As Election Day quickly approaches, it seems that every decision, contemplation, or idea in life is being dragged into the spotlight and politicized, including our state and local governments’ pension funds. These funds are being tossed into the ring to be torn apart by groups that are wishing to politicize their social whims through divestment. However, unless managers of these funds consider all the facts closely, pension funds could suffer the negative financial outcomes that result from divestment.
The latest example in the long line of politicized fights falls on Maryland’s pension funds. Montgomery County and the state of Maryland both recently announced that they are looking into divestment from certain industries after receiving pressure from outside groups to do so.
Specifically after being pressured by local activists, Montgomery County is looking into divesting its pension fund because of its “moral and political obligation.” Herein lies the problem. A pension fund is not a personal investment fund that can be used to make political statements based on an opinion; a pension fund actually represents the retirement of thousands of civil servants, police officers, firefighters and more and therefore should be making investment decisions based on the rules and regulations of the fund and facts. Therefore managers have a fiduciary responsibility to see that the portfolio continues to grow and flourish for the benefits of the retirees.
Although in favor of divestment, Montgomery’s Board of Investment Chair Gino Renne did point out this responsibility in an interview: “Sometimes your personal beliefs are in conflict with your fiduciary obligations.”
With that being said, in the latest draft of the bill, Montgomery County does have the ability to hold onto the stocks if the board can demonstrate that divestment would reduce the return of the portfolio. And as a study conducted by the University of Chicago Law Professor Daniel Fischel concluded, the lower rate of return for the portfolio is exactly what will happen.
Moving into November, pension holders need to fight for their retirement future. Voice their concerns about their pensions and learn as much as they can about the responsibility pension boards have to ensure retirees’ future.
Check in later to learn more about the pension argument in Maryland on the state level.