Pension fund ties under scrutiny

On March 31, 2008, in News 2008, by Mark Norris

Panel opposes stripping holdings in terror-backing nations, seeks report

By Tom Humphrey,
March 31, 2008

NASHVILLE – The legislative committee that oversees Tennessee’s $32 billion pension fund wants a report on its investments in companies that operate in nations sponsoring terrorism.

But the panel has spurned proposals that call for divestment of such holdings by the Tennessee Consolidated Retirement System, which serves state employees, public school teachers and many local government employees.

The compromise move, hailed as a “first step” by supporters serving on the Legislature’s Council on Pensions and Insurance, is being criticized by some for going too far and by others for not going far enough.

“We’ve tied our retirement fund to a bunch of murdering thugs,” said Sen. Tim Burchett, R-Knoxville, who wants the state to go further. He has sponsored a bill to forbid investment by the TCRS in companies that contract with the government of Sudan.

Sen. Mark Norris, R-Collierville, said the issue is illustrated by a legislative staffer whose husband is currently serving in Iraq, where insurgents are reportedly receiving support from Iran and Syria.

“So, for each pay period, when a portion of her salary goes to the pension fund, she’s sending a check to help buy the bullets being shot at her husband,” said Norris.

In contrast, Sen. Douglas Henry, D-Nashville, voiced opposition to any step toward what he views as state legislative meddling in foreign affairs over “social issues.”

Lawmakers, Henry said, should leave such matters to the federal government and content themselves with assuring that the pension fund is secure and that earnings are maximized for the benefit of retirees.

Gov. Phil Bredesen, responding to a reporter’s question, said he has always opposed “legislative interference with investment policies.”

“I think you get into very tricky waters if you start trying to tell pension fund managers to do anything but to professionally maximize their return. … To say, ‘Here’s a political consideration you have to take into account,’ ” he said.

Burchett’s bill, SB3161, was one of nine proposals brought before the council last week that dealt with TCRS investments in companies operating in one or more of five nations currently designated by the federal government as supporters of terrorism – Cuba, Iran, North Korea, Sudan and Syria.

The council voted to recommend against passage of the Burchett bill and seven of the others that had titles such as “Terror Free Investment Act” and “No Investment in Iran Act.”

The exception that won approval was a bill sponsored by the chairmen of the House and Senate Finance Committees – Sen. Randy McNally, R-Oak Ridge, and Rep. Craig Fitzhugh, D-Ripley. As amended by the council, the measure merely requires state Treasurer Dale Sims to report – starting Dec. 31, 2008 – on TCRS holdings in companies that have “substantial current operations” in nations deemed “state sponsors of terrorism.”

“Maybe it’s not what everybody would desire, but it’s a step in the right direction,” said McNally.

“We can come back at the appropriate time to do the second step,” said Rep. Tommie Brown, D-Chattanooga.

Fitzhugh said that “we have to be very careful about the slippery slope” when dealing with “people’s retirement money.”

Under legislative rules, the council is supposed to study all bills related to TCRS and make a recommendation either for or against passage. It cannot kill bills, but its recommendations are traditionally respected.

Burchett said he plans to push ahead with his bill through the regular committee system despite the negative recommendation from the council.

During the council debate, some legislators questioned whether divestment of companies tied to Sudan would interfere with the United States’ relations with China, which is involved in the African country.

“Everybody’s afraid we’re going to tick off China,” said Burchett, who also criticized legislative staff calculations that divestment would cost the retirement system money. “China has organ harvesting, slave labor, prison labor.”

At Burchett’s invitation, three self-described “lost boys” from Sudan who now live in the Nashville area – David Dau, Johnson Chang and Chol Garang – testified to the council about atrocities in their homeland, including rape and murder of relatives.

They said the Sudanese government has supported the killings and, in turn, is supported by companies with interests in the country.

According to information provided to legislators by the Sudan Divestment Task Force, only five companies could face TCRS divestment if the Burchett bill passes – Alstom, Bauer AG, Lundin Petroleum, Petrofac and Wartsila Oyj.

None is based in the United States, the group said, and 24 other states have enacted similar Sudan divestment legislation. States are effectively encouraged to divest by the Sudan Accountability and Divestment Act, passed by Congress and signed into law by President Bush on Dec. 31, the group says.

A “fiscal note” on the Burchett bill, sponsored in the House by Rep. Gerald McCormick, R-Chattanooga, says “as much as” $160 million in TCRS holdings could be impacted by the legislation. Divestment costs are estimated to run as high as $2 million.

Bills that would cover more countries would involve higher costs, according to the legislative staff estimates. The “Terror-Free Investment Act,” sponsored by Sen. Steve Southerland, R-Morristown, and Rep. John Lundberg, R-Bristol, would cover Iran, North Korea and Syria, as well as Sudan, and divestment costs are estimated at about $6 million.

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