Prepared for: House Judiciary Committee, Montana State House of Representatives
Chair Regier and members of the committee:
Thank you for the opportunity to offer our brief perspective on House Bill 228 (HB228).
My name is Steven Gassenberger, and I serve as a policy analyst for the Pension Integrity Project at Reason Foundation. Our 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.
We received our first invitation to provide research and analysis to legislative members in 2019 and have closely monitored and commented on the condition of Montana’s largest public pension funds since, including during recent consideration of HJ8 (2021) by SAVA this interim.
Over the last two decades, public pension systems in Montana and across the country have experienced a clear shift in their investment portfolios away from public assets like blue chip stocks to more private and opaque—and often, higher risk—“alternative” assets like private equity and hedge funds. An asset class comprising less than 6% of the Montana PERS portfolio in 2003 now accounts for nearly 30% of all assets held by the fund, making PERS and other public pension funds some of the largest, most active investors in the world.
Although it is reasonable and prudent at times for pension administrators to expand or contract the fund’s investments in various assets over time, the shift to private assets presents a new risk for policymakers and pension fund stakeholders—politicization of pension fund investments.
Nearly every lawmaker has heard at least one call for the state to invest in, or divest from, one particular company or industry sector based on political concerns of one type or another. Sometimes—like the recent calls by some pension systems to divest from Russian companies in the wake of the Ukraine invasion—geopolitics and other national security concerns may dictate certain shifts in investment strategy. Most investment or divestment calls, however, do not involve national security, but rather narrow political interests of various factions seeking to reward or punish particular industries via the investment policies of taxpayer-backed public trust funds.
Montana has two major pension systems that are underfunded by billions of dollars today, and both face a long-term challenge of hitting unrealistically high investment return assumptions in order to generate sufficient returns to fully fund promised pension benefits. Given such a difficult challenge, placing political constraints on pension fund investments would make the goal of fully funding earned benefits harder for administrators. By providing more explicit guidance and boundary setting to public trust fiduciaries with the intention of preventing politicized investment decisions, HB228 would improve governance and give stakeholders even more confidence in their system for future generations.
Thank you again for the opportunity to speak today, and I would be happy to answer any questions.
Steven Gassenberger
Policy Analyst, Pension Integrity Project at Reason Foundation
steven.gassenberger@reason.org