Public pensions are increasingly being politicized and used as a means to affect social or political change. These actions act directly against the fiduciary responsibility that fund managers have to their plan beneficiaries. One of the most common tools used in these cases is divestment, or stripping plans of investments deemed to be against a social or political goal. Public pensions at all levels across the country are facing calls to divest of everything from fossil fuels to tobacco to private prisons and other industries.
At the forefront of the divestment movement are Mayor Bill de Blasio and Comptroller Scott Stringer of New York City. It has been one year since Mayor de Blasio announced that NYC would divest from fossil fuels within the next five years. Furthering his efforts to strip New York City’s five pension plans of fossil fuel stocks, the city issued a request for information (RFI) to gather public input to inform their divestment plans. What has resulted is a mixed bag, with some stark opposition to the plan, considering that the cost would be detrimental to the retirees. In response to the RFI, IPFI provided a report detailing the costs, ineffectiveness, and inherently wrong nature of the City’s plan to divest. Subsequently, in December 2018, the New York City’s Comptroller issued a request for proposals (RFP) to support the city’s intended divestment strategy for three of the city’s five public pension funds. Proposals are due by February 8, 2019, and the contract is reported to begin in December 2019. While IPFI as an organization steadfastly opposes any plan that politicizes a public pension fund, the issue of divestment requires a closer look, particularly in light of divestment’s costly effects on pensioners and their retirement savings. The public deserves to know the facts about this misguided strategy.
Through a close analysis of academic research and case studies, we explain the inherent problem of divestment in public pension funds.
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