Divestiture politics roils pensions, investments

Digitally tracking the performance of investment products in the bond market. (Illustration: Vintage Tone, via Shutterstock)

 Thanks to Assembly Bill 33, introduced by Assemblymember Rob Bonta, D-Alameda, the state Legislature will spend time and resources to codify an issue that California pensioners have spoken on before: divesting from high-performing funds for political purposes.

AB 33, as written, would require that state retirement systems, namely California Public Employees Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS), divest of all investments in private corrections companies and disallow investing in those same companies in the future.

This is not a simple, one-size-fits-all issue that everyone should quickly come to agreement on, despite what the political establishment would like Californians to think.

In November 2018, CalSTRS voted to divest of these funds absent any legislation from the state. Specific numbers for the amount of money CalSTRS has lost through divesting from private corrections companies are not readily available but all CalSTRS divestment efforts from 2000 through 2018 have cost the fund’s retirees an accumulated $6 billion.

The most basic argument against this bill is one against divestment generally.

Divesting destabilizes an investment portfolio at the cost of public servants’ retirement and future stability. Divesting at the whim of politicians hoping to score cheap political points means selling off assets on the secondary market despite market performance and timing, which frequently means selling at a loss. Divesting also comes with significant opportunity costs when divesting from a fund that has seen excellent growth.

California pensioners have a reasonable expectation that retirement funds will be responsibly invested and managed now and in the years to come.

AB-33 specifically is politically driven. Retirement funds invested in the hot button industries—like private corrections, firearms sellers, tobacco—are an easy target for politicians hoping to get a quick win in the court of public opinion but the fact is, funds that include these industries perform well for their investors.

Further, there is often a misconception that these companies have a role in shaping the public policy that is the target of activist agendas, like Bonta’s call for divestment. For example, gun manufacturers do not control the laws surrounding legal firearm ownership and with the case of AB 33, private prison contractors do not dictate public policy on incarceration.

In October 2018, CalPERS elected a new board member over the divestment issue. In choosing Jason Perez, CalPERS has made clear the fund will not cave to pressure from those calling to bend the rules of fiduciary responsibility. The current president of the CalPERS board, elected in January 2019, is Henry Jones.

Things get ugly when pension funds are underfunded and keeping high-performing investments, despite which way the political winds blow, protects against threats to stability. CalPERS, for example, is the nation’s largest public pension fund. The sheer volume of people impacted by any tremor in this portfolio cannot be understated. When a pension fund is underfunded only two options remain: raising taxes on working people to make up the difference, or to cheating retirees out of the pensions they rely on. We all know neither of these is actually an option.

Again, this is not a simple, one-size-fits-all issue that everyone should quickly come to agreement on, despite what the political establishment would like Californians to think.

Divestment is the short-term politics game that will have a long-term negative impact on California’s public retirees. These are the men and women who have dedicated their lives to keeping us safe, educating us, and serving our state and communities in countless ways. 

The least we can do as appreciative fellow citizens is speak up in the face of a threat that would disrupt their very well-earned retirement.

Editor’s Note: Corrects 9th graf to identify Jason Perez as board member,  Henry Jones as board president. Christine Shingleton is the retired Assistant City Manager of Tustin, California. 

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