City Pension Plans: Can
They Do Good and Do Well?

New York City's pension funds, the 15th largest in the world, recently expressed concern about the human rights record and national security threat of Iran by selling their $11 million of stock in Oil and Natural Gas Limited and PetroChina, companies that do business there. But the funds still hold hundreds of millions of dollars of stock linked to another human rights pariah, Sudan. The pension funds have asked many of the companies they invest in to reduce their carbon footprint – yet their largest single investment, worth more than half a billion dollars, is in the fossil fuel giant Exxon Mobil. And the funds have demanded the right to exit real estate deals deemed harmful to low-income tenants, but are still a part owner of Wal-Mart, a company widely assailed for its treatment of low-income workers.
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These are a few of the choices made by the city's five retirement accounts since 2002 under Comptroller William Thompson, whose stewardship of the pension funds' $86 billion in assets is in the spotlight as he runs for mayor.

The chief function of the five funds—the New York City Employees’ Retirement System (NYCERS), the Teachers’ Retirement System for the City of New York (TRS), the New York City Police Pension Fund, the New York City Fire Department Fund and the New York City Board of Education Retirement System (BERS)—is to turn a profit in order to pay benefits to city retirees without dipping into tax revenues.

But for at least two decades, the pension funds also have played a second role, that of a powerful tool for getting the marketplace to pay attention to the city's social agenda.

Striking the right balance between those two goals is one of the jobs Thompson has faced since taking office in 2002, and a high-profile task awaiting whoever wins the race to succeed him.
        
Effecting change, vote by vote

Buying stock isn't just about turning a profit for some investors. In the 1980s, as interest in investment expanded to less-affluent Americans, several “socially responsible investment” mutual funds began offering people a way to invest only in stocks that met certain moral and ethical criteria. For example, one of the funds offered today by Domini Social Investments avoids companies that specialize in "tobacco products, alcoholic beverages, or gambling equipment" and steers away from firms that "have a significant direct ownership share in, or operate, nuclear power plants, or are major military weapons manufacturers."

Those funds often appeal to individuals trying to find a place to park their 401(k) or Individual Retirement Account. But public pension funds like New York’s retirement accounts have a lot more money to invest than an individual investor, and therefore more power to wield. Beginning with the movement to end apartheid in South Africa, the city's pension funds—and other pension powers, like the California Public Employees Retirement System, CalPERS—have used their financial heft to try to change behavior in foreign countries, in the companies where they hold stock, and in the local marketplace.

In New York, that muscle-flexing has taken many forms. When the target was South Africa, it meant divestment—the city's pension funds actually selling their stock in companies that operated in that country. In the case of tobacco stocks, the city continued to hold shares, but beginning in 1998, limited its holdings. But for the most part the city's funds, which claim some 693,000 active and retired members, have sought change not by selling or limiting stock but by holding it, and using that ownership stake to lobby companies to change. The funds have submitted hundreds of shareholder resolutions to dozens of corporations, asking boards of directors to approve – or other stockholders to endorse – changes in the firms' labor, environmental and other policies.