Pensions should avoid politics and invest for the benefit of our workers
This OpEd authored by Cambridge Global Chairman, Christopher Burnham, originally ran in the The Hill, December 10, 2017.
Why do public fiduciaries think they should impose their political agenda on other people’s retirement benefits? Is not the standard of care to manage public retirement funds with the highest return at the lowest reasonable risk? With more than 50 percent of all state pension funds significantly underfunded and at least five states, including my native Connecticut, facing immanent bankruptcy due to grossly unfunded state employee and teacher pension systems, why would both beneficiaries and taxpayers, who will be forced to makeup those liabilities, want to politicize the management of the money? As I will also be a beneficiary in a few years, please manage the money without a political agenda.
When I was elected state treasurer of Connecticut in 1994, I inherited the worst performing state pension system in America for the previous 10 years. Within the first six months we fired the vast majority of money managers and indexed 75 percent of the portfolio. Yet, I was attacked for holding tobacco stocks in the portfolio, by virtue of the fact that we owned an S&P 500 stock index fund. I refused to play politics with the pension, particularly after 10 years of politics had relegated pension fund performance to the gutter. Instead, we focused on the highest return at a reasonable risk, and performance skyrocketed from dead last to the top 25 percent in the country, overnight.
Now a new era of activists, without any regard to fiduciary responsibility, is injecting politics into pension systems, yet again, by trying to make states, counties and municipalities across the country divest of shares in energy companies. Why would we seek to undermine the integrity of a secure retirement for our teachers and government employees? If they, individually, want to invest in activist funds, they should force states to move to a system similar to the U.S. government employee retirement system, or to a full or partial defined contribution system, such as Rhode Island recently did. Then retirees can make decisions for themselves.
However, to force a political agenda to be shoved into the investment of their retirement accounts is wrong, and a clear violation of fiduciary responsibility. Moreover, if you divest from energy investments, where do you stop? If you remove energy companies, why not remove fast food companies? How about booze, gambling and producers of sugary drinks? As a combat veteran, I am very grateful for the strength of our American defense industry and believe we should invest more in defense companies. Would everyone else agree with me?
Additionally, pressure is mounting on banks. Recently, U.S. Bank, the leading provider of financial products and services to the federal government for over 30 years, has ceded to these activist groups and announced radical changes to corporate policies, including ceasing its investments in energy infrastructure. Its management announced that U.S. Bank plans to stop providing construction for energy pipelines, although it has not announced that that it will no longer service the major railroad carrier, which carry all of the coal Minnesota uses to produce over 30 percent of their electric energy needs. Fiduciary responsibility also means responsibility to shareholders.
We must not allow individual political and ideological agendas to break the special trust and confidence our government and teacher retirees should have in those who are elected or appointed to be the fiduciaries of retirement systems across our country. Unless mandated by law, such as owning shares in companies doing business in North Korea, there is no room for ideological agendas in the management of other people’s money, particularly our teachers and government employees.
Christopher B. Burnham is the former state treasurer of Connecticut, where he was sole fiduciary of the $16 billion Connecticut pension system, and former undersecretary general of the United Nations, where he was sole fiduciary of the $42 billion United Nations pension system. He is now chairman of consulting firm Cambridge Global Advisors.