NJ public employees and retirees be aware: You are about to be thrown under the bus by your elected representatives, on the absurd rationalization of "the fight against climate change."
As Steven Rodas and Derek Hall report for NJ.com in N.J. could divest its $92B pension fund from fossil fuels. What it means financially and for climate change:
New Jersey would join a growing list of states to divest its pension fund from fossil fuel companies if a long-stalled bill crosses the finish line in Trenton this fall.
The legislation (A1733), now in its fourth iteration after it was first introduced in 2017, has gained new momentum in recent weeks as the fight against climate change intensifies nationwide. It will be considered Thursday by the state Senate’s environment committee.
This is a purely political move. There is no economic, scientific, or financial justification for this order.
Morally, this is monstrous. Energy is the industry that powers every other industry. Therefore, the availability of reliable, cost-effective energy is vital to every aspect of our lives. Fossil fuels provide 80% of that energy, and will continue to be needed for decades to come, as it continues to grow both in the U.S and worldwide in the current absence of any viable alternative or competition. By joining in the suicidal movement to starve the fossil fuel industry of investment capital, the legislature is courting with a monumental human catastrophe that would dwarf any problematic climate side effects of burning fossil fuels.
But it is also illegal. According to the U.S. Department of Labor, the people managing pension funds in America are fiduciaries. This is what the department explains under the heading Fiduciary Responsibilities
The Employee Retirement Income Security Act (ERISA) protects your plan's assets by requiring that those persons or entities who exercise discretionary control or authority over plan management or plan assets, anyone with discretionary authority or responsibility for the administration of a plan, or anyone who provides investment advice to a plan for compensation or has any authority or responsibility to do so are subject to fiduciary responsibilities. Plan fiduciaries include, for example, plan trustees, plan administrators, and members of a plan's investment committee.
The primary responsibility of fiduciaries is to run the plan solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits and paying plan expenses. Fiduciaries must act prudently and must diversify the plan's investments in order to minimize the risk of large losses. In addition, they must follow the terms of plan documents to the extent that the plan terms are consistent with ERISA. They also must avoid conflicts of interest. In other words, they may not engage in transactions on behalf of the plan that benefit parties related to the plan, such as other fiduciaries, services providers or the plan sponsor.
Fiduciaries who do not follow these principles of conduct may be personally liable to restore any losses to the plan, or to restore any profits made through improper use of plan assets. Courts may take whatever action is appropriate against fiduciaries who breach their duties under ERISA including their removal.
[emphasis added]
I don’t see how this conclusion can be avoided: Fossil fuel divestment is a major violation of the NJ pension managers' fiduciary responsibility. The fossil fuel industry is a major component of the common stock investment universe, and provides 80% of American energy. It is the industry that powers every other industry, and thus provides an indispensable product crucial to everyone’s short and long-term well-being. This obviously includes NJ public employees and retirees. It follows that fossil fuels are crucial to a diversified portfolio, and thus a major component of investors' long term financial health. By cutting fossil fuels from its investment portfolio, the NJ pension fund is being forced to act against its sacred fiduciary trust to act only on the best interests of its public employee and retiree clients.
The NJ legislature's coercive political interference in NJ's public employee pension fund injects a major conflict of interest into the management of the plans, another ERISA violation. It is explicitly forcing the pension fund investment managers to ignore an entire industry. This is outrageous. How can this order possibly be reconciled with the fund’s ERISA and fiduciary responsibilities?
The entire NJ legislature should recuse itself from any power to micro-manage or affect in any way the investment decisions of the pension plan managers, who are legally duty-bound to comply with ERISA requirements specifically and to honor their moral responsibility to present and future retirees more generally.
Related Reading:
When Climate Dogmatism Meets Energy Reality
The “Divest-Invest Philanthropy” Movement and its Statist Roots
RELATED: Protecting Oil Companies’ Rights is Not a Government Subsidy
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