Pension Funds are For-Profit
California’s Constitution clearly states the California Public Employees’ Retirement System’s (CalPERS) singular motive is to make profits. I point this out in “Mixing Pensions with Politics” in The Orange County Register:
“California’s constitution entrusts the pension board members with “sole and exclusive fiduciary responsibility over the assets of the public pension,” and stipulates, “Assets shall be held for the exclusive purposes of providing benefits to participants in the pension.”
However, CalPERS board members are not content to merely try to maximize profits. Instead, CalPERS board orders account managers to deviate from the profit system in favor of environmental, social, and corporate governance (ESG) principles. Below is how CalPERS circumvents their fiduciary duties to pension beneficiaries:
“How do they get away with this? To mask their political and ideological investment agenda CalPERS board members use phrases like “triple-bottom line.” As The Institutional Investor explained in July 2011 the “triple bottom line” would “incorporate environmental, social and corporate governance concerns – so-called ESG issues – across the Sacramento-based plan’s entire $232.2 billion investment pool.”
CalPERS’ head of corporate governance, Anne Simpson, at a conference earlier this year hosted by the Investor’s Network on Climate Risk, reiterated enforcing ESG issues: “The theme of the day is how to move from warm words to action, to the realm of the practical, going to meetings and signing letters isn’t going to do anything unless we move the money.”
Past examples of ESG values influencing CalPERS investments highlight the dangers of alternative motives for investing other than profits. Prior to their “triple bottom line” strategy, in 2000, CalPERS and CalSTRS launched the “Double Bottom Line” initiative, which included social activist and tobacco-free investment policies. CalSTRS later revealed that its tobacco investment ban had lost the plan $1 billion in gains and in 2008 conceded that it “could no longer justify” avoiding tobacco stocks.”
By incorporating ESG principals, CalPERS no longer operates according to profit motive, a breach of its fiduciary duties. The benefits from social and environmental funds are arbitrary and have no set value. Further, violating the constitution shows complete disregard for the rule of law. In addition, Gov. Jerry Brown’s executive power allows him to remedy the actions of California’s rogue pension funds.
Gov. Jerry Brown has stated his commitment to put California’s finances in order. The state employee pension systems present him with an opportunity to show that he is serious about that. The governor should exercise his executive authority to remove board members whose ideological motivations have led them astray in the fulfillment of their fiduciary duties to state pensioners. Gov. Brown must protect government workers’ First amendment rights and pull the pension funds back into line with their proper function to solely provide benefits to workers.
Ludwig von Mises’s quote from Bureaucracy repudiates behavior similar to CalPERS’s disregard for the rule of law:
You may be excellent and lofty men, much better than we other citizens are. We do not question your competence and your intelligence. But you are not the vicars of a god called “the State.” You are servants to the law, the duly passed of our nation. It is not your business to criticize the law, still less to violate it. In violating the law you are perhaps worse than a good many of the racketeers, no matter how good your intentions may be. For you are appointed, sworn, and paid to enforce the law, not to break it. The worst law is better than bureaucratic tyranny.