Bill May Require Pension Funds to Divest if Iran Involved

By Harrison Sheppard, Medianews Edianews Sacremento Bureau

September 25, 2007

Gov. Arnold Schwarzenegger said Monday he intends to sign a bill requiring the state's pension funds to divest from companies that do business with the energy and defense sectors of Iran.

Estimates vary on how much money the state funds have invested in companies that do business with Iran, but it could run as high as $24 billion. Divesting that much stock could cost more than $120 million in taxes, commissions and other expenses.

The state's two major pension funds have vigorously opposed the bill, arguing that it runs counter to their constitutionally mandated financial responsibility to state employees and government agencies.

But Schwarzenegger said the state should take a stand against terrorism by exerting the financial influence of the nation's two largest public pension funds — the California Public Employees' Retirement System and the California State Teachers' Retirement System.

"California has a long history of leadership and doing what's right with our investment portfolio," Schwarzenegger said in a written statement. "Last year, I was proud to sign legislation to divest from the Sudan to take a powerful stand against genocide. I look forward to signing legislation to divest from Iran to take an equally powerful stand against terrorism."

Schwarzenegger was in New York on Monday speaking to the United Nations about global warming.

Coincidentally, Iranian President Mahmoud Ahmadinejad is also in New York this week to address the U.N.

But the funds' boards fear the bill could prevent them from making the best investments in the financial interest of state employees and government agencies.

CalPERS spokesman Clark McKinley added the agency believes it can be more effective in convincing corporations to change their policies by exerting influence as a major stockholder, rather than giving up that leverage by divesting from those companies.

"We prefer engagement over divestment," McKinley said. "We engage with companies to get them to change their practices. Once we sell our stock, we no longer have leverage with the company, so we've lost our voice essentially."

The divestments could potentially lower the state's long-term return on investment in its pension funds, meaning state taxpayers might have to contribute more through the state general fund, according to analyses by staff at the funds. If the bill had been in place over the last five years, Cal PERS estimates it would have reduced investment returns by at least $725 million.

In the past, state pension funds have been required to divest from South Africa in the 1980s; and the Sudan in a bill that took effect this year; and CalPERS on its own decided to divest from tobacco companies because of the financial risk.

Rabbi Abraham Cooper, associate dean of the Simon Wiesenthal Center, said he hopes California's actions will influence other states and nations to take similar steps.

"If this kind of activity catches on, that is going to make them (the leaders of Iran) sit up and take notice and say maybe we have to change our behavior a little bit," Cooper said.

The divestment legislation is Assembly Bill 221, by Assemblyman Joel Anderson, R-El Cajon.

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