Divesting pension investments in Russia you didn't know you had.
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Imagine a conversation like this:
“Are you upset about what’s going on in the Ukraine.?”
“Don’t just complain. Take your retirement savings out of Russia. Boycott vodka or something.”
“Uh. I don’t drink vodka and I’d rather you keep my retirement savings out of it.”
“Hah. Jokes on you. We haven’t told you, but we took your retirement savings and invested a ton of it in Russia and other places you don’t know about. And now we’re divesting at a huge financial loss.”
If you live in Illinois and are a retired teacher like me, you may have been surprised when Governor JP Pritzker announced he wanted the pension systems to divest from Russian investments .
Investments in Russia? How much are our pension systems invested in Russia and what will this cost me?
“We won’ tell you,” says those who control our retirement savings.
Edward Siedle, pension forensics expert, wrote in Forbes:
Across the nation politicians are naïvely calling for state pensions to dump their Russian investments to punish the country for its invasion of Ukraine. Since state pensions have in recent years agreed to let Wall Street fund managers keep secret their investment holdings, states don’t even know the Russian assets they hold.
Yesterday, state Attorney General Dave Yost publicly called upon Ohio’s five public employee retirement funds to divest themselves of Russian financial holdings to further punish the country over its invasion of Ukraine. Yost naively directed the five state funds to identify Russian equities and divest as quickly as possible.
Good luck with that.
Also yesterday, Rhode Island General Treasurer Seth Magaziner and the State Investment Commission voted to pull state pension assets from Russia. Magaziner's office claims the market value of its Russian investments prior to the invasion was no more than $30 million. Don’t count on it. Magaziner is almost certainly not including Russian assets held in secretive private funds offshore.
I’ve written before about the problems of the lack of investment transparency in public pension investments and the slippery slope of those who want to use our retirement savings for their own political agendas.
For example, Illinois legislators and Chicago City Council members caved to the pro-Israel lobby to remove Illinois and Chicago pension investments in British-based Unilever which owns the ice cream company Ben and Jerry’s because Ben and Jerry’s refuses to sell its product in the Israeli occupied territory of Palestine.
“The teachers were pissed! That’s money that could have gone to their cost-of-living adjustments. And for some pensions, the Russian holdings could be a significant amount.”
A key problem, Siedle argued, is that the boards of pension plans are typically filled with laymen with insignificant financial expertise, like municipal leaders and retired public employees. They are also not governed by the Employee Retirement Income Security Act of 1974, the main federal body of regulations over private pensions. As a consequence, the systems are viewed by Wall Street intermediaries like hedge funds as “the dumbest investors out there,” he said.
Even amid a wave of divestment from Russian industry, it may be difficult for teachers’ pension funds to distance themselves. For one thing, Aldeman noted, they could face “lock up fees” from their managers for canceling their investments early; those might come on top of financial losses from selling assets whose market value is plummeting.
Beyond that, Siedle has argued, lower transparency requirements outside ERISA will mean that pension funds may find it difficult to even identify where their money is invested. In other words, not only are teachers unaware of the scope of their exposure to the Russian economy, but so are the pension systems themselves.
“There’s no accountability. Who’s even going to tell them? The money manager would have to honestly tell the pension fund, and then the pension fund would have to honestly tell the public. The chances of that happening are slim to none.”