IPFI Opposes NY Fossil Fuel Divestment Act

Institute for Pension Fund Integrity Opposes New York Senate Bill 2126, the Fossil Fuel Divestment Act

 

The Institute for Pension Fund Integrity has authored a letter of opposition to New York State Senator Liz Krueger and New York Assembly Assistant Speaker Felix Ortiz to express the organization’s position against the proposed Fossil Fuel Divestment Act. IPFI’s opposition supports New York Comptroller Thomas DiNapoli who, in an unprecedented action, sent a letter to the legislature opposing the proposed divestment. IPFI stands firmly against politically motivated divestment, and urges public pension funds to adhere strictly to their fiduciary responsibility to maximize returns for plan beneficiaries.

Read the full letter here.

Download: IPFI Opposes NY Fossil Fuel Divestment Act

 

CalPERS Chooses Prudent Management Over Politics Earning Praise From Pension Warriors

FOR IMMEDIATE RELEASE

March 19, 2019

CalPERS Chooses Prudent Management Over Politics Earning Praise From Pension Warriors

During the monthly CalPERS Investment Committee meeting, the board members voted to support the staff recommendation to oppose AB 33, which would require the divestment of funds from private prisons.  

WASHINGTON, D.C. – In part driven by one of the newest board members Jason Perez, the California Public Employees’ Retirement System (CalPERS) voted to oppose pending state legislation to require the divestment of funds from private prison companies. The Institute for Pension Fund Integrity (IPFI) stands with Perez and his fellow board members, commending them for choosing prudent management of the fund over following political whims.

CalPERS yesterday chose to focus on its fiduciary responsibility to “make money” for the millions of retirees who have earned a secure retirement after dedicating their lives to public service. Beyond the estimated $175,000 in transaction costs associated with a potential divestment, the proposed divestment would negatively impact the fund’s investment strategy, exposing the fund to unnecessary risk and reducing returns.

The Institute for Pension Fund Integrity firmly believes that politically-motivated divestment does not belong in the management of our public pensions. Beyond the financial repercussion to the funds, divestment as a means of creating change is ineffective. For instance, advocates in favor of divesting from private prisons want to do so in opposition to current immigration policy. However, private companies don’t set the public policy that that has determined today’s immigration strategies. Divestment advocates are directly infusing politics into the financial management of one of the country’s largest public retirement funds. Therefore, IPFI supports the decision by CalPERS to prioritize fiduciary responsibility, and to oppose allowing politics into the management of the fund.

IPFI President Christopher Burnham reacted to the vote saying, “It’s clear that new board member Jason Perez is bringing a much-needed focus on fiduciary responsibility to CalPERS, and that the board is moving in the right direction.” He continued, “the politically motivated divestment movement across the country has proven to hurt pension performance and funding levels. This threatens all current employees, and retirees such as me.”

IPFI supports CalPERS for choosing to oppose California Assembly Bill 33 to mandate the ineffective and costly divestment from private prisons.

For more on IPFI, divestment, and other issues facing public pensions, check out our website at www.ipfiusa.org.

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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 Christopher B. Burnham.

IPFI Applauds CalPERS for Choosing Fiduciary Responsibility Over Political Pressure

FOR IMMEDIATE RELEASE

March, 14, 2019

IPFI Applauds CalPERS for Choosing Fiduciary Responsibility Over Political Pressure

Instead of caving to fringe political movements, IPFI commends CalPERS for prioritizing its members and opposing legislation forcing it to divest from private prison companies.

WASHINGTON, D.C. – As California faces the possibility of another forced divestment, the Institute for Pension Fund Integrity (IPFI) supports California Public Employees’ Retirement System (CalPERS) for prioritizing California’s public retirees and focusing on their fiduciary responsibility. CalPERS’s opposition to California bill AB 33, introduced by State Assemblyman Rob Bonta (D-Alameda), comes ahead of the March 18 investment committee meeting. AB 33 would require CalPERS to divest stocks or bonds in private prison companies on or before July 1, 2020, despite the stable and profitable returns those investments provide.

In agenda materials released ahead of the investment committee meeting next week, CalPERS argues against any divestment from private prison companies for two primary reasons. The first, is that their “primary duty and obligation” is to their members, and that divestment would result in worse investment performance by compromising current strategies and incurring unnecessary transaction costs. The second reason that CalPERS explains is that divestment rarely achieves the political or social agendas it tries to address. This further highlights that the divestment would be purely political, inherently harming the retirees who depend on CalPERS to provide the retirement they have worked so hard for. IPFI is in full agreement with CalPERS and urges other public pension funds to continue prioritizing their fiduciary responsibility over political movements.

Beyond the principles opposing divestment, there are real costs associated with the potential requirement. CalPERS estimates that if it sold the private prison companies’ stock, it would lose $175,000. This would be on top of the 0.7% loss already incurred based on other divestments like from tobacco or thermal coal companies. “CalPERS simply cannot gamble away the money of its retirees based on political preference,” said IPFI President Christopher Burnham. He continued, saying “As financial professionals, we hold no higher responsibility than that of our fiduciary duty, and CalPERS is making the right decision to oppose the mandatory divestment, and I congratulate them.”

As the fight for fiduciary responsibility continues, California public retirees have a strong leader in CalPERS Chief Investment Officer Ben Meng. Unlike his counterparts at CalSTRS, who voted in November to divest from private prisons, Meng has steadfastly prioritized the fiscal health of the fund over political whims. IPFI stands with Meng as he continues this pattern of leadership at the March 18 investment committee meeting. IPFI supports CalPERS for choosing its fiduciary responsibility over politics.

For more on IPFI’s positions regarding divestment and fiduciary responsibility, see IPFI’s latest research available on www.ipfiusa.org and follow us on twitter @SecurePensions 

IPFI Board Members Submit Commentary to the SEC

IPFI Board Members Brower and O’Connor Submit Commentary to the SEC

The recent op-ed  in Investors Business Daily by IPFI Board Members Richard Brower and Kevin O’Connor was submitted to the Securities and Exchange Commission (SEC) as formal commentary regarding the proxy process. 

Re: [File No. 4-725]

Dear Mr. Fields,

As retired firefighters, we know as well as anyone the importance of duty and obligation. That’s why we are deeply concerned that those tasked with safeguarding the retirement funds of my fellow firefighters and other public pensioners are making decisions based on political agendas rather than on their obligation to do what’s best for our retirement.

As our Investor’s Business Daily opinion piece enclosed with this letter states in greater detail, pension fund managers have already made decisions based on political agendas that have adversely affected public workers. The largest U.S. pension fund, CalPERS, in 2002 saw its board divest its holdings in tobacco companies, a moral decision as opposed to an investment decision. That single move cost state pensioners $3 billion, with the full damage still not entirely known.

Meanwhile, another pension fund, the San Francisco Employees Retirement System (SFERS), has considered divesting its holdings of energy stocks. According to a study conducted last year, the fund would have experienced lower returns and taken a financial hit between $5.8 million and $23.1 million. Needless to say, the fund’s consulting firm NEPC advised against this unnecessary divestment.

Unfortunately, CalPERS and SFERS are not the only funds facing this dilemma. The people managing America’s $3.4 trillion in retirement assets for America’s teachers, firefighters, police, and other government employees are increasingly being asked to place political considerations over financial decisions. This has dangerous implications for two reasons.

First, funds are consistently turning to stocks rather than bonds. This means that pension funds have more influence over corporate policies through proxy votes. Second, guidance over how funds should vote on proxies is now dominated by two firms: Institutional Shareholder Services (ISS) and Glass Lewis (GL). These two firms control 97% of the proxy advisory market, but also have a bias toward political and social causes over investment returns. Unfortunately, decisions made by the Securities & Exchange Commission have allowed the firms to grow even more powerful when it comes to corporate governance.

The conflicts of interest for these two firms are clear. ISS sells advisory services to corporations at the same time it makes recommendations to funds on how to vote on proxies. Glass Lewis says clearly in its published guidelines that if the SEC denies a vote on a proxy question that is “detrimental to shareholders,” the firm will tell funds to vote against members of the company’s governance committee. The firms are not accountable to pensioners, but only to their political whims and agendas, including agendas that push environmental, social, and governance (ESG) investing.

The job of public pension fund managers is to ensure that retirees, including retired firefighters like us, have sufficient funds to live comfortably after years of dedicated service. Their job is not to impose their own political beliefs using other people’s money.

The SEC has a leading role to play in addressing issues with the proxy advisory system, especially when it comes to how the agendas of ISS and Glass Lewis could affect pensioners. Americans deserve to know that their pension managers are making financial decisions, not political ones, and that the SEC is doing everything possible to provide the appropriate oversight and regulation of proxy advisors. We appreciate you considering these concerns and taking an active role in addressing the challenges before us.

Sincerely,

Richard Brower, Former Vice Chairman of the New York City Fire Department Pension Fund

Kevin O’Connor, Former assistant to the general president of the International Association of Fire Fighters and former chair of the Baltimore County Employees Retirement System.

Please click here for the full submission. For additional details and other public comments to the SEC regarding the proxy process, please visit https://www.sec.gov/comments/4-725/4-725.htm. 

PRESS RELEASE: IPFI Commends CalSTRS for Prioritizing Fiduciary Responsibility

FOR IMMEDIATE RELEASE

February 13, 2019

IPFI Commends CalSTRS for Prioritizing Fiduciary Responsibility 

IPFI commends CalSTRS for opposing a California state bill that would require divesting investments in private prison companies. 

Washington, DC – The Institute for Pension Fund Integrity (IPFI) would like to commend the California State Teachers’ Retirement System (CalSTRS) for voting to oppose a state bill that would require CalSTRS and CalPERS to divest investments in private prison companies by July 1, 2020. CalSTRS decided to oppose AB 33 (2018) because they felt it would be an abdication of their authority to allow another entity to dictate investment decisions, according to Harry M. Keiley, Chairman of the CalSTRS Investment committee.

IPFI applauds CalSTRS for prioritizing their fiduciary responsibility and refusing to abdicate any investment decision making authority. The fiduciary responsibility held by CalSTRS managers must be at the forefront of any decision making process. IPFI believes that the fiduciary responsibility held by public pension funds should be strictly adhered to, and agrees with CalSTRS that they should not abdicate that authority. It is our hope at IPFI that CalSTRS will use the same judgement across any investment decision, including regarding the use of proxy advisory firms to influence proxy voting decisions.

In addition, IPFI remains strongly against politically motivated divestment, including CalSTRS’s plan to divest from private prisons. Investment decisions should be made solely on the basis of financial performance and risk, and should never be made for political reasons. Politically motivated acts of divestment are a violation of fiduciary duty and have led to the loss of billions of dollars of income in the past.

IPFI would like to congratulate CalSTRS for choosing to maintain its fiduciary responsibility. For more on IPFI’s positions regarding divestment and fiduciary responsibility, see the research available on www.ipfiusa.org.

Brower, O’Connor Op-Ed in Investors Business Daily: A Pension Fund Should Focus On Financial Returns, Not Social Policy

Both of us were trained as firefighters. Along with many other first responders across the country, we chose public service to help citizens in our communities. We knew our career choice would not make us rich, but like millions of public servants in this country, we count on our pensions for a secure retirement.

We’re alarmed because our fellow firefighters’ future is now at risk because of other people’s political and ideological preferences. For example in 2002, the board of CalPERS, the largest U.S. pension fund, divested its holdings in tobacco companies. Smoking is legal for adults and tightly controlled by regulation, but the board believed that owning tobacco stocks was, well, just wrong. It was a moral decision, not an investment decision.

It also turned out to be a costly decision for California’s state workers, who depend on CalPERS for their retirement security. An analysis in 2015 found that this divestment cost the fund $3 billion, and later calculations by Wilshire Associates show the “amount of foregone performance has continued to grow.” Despite the losses, the CalPERS board rejected the advice of its staff in 2016 to reinstate tobacco stocks.

CalPERS is not alone. More and more, the people who run public pension funds — which last year managed $3.4 trillion in retirement assets for America’s teachers, firefighters, police, and other government employees — are making investment decisions based on considerations other than achieving the best potential financial returns.

Read the full opinion piece here.

 

Divestment: The Impact of Political Decisions on Public Pensions

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.

Full White Paper Available for Download here:

Divestment: The Impact of Political Decisions on Public Pensions

Press Release: Divestment- The Impact of Political Decisions on Public Pensions

FOR IMMEDIATE RELEASE

January 9, 2019

New White Paper: Divestment – The Impact of Political Decisions on Public Pensions

A year after New York City officials called for the divestment of city pension funds from fossil fuels, divestment remains a costly and dangerous strategy. New research from IPFI details the negative impact of divestment.

Arlington, VA – The Institute for Pension Fund Integrity (IPFI) has been consistent in its view that public pension funds should be immune from political gamesmanship. However, divestment movements around the country continue to pressure plan managers to politicize their funds. Divestment has repeatedly been shown to be a harmful and ultimately ineffective tool, and the latest white paper from IPFI demonstrates this clearly. Divestment serves only as a messaging device for politicians to feign action to their supporters, and causes real harm to retirees.

Even though divestment has been shown time and again to be detrimental to the financial wellbeing of pension funds, this has not stopped New York City Mayor Bill de Blasio and Comptroller Scott Stringer from moving forward with their plan to divest city assets from energy companies. In December 2018, the comptroller’s office issued a Request for Proposals 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.  This move is meant to push forward their political agenda and will only continue to weaken the already fragile financial stability of New York City pension funds, which are currently facing billions of dollars in unfunded liabilities.

When New York City first published their Request for Information to inform their divestment plans, IPFI submitted a report detailing the argument against divestment. Unfortunately, the city disregarded our opinion as well as the opinions of the New York City Police Pension Fund and New York City Fire Pension Fund who have also voiced their opposition to the move. As the city continues to move forward with its plans, IPFI will continue to push back against politicians who forget their duties as fiduciaries.

“Hundreds of thousands of New Yorkers depend on the city to ensure their financial security and deserve a secure retirement. By moving forward with their plans for divestment, Mayor de Blasio and Comptroller Stringer are using these retirees as pawns in their political games,” said IPFI Chairman and former Connecticut State Treasurer, Christopher Burnham. “de Blasio and Stringer are abdicating their fiduciary responsibility by furthering their divestment scheme, and it’s time that retirees demand that they focus on growing returns – not playing politics.”

In the hope of preventing other cities from travelling down the perilous path of political divestment, IPFI’s new white paper details the various arguments against divestment. The paper explains why divestment is so harmful to financial performance and highlights several case studies that illustrate how acts of divestment have had serious negative impacts on the financial stability of public pension plans.

To learn more about the pitfalls of divestment, read our latest white paper and view other research at www.ipfiusa.org.

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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.

IPFI Applauds Putting Fiduciary Responsibility Over Politics

FOR IMMEDIATE RELEASE
November 28, 2018

IPFI Applauds Putting Fiduciary Responsibility Over Politics

IPFI staunchly opposes politically motivated divestment and applauds the Canada Pension Plan Investment Board for refusing to give in to political pressure. 

Washington, DC – The Institute for Pension Fund Integrity (IPFI) would like to congratulate the Canada Pension Plan Investment Board (CPPIB) for refusing to divest its assets from private prison companies. The move comes after political organizers recently put pressure on the board to remove its investments as a form of protest against the immigration policies of the United States Government.

IPFI is strongly against politically motivated divestment. Investment decisions should be made solely on the basis of financial performance and risk, and should never be made for political reasons. Politically motivated acts of divestment are a violation of fiduciary duty and have led to the loss of billions of dollars of income in the past. For example, when the California Public Employees’ Retirement System divested from tobacco stocks in 2003, it was estimated to have cost the fund over $3.5 billion during the ensuing decade.

“Unfortunately, some pension fund trustees believe that their political agenda is more important than their fiduciary responsibility, ” said IPFI Chairman, Christopher Burnham and former Connecticut State Treasurer. “Pension beneficiaries, of which I am one, deserve better. CPPIB made a courageous and correct decision.”

Within the United States, acts of divestment have been occurring within several prominent pension plans. Both the New York City Employees’ Retirement System and the California Teachers’ Retirement System have voted to divest their funds from private prison holdings. These divestment actions follow long political battles and weaken the already underfunded pension funds. For more on this, see the research available on www.ipfiusa.org.

IPFI would like to congratulate CPPIB for choosing to fulfill its fiduciary responsibility instead of giving in to political pressure. Moving forward, the decision by CPPIB should be used as a model of behavior for other public pension funds.

Press Release: IPFI Reacts to the Proxy Voting Roundtable

FOR IMMEDIATE RELEASE
November 16, 2018

Press Release: IPFI Reacts to the Proxy Voting Roundtable

IPFI continues to call for the registration of proxy advisory firms with the SEC to ensure greater transparency.

Washington, DC – The Institute for Pension Fund Integrity (IPFI) attended yesterday’s roundtable hosted by the U.S. Securities and Exchange Commission (SEC). While reform is needed across the proxy voting process, IPFI’s primary attention was on the third panel, “Proxy Advisory Firms: The Current and Future Landscape.” Proxy advisory firms play an important role in advising institutional investors, including pension funds, on shareholder proposals. However, there is a demonstrated need for greater transparency in this process.

As IPFI outlines in our public comments to the SEC, the current proxy advisory system negatively impacts public pensions for two primary reasons:

  • Public pensions are large institutional investors, meaning that they serve as a powerful voice in corporate decision-making through their position as proxies for shareholders (retirees)
  • There has been a demonstrated increase in the politicization of shareholder votes, including by public pension fund managers defying their fiduciary responsibility.

The advisory system as it currently stands is open to conflicts of interests, as was much discussed during the panel. IPFI is calling on the SEC to require proxy advisors to adhere to their fiduciary responsibility and to register with the SEC, so that retirees can have a more transparent understanding of the proposals their fund managers are voting on. This will help reduce the politicization of shareholder proposals, which range the gamut from divestment, to corporate governance, to payscale proposals.

Reforming the proxy voting process would put more power into the hands of the actual pensioners, increase transparency, and help ensure that proxy advisors and pension fund managers fulfill their true fiduciary responsibility—the highest return at a reasonable risk.

Christopher Burnham, IPFI President and former Connecticut State Treasurer commented on today’s roundtable saying, “I think some of the most important words said at the panel were that we have to make sure that fiduciaries focus on enhancing shareholder value. That is the very essence of fiduciary duty.” He continued, “I agree that there should be no safe harbor from fiduciary duties, and that fiduciaries at all levels have the  same level of responsibility to the beneficiary as the day to day money manager. We also need to have the fullest and most unfettered transparency because it is essential to that duty.”

The roundtable that the SEC hosted today is an important first step in illuminating the proxy voting process. Furthermore, it’s a necessary step towards ensuring that the shareholder proposals that are put forth are in the best interest of the actual shareholders – in many cases, retirees who have dedicated their lives to supporting state and local governments.