EDITORIAL: Don't micromanage CalPERS, CalSTRS
September 01, 2015The Golden State is home to the nation's two largest public pensions funds: the California Public Employees' Retirement System and the California State Teachers' Retirement System. Though they've bounced back from poor investment returns during the Great Recession, a recent Sacramento Bee analysis showed that both are still considerably underfunded based on the latest data: CalPERS by ...
The Golden State is home to the nation's two largest public pensions funds: the California Public Employees' Retirement System and the California State Teachers' Retirement System. Though they've bounced back from poor investment returns during the Great Recession, a recent Sacramento Bee analysis showed that both are still considerably underfunded based on the latest data: CalPERS by $62 billion and CalSTRS by $74 billion.
As by far the most populous state, it's no surprise that California has the nation's highest total pension debt at $610.3 billion. But the Bee notes that on a per-capita basis, the Golden State has the 11th highest pension shortfall among the 50 states. These are sobering numbers -- or should be. Unfortunately, there is renewed pressure on the two pension giants to base investment decisions not on how to generate the best returns but on politics. Senate President Pro Tem Kevin de Leon, D-Los Angeles, has won Senate approval for a measure requiring CalPERS and CalSTRS to end new investments in coal companies and to divest current holdings by July 1, 2017, unless the pension funds conclude that such actions are "inconsistent with its fiduciary duties." Fossil Free California, a well-funded advocacy group, wants the pension funds to divest all holdings in companies involved with producing or providing fossil fuel energy, with no wiggle room.
This is more feel-good green posturing than thoughtful policymaking. Most experts say that even with a huge shift toward renewable energy, the world is still likely to need fossil fuels for decades to come. Thankfully, at least one powerful state leader is willing to question this approach. Controller Betty Yee, a Bay Area Democrat who is on the boards of both CalPERS and CalSTRS, has told lawmakers that she is opposed to sweeping divestment requirements. She argues that CalPERS and CalSTRS can influence fossil-fuel companies by being activist shareholders. "I see the potential for swaying corporate behavior in ways that will ease the transition to a green-energy economy," Yee wrote in a Bee op-ed. "Both pension funds ask companies -- even those with only a peripheral connection to fossil fuels -- to examine the long-term business risks from climate change and to take action accordingly. ... How can they change to survive and thrive in the new energy environment and economy?"
This feels more like a cover story to appease greens than anything else. ExxonMobil is not likely to change its profitable ways after a lecture from a shareholder or after being asked to answer to a series of leading questions. We wish Yee had simply said the goal of CalPERS and CalSTRS should be to gain high returns with legal investments. Thanks to AB 32 and related measures, California has done more than enough to establish its place as the world's leader in efforts to reduce reliance on fossil fuels. We don't need to add new burdens on deeply underfunded pension plans -- and thus, eventually, probably taxpayers -- to underline this point.