Divestment of Pension Funds (S.42) - April 16, 2024

Tom Golonka (Chair, Vermont Pension Investment Commission (VPIC)) thanked the House Government Operations Committee on Tuesday for listening to VPIC and the pension boards.  He noted that what they do is a tremendous obligation, and they take it very seriously, including the climate change problem. There is a 5-point plan that VPIC did which is on their website which he encouraged the Committee to read.

Golonka cautioned that the decisions of the Legislature do have an impact on the underfunding of the pension funds.  As an example, in 1970 the Legislature underfunded the pensions by $1M which today would be valued at $150M.  He reiterated that seemingly little changes matter and impact the funding status of the pension plans.

Currently we have an ROI of 7% and VPIC is working hard to keep it at that level. Act 75 gave VPIC authority to raise or lower that estimated rate of return, which is a tremendous responsibility. S.42 would force them to revisit the 7% projection as the private markets in the top tier would probably cut us off. 

He further warned that VPIC does not have the staff to meet the mandate to divest without an increase in staff and funding. “It’s difficult to imagine how we would track the 200+ companies on the list” that needed to be divested from, he stated. Doing this work would also distract them from getting the best returns for employees.

The next person to speak was Chris Dube (Chair, Vermont Municipal Employees Retirement System). He noted that this is not “state money” – it is employer/employee money.  He commented on the responsible managing that VPIC has done. He was concerned that if we “pull out of these funds we wouldn’t have a say at the table,” and we would experience a shortfall which in turn would have an “impact on our members.”

Jon Harris (Chair, Vermont State Teachers Retirement System) said he supports the current investment portfolio and the work VPIC is doing around climate action. He is opposed to S.42 because of the restrictions placed on VPIC investment capabilities. He believed that VPIC is proactive and has been doing a “great job” on fossil fuel and when you fully divest you lose your vote (the way we did when the state divested from Tobacco).  He called on the Legislature not to pass this bill, but instead to “work with VPIC.”

Eric David (Vice President, Vermont State Employees Retirement System Board) reviewed his extensive background in the natural science and environmental science as well as years involved with the Pension Task Force and the pension funds. He presented information about how underperforming public markets could be a real risk when participating in private markets.  He also noted that the manager selection and access to opportunities is essential to mitigating performance risk. He noted that private equity in a portfolio may increase expected annual returns by 0.4 to 0.6 percent on average. As VPIC had pointed out earlier, divestment would likely prohibit the funds from portfolio investments with private funds.

Jeff Fannon (Executive Director, Vermont National Education Association (VNEA)) noted that the VNEA has concerns about S.42.  His Board does want socially responsible investments but does not want the Legislature making decisions based on the “political winds.” They think the folks who do this for a living (VPIC) should continue to do what they do.

There were several letters submitted to the Committee regarding S.42.  One of those letters was from Eric Henry (Chief Investment Officer, VPIC). His letter highlighted the following:

  1. 42 will restrict access to top-tier private market investment opportunities that have historically provided over 1,000 basis points of excess return over public markets.
  2. The 2.5% de minimus exemption is large enough to prohibit any immediate forced divestment but would limit future investment opportunities in the energy transition if successful companies prosper.
  3. Enactment of S.42 would increase VPIC staffing, technology, and custody costs to the tune of $1.5M per year.
  4. VPIC’s view is that they cannot successfully engage with companies and divest of them at the same time.

A little later in the day the Committee, after listening to all the testimony and reading letters submitted in writing, had a discussion about S.42.  They all agreed that there are significant challenges within the bill.  They heard significant (and powerful) testimony from people within the state. Representative Morgan noted that everyone they heard from that day was opposed to the bill.  He said he believed the Committee needs to back off the bill. Other members spoke and all agreed they needed to slow down. 

Some of the Committee members said they were somewhat supportive of the effort to remove fossil fuels, even in small increments.  It’s worth a try but also realized that being at the table was important and could be impactful.

After considerable discussion the Chairman McCarthy stated that “what we do in Vermont makes a difference.” There is an urgency which keeps growing and we keep slow-walking the (climate) issue. He believes the legacy we are leaving to the next generation is not something he was proud of.


He noted that consensus has “not come to fruition,” and he encouraged stakeholders to come forward with ideas. He admitted that S.42 would not get them there.











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