Politically Motivated Investments Burden Taxpayers, Report Finds

A recent report from the Virginia-based Institute for Pension Fund Integrity reveals that politically motivated investment decisions significantly harm public finances, ultimately leading to tax increases for citizens. The analysis suggests that actions such as pension fund managers withdrawing investments from certain industries, including tobacco, often result in substantial financial losses for public retirement pensions, costing taxpayers billions over time.

The report emphasizes that the politicization of public pension funds, which are overseen by elected officials, undermines both financial viability and accountability. “The politicization of public pension funds, which are driven by elected or appointed officials, is irresponsible and financially unsound,” the report states. It further critiques the focus on political agendas over fiscal responsibility, arguing that this approach jeopardizes the stability of retirement funds.

Christopher Burnham, president of the Institute and former Connecticut State Treasurer, articulates a stark warning: “When these funds inevitably lose money due to shortsighted divesting, the taxpayer has to make up the vast majority of that difference.” He points to the California Public Employees’ Retirement System (CalPERS), whose decision to divest from tobacco companies cost the fund approximately $3 billion over a 14-year span. By February 2018, CalPERS had only 68 percent of the assets required to meet its retirement obligations.

Debate Over Divestment Strategies

The report raises critical questions about the effectiveness of immediate divestment strategies. Paul Rose, associate dean for Academic Affairs at Ohio State University’s Moritz College of Law, agrees with the findings, noting that hasty divestments often result in losses due to discounted sales. Yet, he acknowledges that divesting from certain sectors, like coal, may yield positive long-term results due to declining market shares and increasing regulation.

“There’s sometimes a knee-jerk reaction where you think any kind of divestment for, say, fossil fuels, is just about politics,” Rose explains. “In reality, it might be because they are looking long term and see things are changing.” This perspective highlights the need for a nuanced approach to investment decisions, balancing political considerations with fiscal responsibility.

Burnham goes a step further, asserting that justifications for socially responsible investing may violate fiduciary duties. His concerns are echoed by Michael Frerichs, the Illinois State Treasurer, who gained media attention in the previous fall for advocating corporate governance changes at Facebook. Frerichs has called for founder Mark Zuckerberg to relinquish his dual roles as board chairman and CEO, threatening divestment of state-controlled funds if the request is not addressed. This proposal is expected to be discussed during the company’s board meeting in May.

As public pension funds navigate the complex landscape of investment and political influence, the implications for taxpayers continue to grow. The ongoing debate over the balance between ethical investing and financial prudence remains at the forefront of discussions among policymakers and financial experts alike.