California’s climate-conscious policies aren’t matched by the investment choices of its largest public pension funds, according to a report from two environmental groups.
Of the 14 top U.S. pension funds analyzed by Stand.earth and Climate Safe Pensions Network, California Public Employees’ Retirement System, known as Calpers, and California State Teachers’ Retirement System, known as CalSTRS, were the largest investors in fossil fuel companies, with $27.1 billion and $15.7 billion, respectively, according to findings published Wednesday.
The two combined hold about half the fossil fuel assets for the entire group, according to the study. Calpers also came first in fossil fuel holdings as a proportion of its total assets under management, at 6.9%.
The New York State Teachers’ Retirement System had the second-largest share of its portfolio invested in fossil fuels, at 6.6%.
California’s two biggest pension funds have invested a staggering $43 billion in fossil fuel companies, and their opposition to divesting from the industry — including fighting legislation that would have stopped them investing in firms involved with the controversial Dakota Access Pipeline (DAPL) — has cost retirees and taxpayers billions, research shows.
The findings hammer home the fact that the divestment movement isn’t just about protecting the planet from the worst effects of climate change. With the oil, gas, and coal industries all on the decline, pension funds’ refusal to divest from fossil fuels is also endangering the retirement savings of teachers, government employees, and other rank-and-file public workers who have paid into these funds.
While it is common knowledge that fossil fuel stocks have underperformed the broader stock market, large bank stocks have been lackluster as well — including the banks that helped finance DAPL.
If CalPERS and CalSTRS had not opposed the original DAPL divestment legislation, they could have instead put pressure on the companies involved not to move forward with the pipeline, and such efforts might have been enough to stop the project, given the pipeline project’s turbulent history.
The California State Teachers’ Retirement System (CalSTRS) is now expected to hit full funding in 2041, five years ahead of last year’s prediction of reaching that level in 2046, according to a presentation from CalSTRS Deputy System Actuary David Lamoureux at the fund’s most recent board meeting on Friday. Additionally, board members anticipate that CalSTRS will hit 80% funding in 2024, 10 years ahead of schedule.
The timeline shift is due to the unexpectedly high 27% return CalSTRS earned in the most recent year. The CalSTRS board plans to release the excess funds from this year’s record return over the course of three years. This means that this year, only one-third of the excess funds will be used to alleviate the funded rate. “Because of that, our funding levels will improve, but they will improve slowly over time,” Lamoureux said at the board meeting.
Take the California State Teachers’ Retirement System (CalSTRS), which in February reported that it had its second-highest year for retirements in 2020, behind the fallout from the Great Recession. The pension fund reported a steep 26% jump in the second half of 2020 from the same time a year before.
When the pension fund for educators surveyed roughly 500 of these retirees, about 62% said they retired earlier than they planned. More than half said the challenges of teaching during the pandemic pushed them to seek an early out. Still, a CalSTRS spokesperson said this week that the fund does not expect the retirements to have a “material impact” on the funding levels.
Broadly speaking, any damage from early retirements is going to be “fairly muted,” according to Kevin McLaughlin, head of liability risk management for North America at Insight Investment.
The California State Teachers’ Retirement System (CalSTRS) recently reported a 26 percent increase in early teacher retirements in the second half of 2020 relative to the previous year. CalSTRS officials suggest that the COVID-19-driven spike in retirements will not affect the pension plan’s long-term solvency. But even if that holds true, CalSTRS is currently only 66 percent funded and has $100 billion in unfunded benefits. The costs associated with paying off this pension debt are skyrocketing and siphoning hundreds of millions of dollars from classrooms each year.
Like many states, California has made decades of legally ironclad promises to teachers regarding retirement benefits that, for a variety of reasons, have become massively underfunded. The most notable factors contributing to growing debt are underperforming investments, inaccurate actuarial assumptions, and politicians’ longstanding preference to spend money on sexier things than retirement plans. When a public pension plan accrues debt, states and school districts need to start paying down that debt in addition to covering the normal operating costs associated with pensions. While California’s ledger would indicate it has been making pension debt payments, CalSTRS funding has only gotten worse over the last decade.
California Public Employees’ Retirement System (CalPERS)1 and State Board of Administration (SBA) of Florida2, the largest and fifth-largest public pension funds in the US, have publicly disclosed that they have voted FOR Effissimo Capital Management’s shareholder proposal to conduct an independent investigation of Toshiba Corporation’s (TYO: 6502) 2020 Annual General Meeting (AGM).
SBA Florida cited three reasons for its supportive vote: “Conflicted review process; Insufficient resolution of outstanding concerns; Reasonably proportionate request.”
The votes by prominent institutional shareholders of Toshiba follow earlier disclosure by California State Teachers’ Retirement System (CalSTRS), the second-largest public pension fund in the US, that it was voting FOR Effissimo’s proposal.
The California State Teachers’ Retirement System (CalSTRS) plans to build a private markets sustainable investment portfolio to go greener while aiming to maintain its investment returns.
The investment committee of the $282.5 billion pension system, the largest teachers’ retirement fund in the world, is expected to approve the new portfolio at its meetings next week.
The pension system’s plan calls for investments of $1 billion to $2 billion in the next couple of years—much of it in real estate affordable housing investments, as well as in private equity and infrastructure—according to CalSTRS investment committee material.
Teachers are upset at the Marin County Board of Education for discussing pension reform in the middle of a pandemic without any feedback from labor unions. The county board considered a resolution last month that calls on state legislators to enact pension reform, proposing several possible solutions—including weakening pensions by reducing benefits and raising the retirement age. Teachers spoke out against the nonbinding resolution, which was tabled in response to their concerns.
School districts and employees have no say in how much they pay. At Shoreline, about 10 percent of the general fund is paid to retirement funds.
The required contribution from districts has steadily risen following the passage of A.B. 1469, which was intended to fully fund CalSTRS. When the bill passed in 2014, the state required districts to pay 8.88 percent of their payroll to the teachers’ retirement system. This year, they are required to pay 16.15 percent. Mandated CalPERS contributions have risen from 11.77 to 20.7 percent of payroll costs in the same timeframe, leaving less money within districts for direct education costs.
The rising liability caught the eye of the Joint Legislative Advisory Committee, a countywide group of elected school board members and superintendents created to advocate on behalf of public education in Marin. Pension reform has been a priority for the committee since 2014, and it’s been the number-one goal since 2017.