PD Editorial: Politics shouldn’t drive pension investments
California’s public employee pension funds are many things. They’re enormous, with more than a half-trillion dollars in assets. They’re underfunded by tens of billions of dollars. They’re treading water after two years of weak returns.
They’re also a source of ongoing controversy about the growing trade-off between public services and retirement security for public employees.
Here’s something they shouldn’t be: a tool for making political statements.
That last part apparently is lost on, among others, some state lawmakers.
A bill pending in Sacramento would require the California Public Employees Retirement System and the California State Teachers Retirement System to divest from any companies involved in building the Dakota Access Pipeline.
Another bill would require the pension funds to divest from any companies involved in building President Donald Trump’s border wall.
Yet another bill targets pension investments in Turkey.
To be clear, we share concerns about the pipeline, which would carry crude oil from North Dakota to Illinois along a route that threatens the drinking water supply for the Standing Rock Sioux reservation.
The border wall is nothing more than a costly political stunt. Building it would needlessly disrupt the lives of Americans with property along the border and undermine U.S. relations with Mexico without having any impact on illegal immigration.
Turkey’s denial of the Armenian genocide in the early 20th century is reprehensible. So is its recent slide from democracy to dictatorship.
But none of these should be factored into investment decisions by California’s state and local pension funds.
The pension funds have a unique position in the financial markets. If their earnings aren’t adequate to meet their obligations, or if they lose money, taxpayers must make up the difference.
A combination of enhanced benefits, bad bets, a punishing recession and declining returns already has driven state and local retirement contributions into the stratosphere, with even more increases on tap over the next several years. In some instances, public agencies will be paying 50 cents on top of every payroll dollar to cover retirement costs.
Adding political litmus tests to investment portfolios would make a bad situation even worse. Fortunately, it appears that CalPERS recognizes the problem.
“To use the CalPERS portfolio as the political football can be damaging to the interests of the state and the taxpayers, because ultimately the taxpayer ends up footing the bill for the benefits,” Wylie Tollette, the chief operating investment officer at CalPERS, told the Sacramento Bee recently.
A study in 2015 found that CalPERS would have lost $8 billion in assets under divestiture bills that had been introduced in the Legislature in recent years. According to a CalPERS report, the Dakota pipeline bill alone would cost the fund $4 billion.
The state’s retirement funds have more than enough problems, the most important of which is figuring out how to address their unfunded liabilities without forcing cities, counties, school districts and the state to skimp on their other responsibilities.
For now, the divestment bills are only costing time. Lawmakers should reject them before they start costing all of us money.