CalSTRS Need to Focus More on Investment Performance, Less on Proxy Advisory Firms

The issue of proxy advisory reform is at the center of debate now with the SEC entering into a formal rulemaking process to roll back some of these firm’s unchecked powers.

These firms have been known to make recommendations misconstruing or misinterpreting data, they have been allowed to operate and make recommendations with clear conflicts of interest, and most importantly, they refuse to act as fiduciaries, instead making recommendations to advance their clear political and social goals instead of recommendations that will produce the greatest returns for investors.

It’s unfortunate that the head of one of the most underfunded and politically/socially active pension funds (CalSTRS) is coming to these firm’s defense. In a recent article, Chris Ailman, CIO of CalSTRS, seemed to attack the SEC’s intent of looking out for the average pensioner or retail investor, in favor of the political and social-driven investing that CalSTRS has been known to support.

According to the California Legislative Analyst’s Office, CalSTRS has an unfunded liability of $107.3 billion, which means the $242 billion pension fund is only 57 percent funded. What are California teachers – those who often take less pay during their working years for the assurance of a strong retirement – going to do when the secure retirement they were promised isn’t able to pay the promises that were made during contract negotiations?

This is proof that pension fund managers, particularly those that are not performing well, need to focus less on politics and more on producing solid returns for their investors.

What’s most unfortunate is that CalSTRS’ management – by voting automatically with proxy advisory firms’ recommendations – is silencing the voice of everyday pensioners who are the main beneficiaries of the pension fund.  Reforming this automatic voting status will create greater transparency for all CalSTRS pensioners.

COMMENTARY: Take Politics Out Of Public Pension Plans

This op-ed originally appeared in Forbes on November 4th, 2019. 

Ahead of the Great Recession of 2008-2009, housing prices were increasing by about 5% every year between 1998 and 2006. Yet major publications and almost all pundits missed the signs of impending disaster. More than seven million Americans lost their homes and millions more lost jobs. While it was a failure of fiduciary responsibility by the leaders of our banks and investment banks, I call it “criminal stupidity”. It is a crime against the employees and shareholders—blame is also shared by the rating agencies, Congress and others.

Politicians and financiers are now attempting to perpetrate another fraud—-the way they manage our public pension plans.

In 1995, as the newly elected state treasurer, I inherited the worst performing state pension plan in the nation—Connecticut. With over 68 money managers most of them unable to beat their benchmarks, we were two hundred basis points below the 49th state for the previous ten years. It was a pathetic confluence of politics and incompetence, and it meant that Connecticut left over $2 billion on the table if compared to if they had simply indexed the portfolio to 50% stocks and 50% bonds.

I run the Institute for Pension Fund Integrity, which recently completed a study of most of the states’ pension plans, and found that only five pension funds out-performed a benchmark of 60% stocks and 40% bonds for the previous ten years. In other words, instead of the hundreds of millions of dollars our states spend each year trying to “beat the market,” the vast majority waste those taxpayers’ dollars and employee contributions, and then compound it by failing to produce “alpha”: returns in excess of a reasonable benchmark.

Our politicians then continue the abuse by manipulating the way our funds calculate unfunded liabilities. They do this by failing to use up to date actuarial assumptions, excessively high assumed rate of earnings or returns, known as “ARR”, and then cover up the truth by not complying with the Government Accounting Standards Board (GASB) reporting standards for state and local governments. The current GASB 67 standards require plans to report their assets at market value, which shows actual market fluctuations, instead of actuarially smoothed value. However, public pension plans persist in using the “actuarially smoothed value for funding purposes because it exhibits less volatility” (Figure B1).

The Employee Retirement Income Security Act (ERISA), governs private-sector and Taft-Hartley pensions, and requires that plan managers use a market-driven ARR of between 3-5%. There is no equivalent requirement at the state level.

That means it’s up to the state legislatures and government agencies to determine an appropriate ARR. A higher ARR presumes higher profits on current investments. Using an ARR of around 7%—a level very few states can consistently earn above—means that unfunded liabilities are understated and the amount of money legislatures must annually appropriate during budget debates to their pension systems is reduced.  In other words, it is a gimmick used by our politicians to kick the can down the road.

I have been on a 25-year crusade to keep political investing out of our public pension plans—when old pols like Mayor de Blasio in New York City want to impose their personal political agenda on investment decisions. I guess it did not help his campaign for president too much. In de Blasio’s case, he was trying to divest $5 billion in fossil fuel holdings from the city’s five public pension funds. I wonder: what fuel he was putting into the SUV that he was using to drive his kid to school?

Recently, the town of Charlottesville, Virginia voted to strip their holdings in companies that support our sons and daughters in our armed forces. As a retired Marine Corps infantry officer, I am particularly insulted by that one.

Another version of this politicizing is letting the two dominant proxy voting advisory firms—one owned by a Canadian holding company—making proxy voting decisions for our pension plans with little transparency to those of us who are beneficiaries of those plans. These firms advise pension plans on how to vote on a variety of corporate issues that impact returns, sometimes with a focus on “impact investing,” meaning they are also advocating for a specific political agenda—such as tobacco, or energy, or firearm manufacturers—-industries that have generated ire by some for political or social reasons.

The problem is that politicians and proxy advisory firms have no stake in how our public pension plans perform. They have no skin in the game. Our public plans, politicized, mismanaged and underfunded are a time bomb ticking away. The State of Connecticut owes me and my fellow pension beneficiaries at least $100 billion to our unfunded pension system. For California’s state pension system it is closer to $1 trillion. By choosing politics over fiduciary responsibility, the politicians have chosen to condemn our state and municipal employees to an insecure retirement, and to my fellow taxpayers, the prospect of huge increases in taxes to make up for their political malfeasance and stupidity.

Among the many solutions, it is time to take the politics out of the management of our public pension plans.

PRESS RELEASE: IPFI Applauds SEC’s Actions Fixing the Proxy Advisory Process


November 14, 2019

IPFI Applauds SEC’s Actions Fixing the Proxy Advisory Process

The Institute for Pension Fund Integrity welcomes the SEC’s latest proposed rules, which seek to restore trust and accountability to the shareholder voting process by addressing a range of negative practices rampant in proxy advisory services.

Arlington, VA – Last week, the SEC voted 3-2 to propose rules that would remedy the unchecked power of proxy advisory firms for the first time in over twenty-seven years—the longest stretch in the history of solicitation rule updates. This comes on the heels of over a year’s worth of deliberation and input on the current framework governing proxy advisory firms. At last, substantial measures to limit their outsized influence have taken form. These principles inform the latest proposed rules:

  1. Offer investors a more streamlined system: Proxy advisory firms currently operate under a “patchwork of exemptions” to the Commission’s solicitation requirements. This rule clarifies that these firms’ obligations to investors remain the same across the board.
  2. Address material conflicts of interest head-on: Information on the basis of proxy advisory firms’ recommendations is notoriously difficult to access. Comprehensive disclosures are especially necessary when proxy advisory firms consult both investors and corporations on how to navigate the shareholder voting process.
  3. Learn from and improve upon current market practices: The proposal increases the opportunities for issuers to review and correct information that proxy advisory firms use to provide voting recommendations, thereby reducing the amount of circulating inaccuracies.
  4. Enhance transparency for investors: Pubic pension plan members and retail investors should no longer be in the dark when it comes to fund managers’ “automatic voting” based on proxy advisory firms’ recommendations. The SEC rightly called attention to this issue in the proposed rule, and the SEC should ensure greater accountability and enhance transparency by prohibiting automatic voting.

Public pension plan members and retail investors have a huge stake in these rules’ outcome. Institutional investors manage many kinds of funds, including public pensions, and own as much as 80% of the market value of publicly-traded US companies. The new rules would force proxy advisory firms, who recommend how pension fund and investment managers should vote on proxy proposals, to comply with stricter oversight. Specifically, the SEC’s proposed rules will ensure recommendations are made absent both misinformation and clear conflicts of interest on the proxy advisory firm’s part. The goal should be that proxy advisors make recommendations that will provide investors with the greatest returns on their investment.

IPFI President Christopher Burnham recently wrote in Forbes, “The problem is that politicians and proxy advisory firms have no stake in how our public pension plans perform. They have no skin in the game. Our public plans, politicized, mismanaged and underfunded are a time bomb ticking away.”

IPFI supports the SEC’s actions and plans to continue pushing for what should be investment fund’s top priority–maximizing investment returns.

For more on IPFI’s positions regarding divestment and fiduciary responsibility, see IPFI’s research available on


The Institute for Pension Fund Integrity seeks to ensure that local, state and federal leaders are held responsible for their choices in investment, led not by political ideation and opinion but instead by fiduciary responsibility. IPFI is a non-partisan, non-profit organization based out of Arlington, Virginia, and spearheaded by former Connecticut State Treasurer and former Undersecretary General of the United Nations, Christopher B. Burnham.

COMMENTARY: Safeguarding the pensions of public employees; With proxy reforms the SEC takes a first step in improving the health of U.S. pension funds

This op-ed originally appeared in The Washington Times on October 8th, 2019.

Nearly a year after it held a roundtable on the topic, the Securities and Exchange Commission on Aug. 21 issued “an interpretation that proxy voting advice provided by proxy advisory firms generally constitutes a ‘solicitation’ under the federal proxy rules.”

This is a big deal. Proxy advisers have become the most powerful players in corporate governance. The field is dominated by just two firms, Institutional Shareholder Services (ISS) and Glass Lewis. They provide recommendations to funds on how to vote on proxy questions that come before them as owners (on behalf of their investors) of shares of thousands of different companies. Those proxy questions include electing board members and engaging accounting firms but, more and more, funds are called on to vote on environmental, social and governance issues that are subsumed under the shorthand acronym “ESG.”

The advisers have been criticized for making decisions — especially in the ESG arena — using ideological rather than strictly financial criteria. They have also been accused of making factual errors and not correcting them quickly, of using one-size-fits-all approaches to questions rather than considering the needs and strengths of individual companies, and of conflicts of interest.

And they’ve been criticized for forcing a practice often called “robo voting.” Specifically, “robo-voting” takes place when pension fund managers and other fund managers automatically vote in alignment with proxy advisory firm recommendations. This practice undermines the First Amendment rights of public pensioners and retail investors since their voice has been disenfranchised in the shareholder resolution votes by fund managers. This practice is most problematic if the resolutions advance a political agenda instead of prioritizing financial returns. J.W. Verret on the SEC Investor Advisory Committee and George Mason Law School called attention to this issue in a recent Financial Times op-ed when he wrote, “This kind of automatic voting in line with unregulated third parties’ guidance is undermining the fiduciary duty that advisers owe to investors.”

While the SEC’s “interpretation” or “guidance” is not a rule-making or a regulation, it “could have significant impacts on how proxy firms and investment advisers conduct business,” wrote Peter Rasmussen on Nor is the SEC finished with the matter. Great oversight may be coming.

The SEC made it clear that the recommendations of proxy advisers are subject to legal anti-fraud provisions under the SEC’s Rule 14a-9. Previous SEC actions had given the investment community the distinct impression that proxy advisers had special protections and that investment funds, including public pension plans, could shift responsibility for making proxy-voting choices onto the advisers without either group assuming the sort of responsibility that traditionally extends to advice giving and receiving in the securities world.

The SEC warned that Rule 14a-9 “prohibits any solicitation from containing any statement which … is false or misleading with respect to any material fact.” And the commission stated that proxy advisers would have to disclose information which “extends to opinions, recommendations, or beliefs” in order to avoid a potential violation.

It appears that proxy advisers will have to justify their voting recommendations much more rigorously than they do now. If so, millions of Americans will benefit.

We cannot expect to safeguard the retirements of the 14 million-plus public servants contributing to pension plans if the SEC fails to assign proper accountability to the firms that are responsible for more and more pension-fund decisions. A Manhattan Institute study has shown that a portfolio of ESG investments performs more poorly than the market as a whole, and the recent returns of the largest public-employee pension fund CalPERS, which is a prominent practitioner of ESG investing, have been especially dismal. For the fiscal year ending June 30, returns of the public equity portfolio of CalPERS’s portfolio were just 6.1 percent while S&P 500 index funds returned 9.7 percent.

This emphasis on ESG, driven by proxy advisers, poses disastrous consequences for our nation’s already-suffering public pensions. Americans deserve better. After sacrificing a portion of every hard-won paycheck in order to secure financial stability for their families’ futures, plan members need to receive what was promised to them in retirement.

According to the SEC’s own language, its mission is to “protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.” There’s nothing fair about a market skewed by trending political causes advanced by vocal minorities.

On Aug. 21, the SEC took a good first step at reviving the principles of fiduciary responsibility. Lack of transparency and accountability both enable the practices that can lead to recommendations that harm the performance both of corporation and pension funds.

Public pension funds are already underfunded and underperforming. The SEC is in a unique position to address a serious problem. Now is the time for leading officials to ensure that investments are based, in the SEC’s own words, on “timely, comprehensive, and accurate information,” not on blanket recommendations steeped in ideology.

Ken Blackwell has served as treasurer and as secretary of State of Ohio, as well as mayor of Cincinnati. He serves on the Advisory Board of the Institute for Pension Fund Integrity.



Opinion/Letter: NY pensions deserve protection – Richard Brower in New York Daily News

This Letter to the Editor originally appeared in New York Daily News on September 21, 2019.

Rockville Centre, L.I.: Re “Don’t be fuelish, Tom,” (Sept. 2): New York’s retirees served the state all of their lives. As a former vice chairman of the FDNY Pension Fund and advisory board member for the Institute for Pension Fund Integrity, I know that it’s up to the public pension fund fiduciary to be able to hold up their end of the bargain and ensure retirees’ financial security is well-funded. As state controlleroverseeing New York State Common Retirement Fund (NYSCRF), Tom DiNapoli has been doing just that. But the recent outcries to divest our public pensions from fossil fuels are based purely in politics and will harm our retirees.

The NYSCRF oversees $210.5 billion, which benefits more than one million members, retirees and beneficiaries. Taking steps like divestment are futile and only jeopardize the financial security of the pension recipients.

Climate change is obviously an important issue, which is why DiNapoli released the Climate Action Plan. The plan seeks to double the fund’s commitment to its sustainable investment-climate solutions program to $20 billion over the next decade.

Currently, New York’s pension fund is 94.5% funded, which is above the 69% average for state pension funding. The NYSCRF is clearly performing well based on the current investment allocations. If DiNapoli is forced to divest from profitable investments, the fund’s financial integrity may be jeopardized. Through its current course of action, New York has ensured that pension recipients will receive their hard-earned retirement.

I applaud and support DiNapoli as he prioritizes his fiduciary responsibility over political whims. Activists’ and politicians’ actions only risk our well-deserved retirement.

IPFI Issue Brief: Reforming The Proxy Advisory Firm Duopoly: An Analysis of Recent SEC Guidance and Its Implications for Public Pension Retirees

Since 2018, the U.S. Securities and Exchange Commission (SEC) has been evaluating the role that proxy advisory firms have regarding shareholder engagement. This has resulted in recent Commission-level guidance to clarify the relationship between proxy advisory firms and institutional investors. At the end of the day, public pension retirees rely on their pension systems and fund managers to make smart investment decisions to ensure a secure retirement. But is that possible when proxy advisory firms provide biased recommendations on shareholder resolutions that may not prioritize financial returns? 

In light of the SEC’s recent guidance and ahead of an upcoming House Financial Services Committee hearing on September 24 that will feature all four SEC Commissioners and the Chairman, the Institute for Pension Fund Integrity (IPFI) has released its latest report analyzing the rise of proxy advisory firm influence and the actions that the SEC has taken to date. 

The SEC is taking proactive measures to reform what has, over time, become a convoluted process that yields questionable results for public pension retirees and other retail investors. However, stronger action is still needed. The IPFI brief details the following:

  • Prior SEC guidance has produced a complex set of unintended consequences. Oftentimes, guidance that sought to clarify the responsibilities of investment managers and proxy advisory firms inadvertently led to the consolidated power of proxy advisory firms we see today. 
  • Lack of transparency and conflict of interest remain of paramount importance when it comes to reform. Only two major players, Glass Lewis Co. and Institutional Shareholder Services Inc. (ISS), dominate the proxy advisory market. Insufficient oversight and ambiguity surrounding recommendations provided by proxy advisory firms raise the question of how susceptible these firms are to outside influence. 
  • Institutional investors who manage public pension funds face unique challenges. Particularly, activists have attempted to exploit the proxy advisory system and impose an Environmental, Social, and Governance (ESG) agenda when they are unsuccessful in advancing their causes through the legislative process. But these investment strategies do not always produce profitable return margins as would other traditional investment strategies.
  • The SEC issued two interpretive releases in August 2019 that set a clear agenda for future reforms. One release defines proxy advisory services as “solicitations” which affects the extent to which proxy voting recommendations are subject to anti-fraud rules. The second release pertains to an investment adviser’s fiduciary responsibility as he or she employs proxy voting on a client’s behalf. This Commission-level guidance sets a clear tone on the SEC’s position that proxy advisory reform demands immediate attention and substantial re-evaluation. 
  • Robo-voting disenfranchises public pension retirees and retail investors and goes against their financial interests. “Robo voting” is a system that many public pension funds and institutional investors use to automatically dispense their responsibility to execute proxy votes to proxy advisory firms. When ISS or Glass Lewis advances an ESG-related shareholder resolution that prioritizes a political, social or environmental agenda over financial returns, the public retiree’s interests have been disenfranchised due to robo-voting.

IPFI President Christopher Burnham recently wrote in Forbes that “With the new SEC guidance, proxy voting firms, rather than being stealth conduits for politics, will now have to be far more transparent and accountable.” He continued saying, “the Commission-level guidance must still go further to fully address the underlying problem with proxy advisors: that they serve as a conduit for investing with a political purpose, violating fiduciary duty, and historically, negatively affecting public pension fund performance.”

IPFI maintains that investment advisers must place the financial considerations above any other factor. We conclude with recommendations on what steps the SEC can take to ensure that proxy advisory firms do not compromise the financial returns of America’s public pensions. Key recommendations include:

  • Fixing the Lack of Transparency and a One-Size-Fits-All Approach – One notable step proxy advisory firms can take to address concerns about the opacity of their recommendation process is to devise a system that demonstrates their recommendations are issuer-specific. Among the services offered by proxy advisory firms should be the assurance to shareholders and stakeholders that their organization’s needs and objectives were carefully factored into each vote. A public notice-and-comment process would also foster trust and inform proxy advisory firms on the general consensus of those affected by corporate decision-making.
  • Disclosure of Conflicts of Interest – To help reduce the negative financial consequences of potential conflicts of interest, the SEC must clarify the extent of proxy advisory firms’ fiduciary responsibility. Establishing a coherent regulatory guideline on this contentious matter will equip all relevant parties with a framework for assessing the utility and benefit of recommendations made by industry giants like Glass Lewis and ISS. 
  • Reforming Shareholder Engagement – The argument that proxy advisory firms operate in a closed circle without proper shareholder engagement is a common argument in favor of reform. Extended review periods would allow for increased dialogue between the two parties. This would also serve as an opportunity to document dissenting opinions that shareholders may raise. In this sense, the voices of those directly tied to major investments will gain prominence over those being raised from the sidelines. 

Read the latest issue brief, Reforming The Proxy Advisory Firm Duopoly: An Analysis of Recent SEC Guidance and Its Implications for Public Pension Retirees

PRESS RELEASE: California Treasurer Inserts Politics Into the Management of Teacher Retirement Fund


September 12, 2019

California Treasurer Inserts Politics Into the Management of Teacher Retirement Fund 

The Institute for Pension Fund Integrity urges California Treasurer Fiona Ma to prioritize her fiduciary duty instead of politics to optimize state investments.  

Arlington, VA – Yesterday, California Treasurer Fiona Ma, CPA, decided that supporting a political stunt was more important than prioritizing strong fiscal policy to ensure a stable retirement for California’s teachers. During an Investment Committee hearing on September 5, Treasurer Ma and young climate activists urged the California State Teachers’ Retirement System (CalSTRS) to divest its funds from fossil fuel companies as a means of fighting the current climate crisis. While finding sustainable solutions for fighting climate change is important, the Institute for Pension Fund Integrity (IPFI) maintains that divestment based on political instead of financial considerations goes against Treasurer Ma’s fiduciary duty and puts the secure retirement of almost a million Californian teachers at risk. 

Divestment has been shown repeatedly to be ineffective and actually cost funds more than the companies that they divest from. California’s other major pension fund, the California Public Employees’ Retirement System (CalPERS) is a great case study for the cost of divestment. After divesting from tobacco in 2000, CalPERS lost nearly $3 billion over the next thirteen years. In fact, CalPERS has lost almost $7.8 billion since 2001 due to various divestments. Furthermore, while divestment often seeks to impact a company’s bottom line, several studies show that divestment campaigns have minimal to no impact on company finances.  In the end, divestment is simply a political maneuver that has real costs. 

IPFI President Christopher Burnham recently reiterated that “activist investing has a place in personal portfolios but no place in public pension plans.” He continued saying, “the oath of fiduciary responsibility is one of the strongest oaths we can take, and we must focus on keeping politics out of our fiduciary decisions.” 

IPFI’s recent study on public pension fund performance showed that 47 out of 52 pension plans could not outperform a simple index fund of 60% stocks and 40% bonds. To already be grossly underperforming a simple index fund while under active management, to now want to add activist investment, is the height of fiduciary irresponsibility. IPFI encourages CalSTRS and Treasurer Ma to prioritize the dedicated teachers of California, and to ensure that today’s investments result in tomorrow’s secure retirement. 

For more on IPFI’s positions regarding divestment and fiduciary responsibility, see IPFI’s research available on

PRESS RELEASE: SEC Commission Guidance on Proxy Voting is Encouraging


August 21, 2019

SEC Commission Guidance on Proxy Voting is Encouraging

The Institute for Pension Fund Integrity commends the SEC for moving towards greater clarity on the proxy voting requirements and fiduciary responsibility for institutional investors. However, more is needed.

Arlington, VA – The Securities and Exchange Commission (SEC) has been reviewing the role of proxy advisory firms and the processes surrounding proxy voting for more than a year. The action taken by the Commission at today’s meeting to issue formal guidance on the proxy voting responsibilities of investment advisers is an important first step toward providing clarity essential to fiduciaries. This official guidance is a welcomed first step in a process that will add necessary transparency and accountability.

Proxy advisory firms have an outsized influence on public pensions because fiduciaries feel an inherent mandate requiring them to vote every single proxy. Two proxy advisory firms, Institutional Investor Services (ISS) and Glass Lewis, control 97% of the proxy services market despite apparent conflicts of interest and lack of regulatory oversight. By reducing the requirement of institutional investors to vote every single proxy, proxy advisory firms and institutional investors, such as public pension funds, will be able to focus on shareholder resolutions that directly impact shareholder value, thereby benefiting all our public employees and retirees.

In response to this guidance, Institute for Pension Fund Integrity (IPFI) President, Christopher Burnham, commented, “Firm adherence to fiduciary responsibility was evident at today’s meeting, and it’s clear that it was the overarching factor in developing the Commission’s guidance.” Burnham continued, “the SEC is moving in the right direction on the proxy voting issue, and I’m encouraged by today’s comments from the Commission that we’ll see more action by the SEC through a rule change to provide further transparency in the opaque proxy advisory environment.”

IPFI continues to fight for strict adherence to fiduciary responsibility and to keep politics out of the management of public pension funds. Considering the latest research showing the underperformance of public pension funds, now more than ever, pensions need to focus on fiduciary responsibility and proxy voting that will enhance investment returns. Read more about the intersection of public pensions and proxy voting at


The Institute for Pension Fund Integrity seeks to ensure that local, state and federal leaders are held responsible for their choices in investment, led not by political ideation and opinion but instead by fiduciary responsibility. IPFI is a non-partisan, non-profit organization based out of Arlington, Virginia, and spearheaded by former Connecticut State Treasurer and former Undersecretary General of the United Nations, Christopher B. Burnham.

Opinion/Letter: Divestment vote was doubly wrong – Christopher Burnham in the Charlottesville Daily Progress

This letter to the Editor originally appeared in the Charlottesville The Daily Progress on August 13, 2019

Charlottesville voted to divest from fossil fuels and national defense companies. The City Council of Charlottesville seeks to disassociate itself from companies that fuel our cars, heat our schools and businesses, or support our armed forces. As a Virginian and retired Marine Corps officer, I find this outrageous.

What kind of cars do City Council members drive? What energy is used to heat their homes? It doesn’t matter, because the vast majority of energy produced in Virginia relies on nuclear, gas and coal. In fact, gas and coal account for 62% of energy production in Virginia. Over 100,000 Virginians are traditional energy or energy efficiency workers. Additionally, about 50,000 workers are involved in the motor vehicles industry — vehicles, including hybrids, primarily powered by fossil fuels.

The city treasurer recently said that divestment will have minimal effect on the city’s financial stability. So if divestment is harmless, then is this an empty political gesture or stunt?

This divestment insults every soldier, sailor, airman and Marine who relies on Virginian-made defense technology to preserve, protect, and defend our country. It also insults the men and women of our state laboring in the energy field to heat (or cool) our homes, get our kids to school, and keep our country running.

Divestment is also a terrible fiduciary decision. National defense companies have been among the top-performing stocks in the past decade, including Virginia-based General Dynamics and Northrop Grumman, also headquartered in Virginia. But then, this has a “minimal effect.”

The Charlottesville City Council, rather than making empty political gestures, should determine how to make city government faster, better, and cheaper. It was a self-serving vote, and a hypocritical one to boot.

Christopher Burnham


Public Pension Performance: Comparing Pension Investments to Passive Index Portfolios

With many states facing tough budgetary decisions, in part because pensions are requiring greater contributions, the Institute for Pension Fund Integrity decided to compare pensions through another metric besides the funding ratio. How well a pension is funded is important for determining the overall health of the system, but if the investments are not performing well, the system will continue struggling. Using a passive investment strategy as the guiding marker, IPFI has ranked pension systems across all fifty states based on their performance.

The findings were released in a new paper, Public Pension Performance: Comparing Pension Investments to Passive Index Portfolios.

IPFI drew data the Vanguard Total Stock Market Index and Vanguard Total Bond Market Index to build two passive index investment portfolios for comparison: one portfolio was 60% stocks, 40% bonds, and one was 50% stocks and 50% bonds. After thorough analysis, IPFI identified several key points:

  • Only five of the 52 pension funds that were analyzed outperformed the 60/40 passive index investment portfolio.
  • Only one state had both strong pension performance and is well funded. South Dakota is 100.1% funded and was 71 basis points stronger than the 60/40 index portfolio.
  • California was the 10th worst performing pension system, 116 basis points less than the 60/40 portfolio. However, California is almost 69% funded. This is important because the state is known for their activist investment strategies and has lost about $7.8 billion since 2000 due to various divestments based on political and social investment strategies.
  • Wisconsin, which has the best funded pension system in the country, performed 72 basis points worse than the 60/40 portfolio. This proves that fund performance is not the only needed metric to ensure a healthy pension. Wisconsin has reliably contributed the actuarially determined amounts to the system, helping its funded status.
  • The politicization of pension fund investments does have an impact on overall fund performance, and if a pension fund can’t beat a basic balanced passive investment strategy, it is time to reevaluate the current investment strategies and leaders in charge.

In developing this strategy and in response to the subsequent analysis, IPFI President and former Connecticut Treasurer Christopher Burnham said, “If a fund can’t outperform a basic balanced passive investment strategy, it is time to fire the fiduciaries and outsource the management of the pension fund to a simple, no cost, passive mutual fund.” He continued saying, “We hope this information will be used to provoke a discussion of the failure of the way some state fiduciaries and administrators manage our precious retirement and taxpayer dollars.”

IPFI is dedicated to bringing greater transparency and accountability to public pensions, fighting to keep politics out of the management of pension investments. This research, along with other quantitative and qualitative analysis that the organization provides, seeks to provide retirees, taxpayers, and policymakers with the data needed to ensure that pensions will continue providing for the hardworking Americans who dedicated their careers to the public sector.

Read IPFI’s latest paper, Public Pension Performance: Comparing Pension Investments to Passive Index Portfolios