Kevin LaCroix reports that:
On June 2, 2023, an American Airlines pilot filed an ERISA class action lawsuit in the Northern District of Texas against American Airlines; the American Airlines Employee Benefits Committee; the company’s benefits plan administrator; and the company’s benefits plan advisor. The lawsuit purports to be filed on behalf of participants in the company’s employee benefits plan. A copy of the complaint can be found here.
The gist of the complaint is that the defendants “breached their fiduciary duties in violation of ERISA by investing millions of dollars of American Airlines employees’ retirement savings with investment managers and investment funds that pursue leftist political agendas through environmental, social and governance (‘ESG’) strategies, proxy voting, and shareholder activism—activities which fail to satisfy these fiduciaries’ statutory duties to maximize financial benefits in the sole interest of the Plan participants.” ...
He also reports that a similar lawsuit is pending against Delta.
Which leads me to a point of personal privilege. By virtue of my job I am obliged to participate in the University of California Retirement Plan. In pension plan terms, the rules under which my pension operates is an involuntary defined benefit plan. I cannot opt out and I have zero control over how my money is invested.
So what is UCRP doing with my money? UCRP's investment policy states that:
The Office of the Chief Investment Officer (“OCIO”) shall incorporate environmental sustainability, social responsibility, and governance (ESG) into the investment evaluation process as part of its overall risk assessment in its investments decision making. ESG factors are considered with the same weight as other material risk factors influencing investment decision making.
The policy statement further states that the plan must not hold tobacco stocks. UCRP is also in the process of divesting from fossil fuel companies.
So the answer to the question, "what is UCRP doing with my pension plan," is going big on ESG.
Not only is the basic UCRP pension plan gone whole hog on ESG, but so have the voluntary 403(b) retirement saving plan options. Almost all of the choices are fossil fuel free because they are subject to the UCRP's ESG investment policies.
Eli Lehrer and Robert Eccles recently argued that employers should offer employees a choice between ESG and non-ESG funds. Specifically, they argue for legislation ensuring that "state employees in defined contribution plans can select non-ESG options."
Laws passed in decidedly red North Dakota and Idaho offer good models in this regard. North Dakota’s law defines “social investment” as “consideration of socially responsible criteria…for the purpose of obtaining an effect other than a maximized return” and requires the State Investment Board to “demonstrate a social investment would provide an equivalent or superior rate of return compared to a similar investment that is not a social investment and has a similar time horizon and risk” before making it. The Idaho law contains language with similar effect and allows that state-defined contribution plans offer employees socially-oriented investment funds only so long as they offer alternatives as well. Both policies are worthy of emulation.
I don't expect a deep blue state like California to consider mandating that state pensions offer non-ESG alternatives, especially with virtue signaller in chief Gavin Newsom as governor, but maybe we can get there by litigation? I understand that state university pension plans are exempt from ERISA. But surely a conservative public interest law firm could come up with a theory that relies on other fiduciary duty theories.
