prudent.

    The financial benefits to the plan itself would need to be well-documented; notably, simply measuring the union jobs in a project probably wouldn’t be sufficient, as it doesn’t demonstrate that those jobs would not have been created without the plan’s investment. Though theoretically possible, the hurdle for this practice is high.

  • 4. Align Investments with the Plan’s Values

    Many asset owners want to align their investments with their values, regardless of the impact on portfolio risk and return or real-world impact. A common example of this is a faith-based institution, which may choose not to invest in companies whose businesses conflict with its religious beliefs. While Taft-Hartley plans may have certain values in terms of labor practices and union-friendliness, ERISA fiduciary requirements present challenges to this type of values-based investment motivation if it would require any sacrifice to expected returns or risk.

Examples of Labor-Friendly Investments

The following are examples of labor-friendly investments, which could fall under any of the motivations described earlier, depending on the specific details of implementation.

  • Infrastructure Projects

    Infrastructure projects can be a prime example of labor-friendly investments. These projects often require a substantial workforce, providing job opportunities for unionized workers. Additionally, infrastructure investments contribute to the economic development of communities, enhancing the quality of life for residents. Taft-Hartley plans were early adopters of infrastructure investing dating back to the early 2000s. This, coupled with the fact many infrastructure deals may require some level of government support and/or approval and have sensitivities to labor, make it a desirable opportunity for many considering labor-friendly investment strategies. This influences many infrastructure operators and investors to implement favorable workforce practices. As with any investment, however, comprehensive due diligence is imperative.

  • Affordable Housing

    Investments in affordable housing projects not only provide housing for low- and moderate-income families but may also create construction jobs for unionized workers. By investing in affordable housing, pension plans can help contribute to addressing housing shortages while supporting the labor community.

  • Renewable Energy

    Renewable energy projects, such as wind and solar farms, are another area of interest for Taft-Hartley plans. These projects frequently align with the environmental sustainability criteria and provide job opportunities in the growing green energy sector.

    By investing in renewable energy, pension plans can help support the transition to a sustainable economy.

Stewardship

Stewardship through focused, resourced and outcome-based engagement with portfolio companies is another way to have real world impact, and it does not require changing the securities owned. This may involve the general partner taking control of the business or sitting on boards. In public markets, it could include submitting shareholder resolutions, engaging in dialogue with corporate management, and voting on issues that could improve impact and financial outcomes. Many Taft-Hartley plans do not have the resources or skills to do stewardship directly and may instead delegate stewardship activities to investment managers that offer labor friendly proxy voting policies and can use stewardship to help cause behavioral change that might not have occurred otherwise.

While it is extremely hard to precisely measure the impact, research suggests that these activities can be influential.

Controversies and Challenges

  • Conflicts of Interest

    One of the primary controversies surrounding labor-friendly investments is the potential for conflicts of interest. Trustees of Taft-Hartley pension plans, who are union and management representatives, may face pressure to invest in projects that benefit their unions or their union contractors, even if these projects do not offer optimal financial returns. Further, trustees are typically contractors or contractor association representatives, and they may benefit directly or indirectly from such projects. Conflicts of interest can lead to suboptimal investment decisions, jeopardizing the financial health of the pension funds and opening it up to regulatory and legal scrutiny and enforcement. Further, conflicts can result in prohibited self-dealing, which can lead to significant penalties.

    It is important for the plan to maintain independence and make decisions based upon the best interest of the participants and withstand undue pressure from any outside influence. The plan should also consult with relevant legal counsel as needed to avoid or mitigate conflicts of interest where needed.

  • Financial Performance

    While labor-friendly investments may align with the social and ethical values of the labor community, they may not always offer the highest financial returns. Prioritizing social responsibility over financial performance can undermine the fiduciary duty of pension plan trustees to act solely for the benefit of plan participants and their beneficiaries. Therefore, Taft-Hartley plans need to carefully consider their actions to ensure they are aligned with their fiduciary duties.

  • Regulatory Scrutiny

    Labor-friendly investments can also attract regulatory scrutiny. ERISA fiduciary requirements include a duty of loyalty requiring fiduciaries to act solely in the interest of the plan participants and beneficiaries, with the exclusive purpose of providing benefits and defraying reasonable expenses of administering the plan. Regulations are very clear that social and political goals cannot be prioritized over financial prudence. Even if a plan has not done anything wrong, perception of potential issues could cause it to face increased oversight.

Recommend Action Steps for Taft-Hartley Plans Pursuing Labor-Friendly Investments

  • 01
    Establishing Clear Investment Objectives and Guidelines

    To address conflicts of interest and regulatory scrutiny, Taft‑Hartley plans should set clear investment objectives and guidelines prioritizing financial performance, defining purpose, evaluation criteria, risk‑return profile and risk management for labor‑friendly investments.

  • 02
    Conducting Rigorous Due Diligence

    Pension plan trustees should conduct rigorous due diligence before making investment decisions. This process should assess financial viability, potential risks, and any labor‑friendly considerations to ensure investments are well‑informed and aligned with the best interests of plan participants.

  • 03
    Engaging with Stakeholders

    Engaging stakeholders—including unions, employers, participants, and regulators—can help build consensus and address concerns around labor‑friendly investments. Ongoing communication and transparency foster trust and help ensure decisions align with the goals of the labor community.

  • 04
    Reviewing with Legal Counsel

    Reviewing the approach with the plan’s legal counsel can help ensure that the approach is aligned with fiduciary duty and documented as appropriate, reducing the chances of unintended negative consequences.

Taft-Hartley plans play a vital role in securing the retirement benefits of workers across various industries. By investing in labor-friendly investments, these plans not only seek to provide financial returns and economic benefit to the trust, but may also support the social and ethical values of the labor community. However, balancing social responsibility with financial performance remains a significant challenge. By establishing clear investment guidelines, conducting rigorous due diligence, and engaging with stakeholders, Taft-Hartley pension plans can navigate these challenges and continue to make a positive impact on both their participants and the broader community.

If you would like to discuss how labor friendly investment considerations may align with your plan’s fiduciary obligations, governance framework, or long term risk and return objectives, please contact our team for further perspective and practical insights.

Aon Thought Leaders

Eric Friedman, FSA, EA, CFA
Investment Policy Services
Aon Investments USA Inc.
[email protected]

PJ Kelly, CFA, CAIA
Taft-Hartley Solutions Leader
Aon Investments USA Inc.
[email protected]

1 “Additionality” can be defined as how much the investor’s actions cause a change that would not have otherwise occurred. It is synonymous with the terms “investor contribution,” “contribution to impact,” and “contribution to solutions.”
2 Final Rule on Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights
3 Final Rule on Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights

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