By Rick Manning
Should the federal government encourage pension funds and other federally sanctioned retirement vehicles to engage in politically correct, socially conscious investing?
The answer is yes according to a guidance document recently released by the U.S. Department of Labor which oversees all private employer pension plans. In a carefully worded change of policy, Labor Secretary Thomas Perez moved away from the previous standard which only allowed socially conscious investment funds to be included in private pension portfolios in rare circumstances, to a policy that encourages people’s retirement security to be tied to the performance of these funds.
Rather than just allowing pension fund managers to invest in appropriate green funds that are successfully providing a sound return on investment, Perez instead is putting the government’s thumb on the scale against investments that have fallen out of political favor.
An article written on top of the change of the investing rules entitled, “Pension Funds Considering Fossil Fuel Divestment, Socially Responsible Investments Get Boost From Labor Department” inadvertently reveals the intent and impact of the seemingly innocuous rule change.
The International Business Times (IBT) piece opens stating, “The U.S. Department of Labor has withdrawn an arcane George W. Bush-era measure that critics say discouraged pension trustees from making socially responsible investment decisions — like divesting from energy companies that contribute to climate change. The move could intensify environmental groups’ efforts to try to starve fossil-fuel corporations of billions of dollars worth of capital from institutional investors.”
While the people assume and the law specifically requires that dedicated retirement funds invest in a fiduciary responsible manner, the now six-month old government guidance redefines what is a sound investment.
The IBT article explains, “Long-standing law still requires trustees to consider financial returns and risk over any other social, environmental or political considerations. But the new guidance stresses that “environmental, social, and governance issues may have a direct relationship to the economic value of the plan’s investment.”
Continuing on, the author quotes Ian Lanoff, who represents some of the nation’s largest public and private pension funds as asserting that: “It explicitly acknowledges that fiduciaries can consider environmental factors as part of their overall economic calculus.”
And there you have it. Suddenly America’s retirement security is tied to the latest environmental fad or even the boycott du jour of the left. The irony of the situation is that those same pension funds, if following their own rules, would almost be compelled to dump all environmentally conscious mutual funds immediately upon the election of a GOP presidential candidate as many of the venture socialist deals that have caused green companies to flourish would disappear as the grants and tax breaks they depend upon ended.
The underlying assumption that flows from Lanoff’s assertion is that to be a sound fiduciary investment, the potential imagined liabilities in the future based upon things like the carbon impact of an investment, would need to be considered in every investment.
Could a pension fund invest in meat processor Cargill knowing that the company could be held liable sometime in a future gone mad due to the methane production of the cattle it turns into steaks?
Could a pension fund be held to have engaged in unsound fiduciary investing due to their choice to include companies from Israel in their portfolio or even, heaven forbid, Israel state bonds?
The intent of the new guidance is clear — force a wholesale reassessment of how the approximately $16 trillion in privately held retirement plans are invested. Not with an eye toward how a company is managed or its profitability, but instead focused upon what the company produces and if it passes muster with a federal court system looking over investment advisor and pension manager’s collective shoulders.
Want to effect change? Create a legal hazard to invest in out of favor industries and the capitalist system will do it for you.
For the sake of retirees and those who hope one day to benefit from retirement investments, Congress needs to end politically correct manipulation of these investment vehicles before it is too late and retirees lose everything.
The author is president of Americans for Limited Government and a former Labor Department official in the George W. Bush administration.
