Jewish groups turn up heat on defiant CalPERS: Nations largest public pension fund ignoring

Nearly three years after passing a tough Iran divestment law, the California Legislature — and the pro-Israel Jewish community — are still waiting for the state’s largest pension funds to comply.

Passed unanimously in 2007, AB 221 requires the California Public Employees’ Retirement System and the California State Teachers’ Retirement System to divest from companies that do business with Iran.

While CalSTRS has taken concrete steps to divest, CalPERS is defiantly failing to do so, says a lobbyist for the Sacramento-based Jewish Public Affairs Committee of California.

JPAC representative Cliff Berg describes CalPERS’ attitude as “arrogant and defiant to the Legislature. They resent the Legislature indicating priorities of how public monies should be invested.”

JPAC represents the interests of some 20 Jewish groups in California: community federations, community relations councils and other advocacy groups.

Joel Anderson

At a joint legislative hearing in Sacramento on Feb. 24, CalPERS Chief Investment Officer Joe Dear told lawmakers he identified those investments that meet the law’s criteria, but that his board of trustees concluded that “divestment, would conflict with [CalPERS’] constitutional mandate.”

With a portfolio valued at more than $200 billion, CalPERS is the largest public pension fund in the nation, providing retirement and health benefits to 1.6 million public employees and retirees. As of last year, the organization had investments with 23 companies doing business in Iran, among them Royal Dutch Shell, Brazil’s Petrobras and Russian energy giant Gazprom.

Dear’s testimony frustrated lawmakers at the hearing, with Sen. Lou Correa (D-Santa Ana) saying, “What do we need to do to make these companies understand we mean business?”

In a press statement issued after the February hearing, CalPERS claimed it could not divest from those companies, citing its “fiduciary responsibility to CalPERS’ members,” adding that divestment would “have a deleterious impact on investment performance.”

“They are wrong in how they interpret fiduciary duty,” Berg countered. “The rest of the world does not interpret it that way. In essence they say they don’t want the Legislature telling them what to do, and they’re opposed to notion of divestment.”

Federal law makes it illegal for U.S. companies to do direct business with Iran. AB 221, written by Assemblyman Joel Anderson (R-La Mesa), targets a number of foreign companies in the energy and defense sectors.

Berg pointed out that the state of Florida has divested from Iran. Last month California Insurance Commissioner Steve Poizner announced that 460 insurers agreed in writing to a moratorium on future investments in 50 companies identified by the California Department of Insurance as doing business with Iran.

If they can do it, why can’t CalPERS?

“They say there’s a risk and potential cost [in divesting},” Berg said. “It’s a circular argument constructed to avoid the law. The arrogance comes through, not only in doing business with companies invested in a country that is actively seeking to kill Americans and Israelis,  but [CalPERS] is adding stocks.”

Clark McKinley, an information officer with CalPERS’ public affairs department, said it’s premature to say that CalPERS will never divest, because it is “still in an engagement process with the companies.”

Moreover, he claimed that under the rules of AB 221,  CalPERS is permitted to “subordinate the law to the constitutional mandate of CalPERS to maximize investment returns. The board can decide not to divest if doing so would significantly undermine portfolio value.”

Berg disagreed, saying that California Attorney General Jerry Brown and many members of the Legislature are unhappy with CalPERS’ response.

In a February letter, Brown called on CalPERS and CalSTRS to honor the law, saying, “It’s time for our public  pension funds to show some leadership and stop supporting companies that do business with a tyrannical regime.”

He also wrote to both institutions requesting specific plans they have to comply.

Both funds have combed their investments to identify companies doing business with Iran. CalPERS officials have said engagement with those companies — persuading them to loosen ties with Iran — is the best long-term strategy.

One of those companies, Royal Dutch Shell, announced last month it has ceased supplying Iran with gasoline, though it has not pulled out of the country entirely.

“Engagement is fine,” said Berg, “but in CalPERS’ case it’s an excuse for doing nothing. The whole point is to put pressure on the Iranian government to cooperate with the U.N. [and] the United States and force them to not build a nuclear weapon in defiance of the entire world.”

Akiva Tor, Israel consul general in San Francisco, has been following developments and hopes the pension funds will get on board.

“Application of the divest-from-Iran law is in California’s economic self-interest as well as being the right thing to do,” he said. “We very much hope that the law will be applied.”

Currently, the two state pension funds, the Legislature, the attorney general and JPAC are strategizing their next moves. Whatever they might be, the pressure on CalPERS will not let up, according to Berg.

“We are working to determine what is appropriate follow-up to implement the law,” Berg said. “That could involve further oversight hearings, requiring the CalPERS board members to attend the hearings, or [asking] the appropriate enforcement agencies and investigative agencies to do additional work on this.”

Related: CalPERS must comply with Iran divestment law

Dan Pine

Dan Pine is J.'s news editor. He can be reached at