Remarks by OPERS Executive Director Chris DeRose to House Financial Institutions, Real Estate and Securities Committee on H.B. 151
May 10, 2007
Mr. Chairman and Members of the Council: My name is Chris DeRose. I am Executive Director of the Ohio Public Employees Retirement System. Our system has almost a million participants with over $80 billion invested to ensure they receive pensions and discretionary heath care benefits.
Thank you for the opportunity to provide our views on H.B. 151 as introduced. Before I provide my comments, let me indicate that we are in discussions with the sponsors of the bill, the Chair of the House Financial Institutions, Real Estate and Securities Committee and other committee members on potential changes to the bill. We are hopeful that we can come to an agreement which meets their intent to influence the leaders of Iran and our requirement to be good stewards (fiduciaries) of the pension and health benefits for our participants.
Since we are in discussions on changes in the bill, I thought today I would briefly provide a more philosophical discussion of our concerns. First let me say we are deeply concerned about the issue of terrorism in our world. We are working with the sponsors and others to find a way for Ohio to make a difference in this area.
Let me briefly discuss our role as fiduciaries of a pension trust fund. As fiduciaries, we are legally bound (by state law and federal (IRS)) law to act in the best interests of the members of our system. These fiduciary responsibilities come with two duties ~ the duty of loyalty to the participants and the duty of prudence as we administer the plan.
Our primary concerns about the bill as introduced fall into three areas.
First, the purpose of a pension system is not to influence foreign policy, it is to manage the trust fund to ensure pension and health benefits are paid. When I talk to groups around the state that is what the tough questioning is about. Are we ensuring the pension and health benefits will be there? We believe the federal government is the appropriate level of government to handle foreign policy for the United States. OPERS is in compliance with the requirements of federal law and is on record supporting the Office of Global Risk within the Division of Corporate Finance of the Securities and Exchange Commission (SEC). This office monitors whether the documents public companies file with the SEC include disclosure of material information regarding global security risk-related issues.
Second, we are concerned that an unintended consequence of the bill would be to mandate us to make investment decisions based on factors that may not be in the best interests of our members. This would violate the fiduciary duties of loyalty and prudence.
Finally, the cost of divestiture to the retirement system could be significant. Estimates of the costs fall into two categories: the transaction costs of selling the stocks and purchasing others in their place, and the future investment return that would be lost for not being invested particularly in what is called private equity.
If the goal is to combat terrorism through Ohio's pension systems, we would suggest the following alternatives:
Require the pension systems adhere to federal law as it relates to investments in entities doing business with Iran. This approach would be similar to that recently announced by the Treasurer of State for the funds they invest, or
Pass a resolution expressing the desire of the General Assembly to have the pension systems create terror-free investment policies or,
Pass a law that directs the retirement boards to create terror-free policies.
We believe these options may provide a better balance between the fiduciary responsibilities and investment expertise of the pension systems and the desire to combat terrorism.