Pension Posturing

Politically-motivated laws could hinder returns on state retirement funds

Texas state lawmakers like to show the voters their political sentiments.

The problem comes when they make laws based on those sentiments rather than on common sense.

A couple of bills passed by the Legislature prohibit Texas state agencies from investing or doing business with financial firms that adopt ethical standards prohibiting investments in the oil, gas and coal sectors or in the firearms industry.

Lawmakers claim these firms “discriminate” against those industries. The financial companies that embrace these principles — known as ESG for environmental, social and corporate governance — say it is just good business for both investor returns and the country as a whole.

One can debate the pros and cons of both arguments all day. But the real question is whether this political “line in the sand” is worth the possible costs to average Texans?

The Texas Tribune this week ran an article on how these laws affect state pension funds. The Teacher Retirement System for example, or retirement funds for state and municipal employees. Thousands of Texans depend on these pools for current or future retirement income. The fund managers have a duty to invest contributions for the best return they can prudently obtain.

But these state laws arbitrarily take away the discretion fund managers need to do their jobs. And for no other reason that political posturing.

These ESG investment strategy is no magic path to riches. They may do well or it may underperform. But whether it’s a good idea to put state retirement money in such investments is a decision that should be left to pension fund managers and not subject to political whims. Fund managers have an fiduciary obligation to do what’s best for fund beneficiaries. Politicians are too often focused on what will benefit them come election day,