State pension fund board rooms aren’t the best place to debate Israeli-Palestinian politics. This may sound like a blatantly obvious statement, but these debates are exactly what’s been happening in states like Illinois, New York and Texas.
The impetus for this uncommon mingling of global politics and public employee retirement management was, of all things, ice cream maker Ben & Jerry’s decision to pull its products from the West Bank in solidarity with Palestinians. Yes, state pension funds are considering selling their stocks in body wash conglomerate Unilever – which owns Ben & Jerrys – because of this ever-escalating conflict.
And while a number of glib puns on “rocky road” or “half-baked” might be called for here, there’s a seriousness to this situation that shouldn’t be understated.
There’s some $5 trillion in money currently being managed by pension funds for state and local governments across the United States. Roughly 60 percent of this money is managed through various kinds of stocks and mutual funds, including in companies such as Unilever.
Pension board trustees’ primary responsibility is to maximize the investment returns of the millions and billions of dollars under their control. This is accomplished by making long-term investment decisions that generate maximum returns. The political and social interests of those who oversee these retirement systems should never be a factor when deciding how to best manage public workers’ money.
Pension fund managers must sometimes make investment choices that are socially unpopular but still represent the best financial interests of public employees’ assets.
There are times when sound investment decisions may be in line with socially popular policy, but opponents of Ben & Jerry’s have failed to make that argument. Florida Gov. Ron DeSantis, for example, spoke only about his pro-Israeli stance in a statement announcing that the state had put the Fortune 500 company on its list of “scrutinized companies.” What’s worse, the state’s chief investment officer in his statement failed to reconcile the governor’s decision with his duty to strengthen the retirement accounts of thousands of public workers.
The Sunshine State is far from alone in this, as there are 35 states with laws that address companies that engage in Boycott, Divestment, and Sanctions activities — these laws, though, are not based on sound fiscal logic but rather on geopolitical grounds. And the problem extends beyond Israeli politics.
Illinois has an “Investment Policy Board,” the sole purpose of which is to keep state pension fund money out of companies that do business with Iran and Sudan, or boycott Israel. Many states are still weighing divestment from any China-based companies, which would mean pulling stocks out of investments in the world’s second-largest economy. Texas even passed a law that would force state pension funds to divest from companies that themselves use social or environmental factors to drive business and investment decisions — a reverse of the politics, but still very much politics.
The biggest problem here is that near-term political incentives threaten the investment returns needed to fund promised pensions for teachers, firefighters and city employees. Administrations change, and the social and political views of one governor may not align with his or her successor.
Pension funds shouldn’t be subject to the personal views of everyone who comes into office — the primary focus when managing the assets of pension funds should be maximizing the returns of that money.
Bringing politics into the investment management equation just can’t work without causing trouble. For example, whose politics should decide how the pension fund weighs in on complicated matters like Israeli settlements in the West Bank? There are bound to be plenty of public workers in Illinois or New York who are on different sides of that debate and who don’t want their money (to be paid out in the future) used to support an opposing political position.
No matter where your politics on these issues lands, this should be ridiculous to you. The board members and staff at the bipartisan nonprofit I manage collectively have different political perspectives on these matters, too. But we all agree that it would be inappropriate for state governments to leverage their pension funds as a way to engage in these political debates. That is not proper fiduciary management of the money entrusted to them by public workers for the future payment of guaranteed retirement income.
Anthony Randazzo is executive director at Equable Institute, a bipartisan non-profit working to support sustainable public retirement systems without sacrificing income security.