Pension Reform
Why State Pensions Are in Trouble: ALEC in National Review
The ALEC Keeping the Promise: Getting Politics Out of Pensions report was cited in a recent article by Dominic Pino of National Review, analyzing the issue of unfunded liabilities in state pension funds.
Then governments will play politics with the money they invest. This has received a lot of attention recently with many Republican states decrying the effects of ESG investing on pension funds, but the problem is much older…
The American Legislative Exchange Council wrote a report on this issue in 2016, before complaints about ESG were commonplace. Types of politically motivated investment include:
- Preference for local investments. The Retirement Systems of Alabama, for example, had 16.3 percent of its investments in-state in 2014. The probability that 16.3 percent of the best investment returns in the world were located in Alabama, or in any single state, is basically zero.
- Kickbacks for political insiders. Public-pension funds often invest more in in-state firms that make political contributions or spend a lot on lobbying state governments than other retirement funds would. The governance of the California Public Employees’ Retirement System (CalPERS), for example, is dominated by politically connected unions who steer investment to favored causes.
- Moral crusades. States might performatively divest from fossil fuels or from hedge funds managed by individuals whose political views they don’t like. The American Federation of Teachers pressures state pension funds to divest from hedge funds with managers who support school choice, for example. Pension funds also engage in shareholder activism with money that ultimately belongs to workers.