Bloomberg Law: ‘Do Good’ Investing by Retirement Plans to Be Part of New Report

The Labor Department’s shifting guidance also doesn’t appear to have an impact on ESG investing, Gotbaum said. Whether or not the DOL encourages economically targeted investing or proxy activity, the decision “has always been and will always be up to the fiduciaries themselves.”

James Cole II, a lawyer with Groom Law Group in Washington, echoed Gotbaum, telling Bloomberg Law the impact of the changes in guidance “remains to be seen.”

The guidance is arguably more restrictive than prior guidance under the Obama administration and technically reaffirms the “all thing things being equal test” for investments introduced by the Bush administration, Cole said.

Christopher B. Burnham, former Connecticut state treasurer and former undersecretary general at the United Nations, praised the new guidance.

“It’s a commitment by the DOL to promote honesty and transparency in our pensions,” Burnham, who is now president of the Institute for Pension Fund Integrity, told Bloomberg Law.

Investors shouldn’t “play politics with other people’s money,” he said.

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The Financial Standard: US project to end pension politics

An American non-profit – led by a former state treasurer – is demanding pension plan managers stop putting politics before prudent investment.

The Institute for Pension Fund Integrity (IPFI) says if a fund manager is investing pension money based on political reasons and not purely on the risk or return, they are weakening the fund and undermining its integrity.

“Public pension fund managers have a fiduciary responsibility to their beneficiaries to make rational decisions based on risk and return, not politics. As the former state treasurer of Connecticut and sole fiduciary of the Connecticut pension system, I know the importance of keeping politics out of fiduciary decisions. I started IPFI to help inform beneficiaries and policy leaders, and to bring this issue to the forefront,” former Connecticut state treasurer Christopher B. Burnham said.

Only 30% of the 6276 pension funds across US are adequately funded using optimistic actuarial assumptions, according to the institute. No pension fund is more than 63% funded, if conservative actuarial assumptions are used. States alone have $6 trillion in unfunded liabilities – not counting the thousands of county and city pensions.

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Barron’s: Why Pensions and Politics Don’t Mix

While the U.S. stock market has produced one of the longest and strongest bull runs in its history over the past nine years, the financial condition of many of the country’s 6,000 or so state and municipal pension funds has deteriorated. Some are in bad shape.

Yet, even as these pension funds grapple with a huge deficit, $1.4 trillion as of 2016, the drumbeat for exiting investments in certain industries—oil, coal, arms, even car companies—goes on. Should pensions, particularly underfunded ones, make investment decisions based on political litmus tests rather than follow the standard fiduciary duty to make the best returns possible with the least risk?

There’s a strong argument to ignore the calls for divestment, which limit a fund’s diversification. Sectors go up and down in the business cycle, and a portfolio permanently eschewing a key sector—like energy, for example—will likely suffer underperformance through the added risk of loss of diversification across the market’s sectors.

Despite big fluctuations in oil prices over the years, the energy sector of the Standard & Poor’s 500 index is up 159% to date since the end of 1999, third-best out of 11 sectors and similar to the 158% rise in crude prices. Technology? Up 43% over that period, second to last. In late 2016, the California Public Employees’ Retirement System (Calpers) said its exit from some tobacco stocks in 2000 reduced portfolio returns by $3 billion from 2001 to 2014. Diversification pays.

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IPFI Applauds US Department of Labor: Fiduciary Responsibility First Priority for Fund Managers

The United States Department of Labor’s Employee Benefits Security Administration released a Field Assistance Bulletin (FAB) this week outlining their stance on the responsibilities of private investment managers. The FAB states that, “ERISA fiduciaries must always put first the economic interests of the plan in providing retirement benefits.” IPFI could not agree more. The responsibility of the investment manager is to generate stable returns and reduce risk, not operate against the tide of the economy. The Department of Labor also states that, “fiduciaries of ERISA-covered plans must avoid too readily treating ESG issues as being economically relevant to any particular investment choice.” This point strikes that the core of the Institute for Pension Fund Integrity, speaking to the core principles of data driven investment and the avoidance of politically driven investment strategies.

Further in the FAB, the Department of Labor states that fiduciaries cannot use the funds under management to pay for exorbitant costs related to sponsoring proxy fights on environmental or social issues. In essence, the federal government is stating that it is the responsibility of the fiduciary to manage funds wisely and avoid irresponsible actions. IFPI could not agree more; there are certain actions that are unacceptable for fund managers, with the use of client funds for the sake of social investing being one of them. While ESG investments have proven to be profitable and responsible in certain cases, deviating from financially responsible investments for the sake of ESG investment is irresponsible when pensioners only have one option.

At IPFI, we advocate first for the health and financial security of pension funds, regardless of their public or private nature. IPFI also seeks the responsible management of contribution-based funds, as responsible management promotes high return on investment and stability in pension accounts. The United States Department of Labor has made clear through this FAB that fund managers are held to a high standard, both in the private and public sector.

Chief Investment Officer: New Institute Challenges ESG-Minded Divestment Movement

A new pension-focused institute has been created that seeks to challenge nationwide efforts to convince public pension funds to divest from companies for environmental, social, or governance (ESG) reasons.

The Institute for Pension Fund Integrity says many of the stocks that the ESG movement shuns generate good returns, so dumping them will harm pension portfolio returns. The group said it wants to ensure that state and local leaders are held responsible for their choices in public pension investment, and “to keep plan managers from placing politics ahead of prudent investment.”

It advocates four core principles in public pension management: adherence to fiduciary responsibility; balanced economic, social, and governance factor investments; long-term pension fund return; and data-driven investment. The institute’s president is Christopher Burnham, chairman of strategic advisory services firm Cambridge Global Advisors, a former Connecticut state treasurer, and a former undersecretary general at the United Nations under President George W. Bush.

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Institutional Investor: New Pensions Group Says Forget About Climate Change

Pension funds should focus solely on getting the best investment returns and ignore issues such as climate change and other political issues, says a new group founded by a former Connecticut state treasurer.

In a white paper released today, the new group, the Institute for Pension Fund Integrity, argued that prioritizing anything but returns is a breach of fiduciary duty. Christopher Burnham, the institute’s founder and president and a former United Nations undersecretary, told Institutional Investor that politics have “no role to play” in managing retirement funds.

“We take a market or realistic approach to unfunded liabilities in state and municipal pension systems,” he said.

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North Carolina Pension Fund: A Success Story

North Carolina hosts the financial capital of the South. With sprawling beaches and vast mountain ranges spanning the two borders, few would doubt that North Carolina is one of the most naturally picturesque places in the United States. The Tar Heel State also boasts something else that puts the mind in a tranquil place- the third strongest pension plan in the United States. At a little over 93 per cent funded, the North Carolina Retirement Systems Pension Fund services 875,000 North Carolinians including firemen, policemen, and first responders.

Investments contained in the NC Retirement Systems account are well diversified, with assets spread through equity, fixed income and alternative investments. Equity takes nearly half of all investments, accounting for over forty per cent of the fund’s holdings. Fixed income clocks in at a close second with 37 per cent and then alternatives at 20 per cent. This spread of holdings creates a stable return rate for the fund while also mitigating risk, therefore ensuring a stable retirement for hundreds of thousands of NC residents. Thanks to this strategy the fund was able to attain a 13.5 per cent over all return in 2017- with a 24.4 per cent return from public equity holdings that make up over 40 per cent of the account.

With the median rate of funding for state pensions sitting at 68.4 per cent, there is no doubt that the 93 per cent rate boasted by the North Carolina retirement systems plan is nothing short of extraordinary. For a state with a median income that is 7,000 lower than the national average, one may ask how the NC Retirement Systems account has been able to find such solid ground in its investment holdings? The answer is simple. The North Carolina retirement systems account prides itself on adherence to fiduciary responsibility and to the health of the account. There are no political games played with the retirement accounts of North Carolinians; a fact that is supported by the overwhelming success of the retirement system’s pension account.

Illinois: An Under-Publicized American Crisis

The state of Illinois has long been in the throes of an undisputable pension disaster. On the brink of bankruptcy and an abysmal credit rating, the state of Illinois looked more like a a fiscal black-hole than an American state. Illinois made it illegal in 2015 to modify the pension plans of state employees, meaning that no matter what the cost of the pension plans to the taxpayer and state government there could be no amending to the agreed upon retirement policy. In the same year pension debt for the state reached a record $111 billion. For perspective, the Illinois pension debt grows by over $20 million every single day.

So what can be done to service a retirement system with such high costs? The answer for the people of Illinois is greater expenses. Higher state income taxes, greater costs of services- ever increasing costs that end up driving people out of the state, therefore costing the state even more in lost taxpayer dollars. At the center of the mounting cost is the ever-generous public service retirement system. According to the Illinois Policy Center 60 per cent of retirees retired in their 50’s; many of whom were able to receive full benefits. Half of the state’s pensioners will receive over $1 million in benefits over the course of their retirement, with one in ten receiving greater than$2 million. Over half of all retirees in the state can expect to collect benefits for greater than twenty five years, and thanks to a program built in to the pension system those retirees will see their benefits double in size over the course of their retirement.

The average career pensioner in the state of Illinois, with a career pensioner being someone with 30 years of service, can expect to make almost $70,000 per year in benefits through the course of their retirement. This equates to more than $2 million over that retirement in benefits paid. It is easy to see with numbers like these why the pension system in Illinois is hemorrhaging money, and why some sort of pension reform is needed. There must be responsible, data-driven investment to reign in the ballooning costs of these pension plans.

The State of Connecticut: A Case Study

Boasting a median income greater than any other state in the U.S., Connecticut is a beacon of personal prosperity. Connecticut is also known for something else – something far darker, and much more daunting for future generations: an underfunded state pension system with more than $20 billion in unfunded liabilities heading into 2017. That means that the state retirement system is only 37 per cent funded. What is the state of Connecticut doing to combat this stark reality? The government of Connecticut recently passed a spending plan that would contribute only $2.2 billion per year to the state’s retirement account as of calendar year 2027, meaning the future generations of Connecticut residents will be left paying that debt.

Due to this mounting pressure of looming fiscal hardship, Connecticut has reached out to union leaders within the state to try and reach new agreements for retirement plans and investment strategies. This new strategy resulted in a Tier IV ‘Hybrid” plan for new hires, with the pension fund being supplemented by a 401(k) plan paid for by the employee. This concession, paired with the agreement reached by SEBAC with the state government resulting in a wage freeze for state employees, will result in a $1.3billion decrease in state liabilities by the year 2019. This is a modest decrease in liability for the state government, dropping the deficit from $21.7 to $20.4 billion over that year.

These sorts of concessions by state employees and bargaining on behalf of the state government are just the beginning for the people of Connecticut. Thanks to irresponsible investment decisions and the harsh politicizing of retirement funds, the people are left to clean up the mess made by state government officials. It is time to face the facts when it comes to state budgets and retirement funds; without responsible actions on the side of officials the people will always be left shouldering the burden on mounting retirement costs.

What is the Institute for Pension Fund Integrity?

Over the past five to ten years America has seen a dangerous shift into the politicization of retirement and pension funds. With trillions of dollars and hosting the retirement accounts of millions of public employees, Pension funds are some of the most powerful investment tools in the United States. They manage the retirement accounts of millions of public employees with trillions of dollars at stake. These funds have been weaponized by various politicians and interest groups, with investment actions being dictated by a political agenda instead of fiduciary responsibility. We at the Institute for Pension Fund Integrity (IPFI) want to see this trend reversed- protect the retirement funds of Americans and keep politics out of pension fund accounts.

Sparked by the recent revelations from the New York City and Chicago government officials, IPFI will provide a critical role to help ensure that pension funds are on a path of growth. With investments in these funds needing to produce reliable dividends for decades on end, irresponsible investments can prove incredibly dangerous for retirees and city governments alike.

The states of Kentucky, Connecticut, Illinois, California and numerous others are facing a pension crisis right now. There are billions of dollars of unfunded liabilities across these accounts with deficits growing by the year. Now is the time for the people of these great states to make their voices heard and let their city officials know that their funds will no longer be a source of political clout and meandering. IPFI is fighting for a well-funded retirement system that will provide reliable returns over decades, providing regular dividends for the millions of pensioners calling America home. We do not want to see our state governments- or our state employees- go bankrupt trying to fund retirements due to the whims of a few irresponsible politicians and special interest groups.