. Bell telephone magazine . am. Initially, pensions were paidout of current earnings, whichmeant, of course, that the demandon earnings could vary widely withthe number of people who it was decided in 1927 to pre-fund—or set aside—money each yearanticipating retirements. Prefunding accomplishes twothings: it stabilizes the impact onearnings; and it assures that moneywill be available to meet future pen-sion demands. The efficacy of thisstep is clearly demonstrated by the demise of corporations whose re-tired personnel—and those ready forretirement — lost pension benefitsbecause th
. Bell telephone magazine . am. Initially, pensions were paidout of current earnings, whichmeant, of course, that the demandon earnings could vary widely withthe number of people who it was decided in 1927 to pre-fund—or set aside—money each yearanticipating retirements. Prefunding accomplishes twothings: it stabilizes the impact onearnings; and it assures that moneywill be available to meet future pen-sion demands. The efficacy of thisstep is clearly demonstrated by the demise of corporations whose re-tired personnel—and those ready forretirement — lost pension benefitsbecause their pension plan had notbeen adequately prefunded. Thosecorporations went along payingpensions out of current earnings. The establishment of an irrevo-cable pension trust fund at AT&Tcreated a pool of money which, de-ployed in secure investments, couldunderwrite the cost of pensions. Since 1927 the strategy behindthe management of our pensionfunds has evolved from one of pro-tect the principal—which translated. 20 into acquiring only government ob-ligations or the highest rated cor-porate securities—to one, in recentyears, of maximizing total returnthrough prudent investments, par-ticularly in common stocks. Theutilization of common stocks wasstarted in the late 1950s to providea greater total return than the moreconservative forms of investment,and consequently better protectionagainst inflation for the funds. But capturing that extra returninvolves a concomitant element ofrisk. The job of minimizing risk andmaximizing return is the responsi- bility of professional investors, ormoney managers, on whom Bell Sys-tem companies rely to invest pen-sion fund money. In each Bell com-pany an officer is delegated theresponsibility through his board ofdirectors to manage the money man-agers—in short, to make sure thatprofessional investors are maximiz-ing return but doing so prudently. At AT&T managing the moneymanagers as a day-to-day responsi-bility is the job of William
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