The Ethics of Investing State pension plans have become a major force in the capital markets, with huge amounts of money to invest for pensions to be paid to retirees from state employment. The well being of state retirees, and sometimes the well being of state taxpayers, may depend on returns generated by the pension fund investments. State employees in Michigan participate in a pension plan managed by the Public Workers Pension Fund. This pension fund has invested almost $400 million of pension fund money in tobacco company stocks. At the same time, the state actively encourages citizens to stop smoking and spends almost $6 million in taxpayer money on anti-smoking campaigns and to curtail the smuggling of cigarettes into the state. The state treasurer has indicated that it is his responsibility to invest pension fund money in a way that maximizes the return, but some believe that investing taxpayer money in tobacco stocks in unethical. Similar concerns sometimes are raised regarding investments in companies with nuclear power plants and those considered to be heavy polluters or cruel to animals.

a. Discuss the ethics of investing taxpayer money in tobacco stocks or in the stocks of other companies about which social concerns have been raised. Consider the points of view of taxpayers, retirees, and other citizens.

b. Does your position on the ethics of investing depend on whether the pension plan is a defined-contribution plan or a defined-benefit plan? Explain.