Texas pension bill plays politics with retiree money
The stewardship of retirement investments is a truly sacred endeavor in securing the assets that will fund a retiree’s golden years. These assets are invested to ensure that resources will be there in retirement to support needs such as food, shelter, and growing health care and assisted living needs when a person is not. ‘is no longer able to work.
Unfortunately, legislation currently pending in the Texas Legislature in SB 13, a bill to ban state-run pensions from investing in companies that discriminate against the fossil fuel industry, would force pension managers to violate their trustees and thus save the savings of firefighters, teachers. , police officers and other seriously endangered people. This legislation directly inserts a person’s political agenda into a process that should be focused only on ensuring the best investments and the best returns for their retirees.
When a pension manager commits to securing pension savings for retirees, he assumes a fiduciary duty. Fiduciary duties were developed into law to govern situations in which the wealth of others, sometimes an uninformed or infirm party, is managed by an agent.
The attorney is required by fiduciary law to give priority to the needs of the granter. The law treats fiduciary relationships seriously. Secret profits, for example, are not allowed, even if they do not reduce the interest of the principal. Think of a lawyer and his client, a guardian and his ward, or an executor and the beneficiaries of an estate.
The principal is totally dependent on the competence of the agent and has little capacity, skill or inclination to supervise the agent. In this case, pension managers are also considered trustees. Retirees may not have the time or the financial education to oversee the stewardship of their investments, so this strict fiduciary responsibility falls on the investment managers to ensure that their goal of growing the value of the investment is focused on the laser.
At the same time that public pensions come under great pressure due to unrealistic benefit commitments, they are increasingly making inroads into political advocacy. The California and New York pension funds are known to use their investments, made using funds owned by future retirees, to conduct political campaigns in the companies they invest in on political issues such as climate change. .
The fact that some progressive political leaders have diverted the attention of certain pension funds to focus on political objectives, to the detriment of shareholder performance and in violation of their fiduciary duties, does not justify this proposal. Two wrongs do not make a right. It is also a violation of this fundamental fiduciary duty to use retirement capital to support conservative causes as it does to support progressive causes.
Texas has done a tremendous job of recruiting, leaving states like California and New York, states where political abuse of trusted pension funds is common. The state government of Texas would do well to stick to the free market approach that has been key to its success rather than following the bad example of New York and California in politicizing decisions on matters. retirement, as would SB 13.
And other states should avoid pursuing similar short-sighted legislative proposals that codify the prioritization of political agendas in pension fund decision-making, while putting millions of fixed-income retirees at risk.
While I appreciate the frustration Texans working in the fossil fuel industry can feel about these tactics, the logic behind this bill is flawed. A fiduciary breach does not negate another fiduciary breach. And if the Texas legislature insists on enforcing this law, then state comptroller Glenn Hegar and others must take action to protect the retirement savings of millions of retirees – many of whom put their lives on the line in service. and the protection of the public for years.
The pension manager should remain focused on maximizing the risk-adjusted returns of the pension. Pension plan managers who wish to get involved in political causes should do so at their own pace and at their leisure.
Pension funds will come under sufficient pressure in the years to come, as excessively underfunded defined benefit commitments by states and local governments to retired baby boomers collide with ever slower population growth. . The last thing pension managers need is to be distracted by the politics of their pensions, as this bill would.
The wording and definitions of the bill leave a lot of interpretation, and it seems very likely that once it is signed into law, courts will be called upon to consider the legality of state-mandated divestment as such. than considered by SB 13. It seems likely, based on similar cases dealing with anti-BDS divestment, that the law could be stripped of much of its teeth, ultimately demonstrating much of this exercise as insanity. .
At the end of the day, this bill is nothing more than a piece of legislation designed to make a point. But to the extent that this leaves pension managers feeling pressured to use their discretion in a way that ignores profit maximization, it can end up causing real harm to retirees.
JW Verret is Associate Professor of Law at the Antonin Scalia School of Law at George Mason University.