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MACRS EXECUTIVE BOARD VOTES TO OPPOSE DIVESTITURE OF FOSSIL FUEL IN PENSION FUNDS
SEPTEMBER 13, 2013: Yesterday, the 18-member Executive Board of the Mass. Association of Contributory Retirement Systems (MACRS) unanimously voted to oppose legislation that would require the State’s Pension Fund Board (PRIM Board) to divest all holdings in the Fund, which include fossil fuel such as oil, gas and coal.
The hearing on this bill, Senate 1225, was held on Tuesday of this week by the Legislature’s Public Service Committee. A number of legislators appeared before the Committee speaking in favor of the bill, which was filed by Senator Ben Downing of Pittsfield.
The proponents of divestiture point out that fossil fuels, when burned, produce carbon dioxide, the major contributor to climate change.
Senator Downing argued that the divestment of oil and natural gas and adopting wind, solar and other renewable energy sources will eventually replace the value of these fossil fuels as an investment of our pension fund in an economic sense. “At some point, these fossil fuel companies will not be a good investment, and that will have an impact on our pension fund," he said.
If approved by the Legislature, Massachusetts would be the first state in the country to divest of fossil fuel holdings. Based by the number of legislators who appeared at the hearing to speak in favor of Downing’s bill, it appears that the initiative will have strong support within the House and Senate in this Legislative Session.
While there was no retirement system opposition to the bill, Michael Trotsky, Director and Chief Investment Officer of the state’s $54.7 billion pension fund, did send a letter to the Committee explaining that additional restrictions would make it more challenging for PRIM to achieve its actuarial assumption return rate of 8.00% and achieve a fully-funded retirement system by 2040.
A spokesman for the American Petroleum Institute, an oil and gas industry trade group presented data showing that a 2011 study of 17 states indicated that oil and gas stocks, which made up an average of 4.6% of their holdings, accounted for an average of 15.7% of the returns over a five-year period. These figures represented more than a trillion dollars in assets and covered nearly half of public sector workers in the United States who participate in local government pension plans.
The decision of the MACRS Executive Board to oppose the fossil fuel divestiture legislation was strictly based on the fiduciary responsibility to their retirement funds.
Most local retirement systems have a piece of the State’s PRIT (Pension Reserves Investment Trust) Fund. Over 50% of these local systems have placed all of their funds in the PRIT Fund – the same investments as the State and Teachers’ fund. The majority of the remaining systems utilize the PRIT Fund for part of their investment policy.
“This was a 100% vote by the Executive Board,” said MACRS President Denis Devine. "Every member of the Board has a fiduciary responsibility to his systems’ investments. With PRIT showing an annualized return of ten percent or better on funds invested in oil or gas by their investment managers, it would be a violation of their duty to tell their managers to remove fossil fuel equities from their fund. As MACRS President, I’ll stand by this opposition vote."
“Relations with our friends in the House or Senate were a consideration,” said MACRS Legislative Chairman Ralph White. “Could there be repercussions? I doubt it. Fiduciary responsibility is clearly defined within the oath that every retirement board member must take. We all believe in the movement toward cleaner air in this state. It’s a worthy cause (divestiture) for most, but we don’t have the luxury of making this kind of pension fund decision. I would hope that our members understand.”