House Bill 481 would help prevent the politicization of Georgia’s public pension fund investments

Comments to the Georgia House of Representatives Retirement Committee on House Bill 481

Chairman John Carson and members of the committee:

Thank you for the opportunity to offer our brief analysis of House Bill 481 (HB 481) and the need for more clarity about the fiduciary standards of public trustees.
 
My name is David Morgan, and I serve as a government affairs associate at Reason Foundation. Our Pension Integrity Project team conducts quantitative public pension research and offers pro-bono technical assistance to officials and stakeholders aiming to improve pension resiliency and advance retirement security for public servants in a financially responsible way.
 
Georgia’s public pension funds are among the state’s largest, most influential institutional investors. House Bill 481 would protect taxpayers and public pensioners from the growing prevalence of political activism in the investment of public trusts like pension systems and the financial products and services they rely on. In many states, activists and elected officials increasingly pressure public pension systems to invest in or divest from specific companies or entire industries. These efforts run counter to public pension systems’ primary fiduciary duty to ensure prudent investments that maximize investment returns needed to provide benefits to retirees.
 
The nature of pension investments is evolving. Public pension systems and other public trusts no longer rely on vanilla investment portfolios of stocks and bonds. To make up public pension systems’ unfunded liabilities that often resulted from overly optimistic investment return assumptions, many public pension plans around the country are increasing their risk-taking by increasing holdings of alternative investments like private equity and hedge funds.  
 
This trend toward private and often opaque limited partnership arrangements has helped foster conditions for activists to leverage public dollars under their management and push ideologies or political agendas, often without their limited partnership’s explicit consent.
 
Since the 2008 financial crisis, the assets that stakeholders depend on have become less transparent and more vulnerable to special interests and political activism. What makes Georgia House Bill 481 unique and effective is that it avoids directing, limiting, or interfering with public pension trustees’ core duty, maximizing returns and delivering constitutionally protected retirement benefits at a reasonable cost.  
 
House Bill 481 would help prevent the politicization of Georgia’s public pension fund investments by providing clear boundaries for public fiduciaries to ensure investment decisions are based on material factors. Public pension systems should invest to maximize returns so constitutionally protected retirement benefits are delivered at minimal cost to taxpayers and employees. Investments targeted toward fulfilling political agendas should play no role in that process.

Policymakers may also want to consider additional policies to increase transparency and ensure good governance through private investment and proxy-voting reporting, as well as requirements allowing more access to investment-related public meetings, to complement HB 481, and we would be happy to provide more information to interested committee members.

Implementing the policies included in HB 481 would effectively elevate risk analysis and performance to their rightful positions as the sole factors in the fiduciary decision-making process. Depoliticizing the investment management of these important public trust funds and protecting trustees’ ability to consider quantifiable risks is in the best interest of all direct stakeholders.
 
Thank you again for the opportunity to speak today.