Millions of retired state employees have dedicated their lives working for the promised pension funds that come with a lifetime of public service. The Los Angeles Daily News Editorial Board recently wrote a piece on the harm of politicizing state pension funds. The article highlights the negative impacts that ideological investment decisions have on pension funds.
The California legislature passed the Public Divestiture of Thermal Coal Companies Act of 2015 that mandated California Public Employees’ (CalPERS) and California State Teachers’ Retirement Systems (CalSTRS) to divest from all coal holdings by July 1, 2017. The law required each of the pension divestment from fourteen different coal companies.
Unfortunately, for the pension funds, that decision coincided with thirteen of the fourteen companies producing strong returns shortly thereafter. This is precisely the reason pension boards should strongly oppose any divesting decisions based purely on ideology. These two funds alone, CalPERS and CalSTRS, cover 65% of the 4 million state, county, and local employees who are eligible for public pension benefits – which is a great deal of responsibility for the managers of the funds.
Recently, there has been a growing concern regarding the massive outstanding of unfunded pension liabilities that exist in California. This national trend of postponing payments to pensioners for future administrations or assemblies to address pension deficit is a lesson in failed leadership. The two largest pension funds – CalPERS and CalSTRS – in California have increased the unfunded liabilities by more than $63 billion and $65 billion respectively in the past 20 years. The question becomes who makes up the costs when the legislature is forcing the hand of investors from holdings in energy industries that are providing steady returns. The answer? Taxpayers.
Without investment growth, the taxpayers in the state are responsible for funding the pension plans. This is an unnecessary extra burden placed on taxpayers across the state. The director of public employees for the International Union of Operating Engineers, Steve Crouch, expressed his concern with the divestment measures stating, “It’s time for CalPERS to re-evaluate their investment strategies and focus more on improving their investment returns and less on ‘socially responsible’ investments.”
Ideological investing with the pension funds of millions of retired public employees is not in the best interest of pensioners or the taxpayers at large. The Los Angeles Daily News Editorial Board is correct in addressing the harm to pensioners and pension funds when politicized.