Not for investment
The Ministry of Employment and Labor plans to expand stock investment by the funds of unemployment and occupational accident insurance programs. It wants to run some of the reserves in 8.5 trillion won ($6.9 billion) worth of unemployment insurance and 11.9 trillion won worth of occupational accident insurance to invest in the stock market, just like the national pension fund. It is currently reviewing a set of investment guidelines it had assigned to an outside institution. The goal is to increase efficiency in management of the two funds.
But the two are different from the national pension fund. They are short-term social welfare programs set aside for unexpected rainy days. The funds collected in a particular year are mostly used up during the same year. They do not work like annuity funds like the national pension fund, which returns benefits on top of annual contributions decades later. The balance sheet is also greatly effected by the performance of the economy. Payouts would surge - and the fund could quickly run out of money - if the economy turns bad. Those who have lost their job, go on childcare leave, or are injured at work may not be able to receive what they need when they need it if the funds are parked in stocks.
The unemployment insurance policy sharply ran out of funds during the financial crises in 1997 and 2008. The amount of liquid assets that the unemployment insurance policy currently has on hand is just 0.7 times eligible claims, less than half the legal ratio of 1.5 times or double. The fund is neither suitable for stock investment nor can it be run on a long-term basis to generate a good return. Using it for stock investment can jeopardize the social safety net.
The state funds also are not suitable to set corporate investment targets to exercise the government’s voting rights. The report said the fund operation could be used to meet the government’s target of achieving employment rate of 70 percent. That suggests the funds could use their newfound voting powers to pressure companies to comply with government policies and improve working conditions for non-regular workers, thus promoting corporate governance. Nothing good would come out of the funds investing in corporate shares.
JoongAng Ilbo, Feb. 23, Page 34