Pension funds’ focus should remain about returns for retirees

There’s good reason why New Mexico Educational Retirement Board policies don’t give staff the authority to pick and choose stocks from market-determined index funds. Index mutual funds are generally considered ideal core portfolio holdings for retirement accounts. They provide broad market exposure, allowing investors to buy all of the S&P 500 companies at the low cost an index fund offers, rather than picking out individual stocks. They’ve been safe investments over the long term for the 60,000 active members and 50,000 retirees invested in the state’s $12 billion teacher pension fund.

Now ERB board members appear ready to allow politics to seep into ERB investments without consulting those tens of thousands of retirees who depend on that income stream. Today’s target: two private companies — GEO Group and CoreCivic — that operate prison facilities in the state.

During an online meeting last week the board voted unanimously in favor of a motion offered by Democratic state Treasurer Tim Eichenberg to direct ERB staff to come up with investment policy changes that would allow for divestment votes. No public comment was taken, and it’s unclear if those who logged in to interrupt the meeting and urge divestment are, in fact, ERB beneficiaries.

The ERB board held off on a direct vote to divest about $480,000 in GEO Group and CoreCivic investments, directing that proposed policy changes come first. Given that these two investments amount to just 0.004% of ERB’s overall $12 billion fund, divestiture would be more symbolic than anything.

And there are legitimate concerns about the operation of private prisons, particularly during the COVID-19 pandemic. (Of course that begs the question of why it’s bad to invest in private prisons like Florida-based GEO Group Inc. and Tennessee-based CoreCivic but OK to dump hundreds of millions of New Mexico taxpayers’ dollars into funding them.)

But the bigger issue is that such a change in policy would open the door to allowing politics and/or personal agendas to enter the investing process. Today it is private prisons, tomorrow it could be tobacco or alcohol companies, oil and gas producers, soda or candymakers, art galleries or book publishers, or any other business endeavor.

Yes, it’s worth the board having a discussion with all members if there are industries or business practices they feel should be shunned. Those that profit from detentioncamp and child labor come to mind. But that membership vote should be part of the process. At its core the ERB is entrusted with delivering secure retirement benefits to active and retired employees of New Mexico public schools, institutions of higher learning and certain employees at state agencies who work in educational programs, not allowing vocal activists to become those retirees’ moral compass.

Meanwhile, it’s unclear just how the board would — or if it could — decouple certain stocks from index funds, or if members plan to replace those they dislike with stocks more politically or socially in favor, and if so, favored by whom?

The $12 billion pension fund’s chief investment officer told ERB board members previous policies did not give staff the authority to pick and choose stocks from marketdetermined index funds. David Powell, a Washington D.C.based attorney and investment adviser, also reminded board members they are required to prioritize the fund and its beneficiaries over outside interests and concerns. “You’re not supposed to sacrifice return for other particular factors,” he said.

That seems pretty straightforward. And unless its members tell it otherwise, the ERB should stick to that practice.

More than 110,000 retirees’ futures depend on it.