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Ice cream, politics and pension funds are not a winning recipe

By August 12, 2021August 23rd, 2021Pension funds

The boards of state pension funds are not the best place to debate Israeli-Palestinian policy. It may sound like a blatant statement, but these debates are exactly what is happening in states like Illinois, new York and Texas.

The impetus for this unusual mix of global politics and management of public employee pensions was, above all, the decision of ice cream maker Ben & Jerry to withdraw its products from the West Bank in solidarity with the Palestinians. Yes, state pension funds are considering selling their shares in body wash conglomerate Unilever – which owns Ben & Jerrys – due to this escalating dispute.

And while a number of simple ‘rocky road’ or ‘half-baked’ puns might be needed here, there is a seriousness to this situation that shouldn’t be underestimated.

There are some $ 5,000 billion in money currently managed by pension funds for state and local governments across the United States. Roughly 60 percent of that money is managed through various types of stocks and mutual funds, including companies like Unilever.

The primary responsibility of pension fund administrators is to maximize returns on the investments 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 pension systems should never be a factor when deciding how best to manage public workers’ money.

Pension fund managers sometimes have to make investment choices that are socially unpopular but still represent the best financial interests of public officials’ assets.

There are times when sound investment decisions can be aligned with socially popular politics, but opponents of Ben & Jerry’s failed to make this point. Governor of Florida Ron DeSantisRon DeSantisSchool’s Mask Battle Takes Texas AP Tells DeSantis to Stop Assistant’s “Harassing Behavior”, for example, spoke only of his pro-Israel position in a statement announcing that the state had placed the Fortune 500 company on its list of “companies scrutinized”. Worse yet, the state’s investment manager, in his statement, failed to reconcile the governor’s decision with his duty to bolster the retirement accounts of thousands of civil servants.

The Sunshine State is far from alone in this there are 35 states with laws that cater to companies that engage in boycott, divestment and sanctioning activities – these laws, however, are not based on sound fiscal logic but rather on geopolitical motives. And the problem extends beyond Israeli policy.

Illinois has an Investment Policy Board whose sole purpose is to keep state pension funds out of companies that do business with Iran and Sudan, or boycott Israel. Many states are still weighing on the divestment of any company based in China, which would mean withdrawing stocks from investments in the world’s second-largest economy. Even texas pass a law it would force state pension funds to divest from companies that themselves use social or environmental factors to make business and investment decisions – a reversal of policy, but still very political.

The bigger problem here is that short-term political incentives threaten the returns on investment needed to fund the pensions promised to teachers, firefighters and city workers. Administrations change and the social and political views of a governor may not match those of his successor.

Pension funds should not be subject to the personal opinions of all who take office – the primary goal when managing pension fund assets should be to maximize the returns on that money.

Bringing politics into the investment management equation simply cannot work without causing problems. For example, what policy should decide how the pension fund weighs on complicated issues like Israeli settlements in the West Bank? There are bound to be a lot of officials in Illinois or New York who are on different sides of this debate and who don’t want their money (which goes into the future) to be used to support an opposing political position.

No matter where your policy on these issues lands, it should be ridiculous to you. The board members and staff of the bipartisan nonprofit organization that I manage also have different political views on these issues. But we all agree that it would be inappropriate for state governments to leverage their pension funds to engage in these political debates. It is not about good fiduciary management of the money entrusted to them by public servants for the future payment of guaranteed retirement income.

Anthony Randazzo is Executive Director of the Equable Institute, a bipartisan, nonprofit organization that works to support sustainable public pension systems without sacrificing income security.

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