By: Mark Glennon*
Count on the Illinois legislature to find a way to further maim its crippled pension system.
Senate Bill 2152 would strip pension trustees of control over how to vote shareholder matters and vest the power in the state treasurer, currently, Michael Frerichs.
Still worse, the treasurer would then be bound to comply with the Illinois Sustainable Investing Act on how he votes on behalf of stocks owned by the pensions. That law requires officials like the treasurer to include “sustainability” considerations in how public money is invested. It’s basically a progressive policy agenda also known as ESG (Environmental, Social, Governance). It’s often ridiculed as “woke capitalism,” and includes the goals of zero fossil fuels, “equity,” gender and identity politics, and pretty much any other social justice fad in vogue.
The bill has traction. It has been assigned to the House Executive Committee and Frerichs supports it, as reported in Pensions & Investments. It’s sponsored by Bill Cunningham, the Senate President Pro Temper, and Mattie Hunter, Senate Assistant Majority Leader, both Chicago Democrats.
Shareholders, including pensions, usually have the right to vote on key corporate issues such as board of director elections, rights offerings, mergers and acquisitions. For interests in private investment partnerships, which pensions also hold, voting powers include other major matters. If the bill becomes law, Frerichs, or whoever is treasurer, would hold a proxy for all those votes and execute ballots, voting as he alone decides — a huge concentration of power in one individual.
The bill would eliminate any fiduciary obligation to vote shares in a way that maximizes their value, diluting that goal with progressive’s political agenda. Today, pension managers are fiduciaries for pensioners – a strict, legal standard — but the treasurer would not be if the bill becomes law.
Lower returns are why the backlash against ESG investing is among the biggest stories in finance today. A study on ESG-favored stocks compared to those of politically neutral companies was reported last week in the Wall Street Journal for the period from June 30, 2021 through Jan. 31, 2023. “A simple index composed of only neutral companies gained 2.9%” for the period, the study found, “significantly outperforming both broad-market and ESG indexes in up and down markets.”
It should be obvious that politicized investing ultimately underperforms. You invest either to maximize returns or you don’t. “As common sense would suggest,” the Journal column says, “companies that focus on profits outperform companies that don’t. As a corollary, it seems obvious that asset managers won’t maximize shareholder returns if that isn’t their focus.”
The pension funds affected if the bill passes are the Illinois Teachers’ Retirement System; the Illinois State Universities Retirement System (SURS); and the Illinois State Board of Investment, which manages assets of the State Employees’ Retirement System, the General Assembly Retirement System and the Judges’ Retirement System.
Professional investors on pension staffs quietly seethe over being told to inject politics into their decisions. They know their careers depend on returns they generate for pensioners, though they must often stay quiet about their political masters’ intermeddling.
At least one pension fund, however, is objecting: SURS. Its board voted unanimously to oppose the bill. “The state treasurer does not serve on the SURS Board and is not a fiduciary to SURS members” said its board chairman, as quoted in Pensions & Investments. “Under this legislation, SURS does not have control over how the state treasurer votes SURS’ proxies…. It gives one statewide elected official unilateral control over the long-term value of SURS’ assets,” he said.
Frerichs is probably drooling over getting the voting power for another $109 billion of assets, which is what the pensions hold, mostly in stocks and investment partnership interests, and it’s no surprise that he supports the bill. As treasurer, he has long been at the forefront of woke investment of some $50 billion of other state money he manages. We’ve long criticized that, as in the stories linked below. He has tried to extend that influence beyond Illinois borders for transparently political purposes. In 2021, he and a group of 29 other progressive state financial officials sent letters to six of the nation’s largest private sector money managers to bully them out of supporting Republicans.
“Sustainable” is what progressives like to call their investing. Nice word. Too bad sustainable pensions aren’t on Illinois’ agenda.
*Mark Glennon is founder of Wirepoints.
This column was updated to clarify the wording on which pensions would be covered by the bill.
Earlier pertinent articles from Wirepoints:
- As markets tank, Illinois prioritizes social justice for investing public money
- Woke Capitalism Or Smart Marketing? Chicago To Issue ESG Bonds.
- City Of Chicago Shunning Fossil Fuel Investments. Who Benefits? Russia.
- In-Kind Retaliation, As Expected: Fifteen States Demand Banks Ignore Illinois-Style Threats Favoring ‘Woke Capitalism’
- Illinois’ Latest Use Of Taxpayer Money As Political Club
- A Bill To Prohibit Illinois Pension Investment In ‘Wall’ Contractors
- Illinois Treasurer Shoots Self In Foot Defending Activist Social Investing
- Illinois Treasurer playing activist shareholder again with stock not his; wants new Facebook chairman
- Illinois Treasurer Frerichs Playing Activist Shareholder With College Savers’ Money
A set of state lawmakers want to extend CPS’ current school closing moratorium to February 1, 2027 – the same year CPS is set to transition to a fully-elected school board. That means schools like Manley High School, with capacity for more than 1,000 students but enrollment of just 78, can’t be closed for anther three years. The school spends $45,000 per student, but just 2.4% of students read at grade level.
Hopefully, all media will get the message, in Illinois, too.
Ted joined Tom Miller of WJPF to talk about Illinois’ highest-in-the-nation property taxes, why lawmakers don’t want to touch the tax’s cost drivers, just how much Illinoisans’ tax burden has grown over the decades, why Gov. Pritzker failed to meet his promise to reform property taxes, and more.
The obvious solution is to eliminate the clear moral hazard of a guaranteed pension. Since it seems that ship has sailed, put clear limitations on new funding for any initiatives until pension funding has been brought up to actuary required levels. And who will scream loudest about that proposal? The education unions, of course. Because they are the ones who have most benefited from allowing current taxes to be diverted to their goals. You seem determined that taxpayers should just accept that public unions have put them into a strait jacket from which there is no escape. That may be… Read more »
“I for one will no longer accept the “deadbeat taxpayer” nonsense.” Great. Glad to hear you are finally on board with advocating actuarial funding to pension funds instead of expecting unions to do this for you. Also, the unions didn’t put taxpayers into this straight jacket. That would be the Illinois voters that added this amendment to the constitution and our founding fathers that declared that no state shall pass any law impairing the obligation of contracts. That darn constitution with its guard rails is preventing you from stealing from pensioners. Illinois is in a difficult situation because the voters… Read more »
When you stop advocating for more money for teachers, I might consider your proposal. But every time I see your comments about higher teacher salaries, I lose sympathy for unfunded pension liabilities.
Go ahead, point out that you have a contract that needs to be honored, except that teachers deserve more money. And again we have come full circle…
You just stated “put clear limitations on new funding for any initiatives until pension funding has been brought up to actuary required levels”. You already agreed that this would be your strategy. You have a serious problem using logic. This was your plan and I thanked you for your agreeing to stop being a deadbeat taxpayer. You advocate to fully funding pensions or you don’t and that “extra” money can be used for more in salaries. So which is it? I get it. You’re having a tough time knowing we both agree that pensions should be fully funded for the… Read more »
Maybe I wasn’t clear. There is no extra money. No new programs and no more increases to education. You can’t have your cake and eat it too. There is no reason for education to keep getting increases while taxpayers pay more to cover for past sins. Stop funneling more money to education, and direct it to pensions. If everyone agrees to that, maybe we can talk about tax increases. I’ll leave you in charge of convincing the unions that they must forego pay and benefit increases to pay for pensions.
Here are your choices. 1. Stay on the same pension funding road you’re currently traveling. Dems will use these fake budget surpluses for more spending initiatives and more money for education. 2. Demand that pension funds receive actuarial funding. This would put pressure on the budget to force real financial decisions and make it difficult for new spending without raising taxes. Voters would finally be forced to choose whether they want additional spending if they actually have to start paying. I won’t be convincing any union members as that’s not my job any more than it is yours. It’s also… Read more »
Hmm, I smell a former manager of Silicon Valley Bank…..
In a state that has a long history of financial blunders, passage of this bill would rank right up near the top. The obligation of a fiduciary is quite simple– do what is best for the returns for the beneficiaries. That’s it. I am still amazed that there are not more lawsuits pushing back against the erosion of the fiduciary obligation. I know suits like that are expensive, but the dollar amounts at stake are huge. Give this authority to Frerichs? Geez. How many Solyndras, SVB banks and other greeny sustainable sinkholes will he find? Look at the board makeup… Read more »
Just anoint someone with
no substantive knowledge of the area of responsibility. Get somebody good look’s too like Rachel Levine or the luggage thief. Hey, when’s the election without Lori on the ballot?
IL pension investors have consistently underperformed for the pensioners. Now they want to insure those poor returns. This state never fails to stick it to the residents.
“This state never fails to stick it to the residents.”
Well, to be fair, they are exceedingly good at it.
The Illinois teachers retirement fund has averaged over 9 percent returns for the last 40 years while they assume a 7 percent rate of return for planning purposes. Investment performance is not the problem. It’s caused by the state not paying its share every year. Illinois shorted the funds 4.4 billion last year alone. Pay your bills or they will start to pile up.
Illinois Teachers Retirement System (TRS) has been a Ponzi scheme (underfunded) for 84 years since its inception in 1939. TRS is severely underfunded (around 40% funded) for an extreme number of years (84 years). TRS is part of the Illinois Public Sector Defined Benefit State and Local Ponzi Scheme Pensions Paid First. There have been a ridiculous number of reckless legislative benefit hikes to TRS during those 84 years, many during Michael Madigan’s reign as House Speaker. The legislatures and Governors hiked benefits to a Ponzi scheme. The legislative process in Illinois is notoriously opaque and controlled by legislative leaders,… Read more »
Government nearly always works in strange and mysterious ways. The simplest direct explanation is that voters everywhere and in nearly every vote are heavily inclined to vote with self interest as their primary concern in life. To think that legislators act in ways superior to that of the common voter is naive. If they see a personal benefit to voting one way rather than another for a bill to become law or for one person to hold a particular position that’s very likely going to motivate how they vote. “Statesmanship” in politics is very, very rare. Ultimately, its human nature… Read more »
Ah, justification for the deception and concealment in the Illinois Public Sector Defined Benefit State and Local Ponzi Scheme Pensions Paid First.
Perhaps Michael Madigan’s lawyers will want to work that into their legal defense plan.
But, can you honestly say I’m wrong?
You are right that underperformance by the managers has not been the problem. Of course, I disagree with the rest.
Could you point out what I wrote that you disagree with? I wrote that the state is shorting the pension funds by 4.4 billion. Are you disagreeing with the amount? Are you disagreeing that the state is shorting pensions every year? I get you are looking for a way to take from pensioners but everything I wrote was fact. You claim that you are a moderate yet respond to my post to disagree with facts. Your other commenters post flat out lies (pensions are Ponzi schemes, union members are terrorist, pensions are illegal, etc) and you say nothing. How about… Read more »
Regarding what I disagree with, we’ve written a zillion times about the core problems being overly generous pensions, the outsized growth of promised benefits, faulty assumptions, bad accounting/actuarial work and much more. You already know our views on that so why repeat? In a sense, sure, you can say underfunding is the cause. That’s a truism. But it doesn’t get to the heart of why they have been underfunded even in good times and with Dems (public unions) in full power. As for our commenters, we can’t challenge the facts on all that is said here, just as I only… Read more »
PFF is whining because an anon calls the pension system a ponzi scheme? Just when you think PFF can’t get any more ridiculous, he bests himself again. He really is “extreme and outspoken”. Where will he go next?
And you’re not equally—or even maybe more—extreme, I’ll suppose. Oh, I know: you only “speak truth to power,” right?
Not whining at all. Mark asked me the question a week ago if I thought he was moderate or represented the far right. My point is that he tends to throw in with far right extremism by leaving those post going unchecked while pointing out that he disagrees with most of my comment that was filled with facts. I find that odd and asked Mark for clarification.
I know that ruins the echo chamber you so desire but get over it.
PPF, your question is merely: is Mark is moderate or a far right extremist?
As a retort, PFF, I have a question for you: When did you stop beating your wife?
So your contention is you disagree with other things I’ve said in the past but nothing from my comment above. Underfunding is the cause. That is a fact. You can claim they are too generous but that’s just an opinion. The only fact is based on what has been contractually promised, the state is underfunding them. I’m glad we can agree on basic facts. You also don’t disagree that pensions were actuarially underfunded by 4.4 billion last year alone. You also don’t disagree that not paying your bills leaves them to pile up. Basically, the crux of our disagreement is… Read more »
Legally, you are correct.
Politically, you are probably correct.
Mathematically, you live in fantasy land, because a $200,000,000,000 pension obligation cannot be actuarial satisfied no matter how much you raise taxes, increase contributions or reduce spending.
Debts that cannot be repaid, will not be repaid.
Mic drop. That day of reckoning may be years off, but only when the cancer completely devours the host, then will the cancer be cured.
That means it’s working
The constitutional pension guarantee created an obvious incentive for the only ones covered to siphon current funds from the public trough, knowing that the trough would be refilled for them in future- the public employees. And siphon they have, for decades. Pension sweeteners, pension pickups, taxpayer funded masters degrees (and salary increases) for first grade teachers who can’t seem to teach kids to read.
Your complaint about underfunding should be directed to your union, or look in the mirror.
“Your complaint about underfunding should be directed to your union, or look in the mirror.” Once again showing that you have no knowledge on the topic. Although that never stops you from commenting. Unions sued the state to demand that pensions would be funded appropriately. They were told by the courts that they have contractual rights to receive their monthly checks but no necessarily rights to a certain level of funding. You’re right that this has allowed government to fund more initiatives because of the fake balanced budget. I’m sure government employee salaries have even benefited from this arrangement. My… Read more »
“We tried to warn you that we were siphoning off all the pension money, but you didn’t fill our trough fast enough.” How admirable.
Therein lies your argument. Anything short of pensions being reduced makes unions greedy in your mind. Well they already reduced tier 2 pensions to the minimal level allowed. They are done giving. It’s now up to the rest of the taxpayers to pay more. You are going to have to get over the fact that tier 1 pensioners aren’t giving back what they are owed simply because you don’t want income tax rates to go up less than 1 point and you don’t want services taxed. Actually you don’t need to get over it. Keep complaining if you like but… Read more »
The obvious solution is to eliminate the clear moral hazard of a guaranteed pension. Since it seems that ship has sailed, put clear limitations on new funding for any initiatives until pension funding has been brought up to actuary required levels. And who will scream loudest about that proposal? The education unions, of course. Because they are the ones who have most benefited from allowing current taxes to be diverted to their goals. You seem determined that taxpayers should just accept that public unions have put them into a strait jacket from which there is no escape. That may be… Read more »
First, you complain that public pension-eligible workers didn’t notify the government and demand better pension funding levels, and you were told you were wrong and that the IL courts had decreed that such pensioners only had the rights to the timely and fully payment of their pension. But, they have no right to demand any particular level of money set aside to pay for it. Then, you decide to mock that response. Some would think you just love to agitate no matter what response had been given. You are “a piece of work.”
I made no complaint about unions failing to demand adequate pension funding. I made the point that public unions have every incentive to maximize their take from tax receipts, since their future take is guaranteed. They have agitated for more spending on education at every turn, and continue to do so despite the obvious massive pension debt. The guaranteed pension clause is akin to a guaranteed bailout, and encourages public unions to increase their current take, knowing that the trough will be refilled for them later. This is exactly what has happened- spending on education has soared, absorbing more and… Read more »
I repeatedly see commenters conflating the funding sources used for educators’ salaries versus those for their pension. Yes, they all come top from taxpayers but not the same set of taxpayers and not to the same extent. Educators’ salaries are mostly by local school district taxpayers except where special circumstances apply such as extreme poverty, schools having primarily dependents of military personnel. In the latter two cases state and/ or federal funding plays a larger role. Public school educators’ (other than those who work for CPS) pensions are funded primarily by a 3-legged stool: a deduction made with each such… Read more »
And in the end, as you note, the only source of funds are taxes paid by taxpayers. The same tax dollars cannot be used for two different purposes, so the money used for one purpose is necessarily money not used for another. Parse however you like, but the bottom line doesn’t change.
With this bill, there’s no point in having trustees. Take a look at the profile of the SURS board – professors, lawyers, investment bankers. Some politically appointed, others elected. Who thinks Michael Frerichs is smarter than this group? If I’m a pensioner, I’m pissed about the future performance of the fund under this bill.
In practice, pension staffs do most of that work, and they are generally very high quality professionals, and the trustees then vote on their proposals. But your point applies. Frerichs has none of that staff and none of that know-how.
Senate Bill 2152 will further weaken the public employee pensions of Illinois, which are already underfunded. Relieving the State Treasurer of fiduciary duties so he/she can pursue ESG investments rather than focusing on maximizing returns will result in a financial disaster.
Letting the patients of a mental ward run the ward.
Virtue signaling moralizing on somebody else’s dime….that’s key for the fake progressive left
It seems what constitutes an officially 100% pure ESG investment by state of Illinois or some other national standards is completely open ended at this point. The Illinois Sustainable Investing bill just seems like a very open ended bill that can be used by pols to proclaim, virtue signal, what NOT to invest in (fossil fuels) and NOT THE % of funds to be invested in some yet to be approved, by some standard, ESG funds ( stocks, bonds, etc). Maybe what’s next is for progressive in Ill or nationally to proclaim what investment are 100% ESG pure and then… Read more »
Ken Griffin is laughing hysterically.