Following up on news that California’s public worker pension funds are in even more dire straits than previously understood, Diana Furchtgott-Roth of the Manhattan Institute takes a closer look at how the union-run financial organization has been managing its workers’ retirement. The short answer: not well. Pensioners—and California taxpayers, who guarantee the funds—have taken a back seat to well-connected corporations and fashionable political causes.
[C]alPERS’ foray into what it calls “socially responsible” investing has cost California taxpayers substantially. Not only were the investments imprudent, but CalPERS funneled billions of dollars into politically connected firms.
To fulfill its social responsibility goals, CalPERS does not invest in tobacco stocks and bonds. Over the past year, the NYSA Arca Tobacco Index increased about 15%. During the same time period, the S&P 500 Index increased only 2%. In 2013, following the Sandy Hook shooting, CalPERS divested itself of $5 million invested in firearms manufacturers. In 2010, it allocated $500 million to HSBC Climate Change Index-benchmarked Global Equity Environmental Index Fund, which CalPERS admits returned half the gains seen from its Global Equity Policy Benchmark since its inception (6.61% compared to 12.79%). It was also co-chair of the UN’s Environmental Programme Finance Initiative, which focuses on reducing energy consumption. Additionally, CalPERS monitors companies for unfriendly labor policies.
As Roth says, “there’s nothing ‘socially responsible’ about low pension returns.” The underperformance of public pension funds threatens the retirement of hundreds of thousands of public workers. The African American community, which is disproportionately represented in the last generation of civil service employees, will be hardest hit in the increasingly likely event that severe cutbacks need to be implemented. Union elites’ virtue-signaling on gun control and environmentalism may help hasten this financial catastrophe.
The first task of any public pension fund should be to meet its obligations to pensioners; CalPERS’s finances should need to be sound before it goes on political crusades. Fixing the politicization of CalPERs won’t fix the state’s calamitous underfunding problem—it has been over-promising for too many years for that—but it would be a good first step toward addressing the rot at the heart of the system, and perhaps impel the state’s policymakers and union leaders to dispense with the dishonestly and distractions and begin the long and painful process of real reform.