Public retirement plan assets should never be utilized for political purposes
Photo 149505949 © Aleksandr Koltyrin |


Public retirement plan assets should never be utilized for political purposes

Politically-motivated activist investing and ineffective pension plan designs are just two areas of state and local retirement plans causing significant problems.

It is generally held as self-evident by most in the retirement industry that the primary purpose of any true employer-sponsored retirement plan should be to meaningfully support the financial security of employees in their retirement years. While many might think this is overly obvious, some trends in the public sector retirement space seem to be increasingly ignoring this basic tenet. 

State executives and lawmakers from both major political parties have recently threatened to use public retirement plan assets to address political grievances or push political agendas. Issues ranging from guns to oil and climate change to social media are all being suggested as political targets that should dictate investment strategies for public pension funds. When making arguments for their activist agendas, proponents of these various positions rarely mention how investment restrictions or demands will aid in the basic retirement plan objective of supporting public employees in their retirement years.  

To be clear, public retirement plan assets should never be utilized for political purposes.

Trustees of these public pension plans, and others of influence, are under a clear fiduciary obligation to make decisions with the sole purpose of best meeting the pension plans’ objectives for the benefit of that plan’s participants. There is no ambiguity about this: Activist political agendas have no place in public pensions. To be effective in meeting their objectives, public pension systems must be completely apolitical in their decision-making and in their operations. They cannot be beholden to shifting political winds.   

While this idea seems straightforward, the thought of using these massive investment portfolios to leverage certain political agendas is often too enticing for some politicians to pass up. It is incumbent upon governors, other key stakeholders, and legislative representatives in all states to step up and acknowledge that public retirement assets are out-of-bounds for activist maneuvering. This is critical regardless of where these figures fall on the political spectrum. It is equally important for retirement system trustees and leaders, as well as state treasurers, to stand firm as plan fiduciaries and vigorously oppose any attempts to use plan assets in a way that is not solely directed at benefitting the plan’s participants. 

Another area that has also needed a dose of reality is the actual design of public pension plans themselves. Thinking back to the basic tenet of serving employees noted earlier, how can it be that a pension plan design that ultimately benefits less than one-third of plan participants is meeting basic plan objectives? Yet, this is what the dominant current design in state and local retirement systems does. The long-standing traditional defined benefit (DB) pension design used by states and municipalities simply does not meet the needs of the majority of today’s modern mobile workforce. But, this defined benefit design is still defended rigorously by employee unions and many politicians.   

One argument continuously pursued by proponents of these public pension plans is that they supposedly aid in recruiting and retaining employees into governmental service. Yet, data show large numbers of public employees leave jobs without vesting or benefitting from these pension plans. For example, “only 2.5% of new hires joining LASERS [Louisiana State Employees’ Retirement System] at age 35 will stay in the system long enough to accrue a full retirement benefit. Seventy percent of LASERS members leave with only their employee contributions to return to them (without interest).”

All kinds of arguments can be made about the realities of recruitment and retention, but the simple fact is this: the kind of plan that aids in recruiting and retention is the plan that benefits the greatest number of employees. Cutting two-thirds or more of participants out of optimized benefits because of a pension plan’s inability to meet the portability needs of individuals cannot, obviously, attract today’s employees.

Plan designs exist that are proven to meet the needs of a greater number of employees while not creating unfunded liabilities for governments and taxpayers. More pension plan designs are being developed that take employee outcomes to an even greater level while managing risks for both governments and employees. These designs should be further examined to better meet basic plan objectives for all impacted parties. 

Politically-motivated activist investing and ineffective pension plan designs are just two areas of state and local retirement plans causing significant problems. Applying a simple dose of reality to these common issues would be a meaningful way to improve outcomes and better meet the basic objectives of retirement plans.

A simple litmus test should be applied when making decisions about any aspect of a retirement plan: Does this aid in achieving the plan’s objectives? 

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