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California Has a Weird Definition of "Social Responsibility"

Harry Zieve Cohen

This past Spring, California’s largest public pensions manager, CalPERS, announced a review of its “social responsibility” strategies because, as the press release at the time put it, such divestment “pits social responsibility against our fiduciary duty as outlined in the California Constitution.” In other words, when CalPERS doesn’t allow its funds to be invested in certain stocks, it doesn’t make as much money.

Today, CalPERS officially reaffirmed that it believes the moral obligation not to be tainted by companies that sell tobacco (a legal product) outweighs the need to deliver returns for pensioners. The Sacramento Bee reports:

Amid a passionate debate on the wisdom and morality of investing in tobacco, the big California pension fund rejected a recommendation by its staff to end its 16-year-old ban on the practice. CalPERS’ investment committee, in a 9-3 vote, concluded that the tobacco industry is heading toward long-term decline and presents too much of a risk

Because the investment committee consists of every member of the governing board, the vote represents the final decision.

Not only will CalPERS not reinvest in tobacco, it chose to unload $547 million worth of tobacco investments that it has continued to hold indirectly, through funds operated by outside investment managers.

Apparently, fully funding retirements for civil servants doesn’t count as a social responsibility in California.

If you’re wondering why pension fund boards can get away with such silliness, you might want to look at how pension fund bigwigs try to censor their critics. For example, the National Conference of Public Employee Retirement Systems released a statement today attacking those who donate to think tanks critical of the smug conventional wisdom about the crisis-ridden public employee pension system:

The National Conference of Public Employee Retirement Systems has added four think tanks to its list of research and policy organizations that take biased and unreasonable positions that undercut the interests of public pension plan participants and beneficiaries.

The list of 28 policy and research organizations, known as Schedule A, is part of the NCPERS Code of Conduct for Public Pension Service Providers, which was unveiled in May 2015. The Code of Conduct was designed to help pension plan fiduciaries and managers to articulate strong, consistent ethical expectations for service providers.


“Public pension plan directors and trustees have a duty to act in the interest of participants and beneficiaries,” said Hank H. Kim, Esq., executive director and counsel of NCPERS. “We have put together this list as an aid to transparency. Pension funds are naturally leery of paying fees to service providers that support organizations that intentionally undermine public pensions, and can use our list to identify potential conflicts.”

It’s a desperate move, and it of course won’t do anything to help pensions become solvent. Reality has a nasty way of evading all efforts to capture and hide it, particularly when money is involved. Almost $5.6 trillion in unfunded liabilities isn’t something which can be ignored. Still, it’s better to fight these industry-led efforts to paper over ugly numbers than to wait. The sooner policymakers come to terms with the magnitude of America’s pension crisis and the sheer ineptitude of America’s pension handlers, the better.

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