NH Pension Board Opts for Divestment Law Constitutional Challenge

September 12, 2008 (PLANSPONSOR.com) - Shortly after threatening to sue to block a new state Sudan divestment law, New Hampshire state pension officials have decided to seek a court ruling about whether the law is even constitutional.

An Associated Press news report said the New Hampshire Retirement System (NHRS) board voted unanimously this week to ask the state Supreme Court if the Legislature has the legal authority to order it to divest of holdings related to the Sudan.

The issue is whether such a policy could be implemented in light of a state constitutional provision mandating the plans to make investment decisions “for the exclusive purpose” of benefiting current and future retirees and retirement funds and that such investments “shall not be encumbered for, or diverted to, any other purposes.”

“A broad reading of Article 36-a, Part I of the constitution could lead one to believe that investment of NHRS’s assets is the sole purview of the trustees and the Legislature cannot dictate to the trustees in what they can or cannot invest,” advised Gregory Needles of Morgan, Lewis & Brockius in Washington, D.C, the news report said.

Debra Douglas, chairwoman of the board’s investment committee, said the system would have to pay transaction costs to divest. Some of the $6 billion of the fund’s investments are in index funds, which means Sudanese-related investments could not be sold off individually. “[The law] is putting us in a difficult position,” she told the Associated Press.

The costs would continue if the pension system had to buy and sell funds to comply with the law going forward, and annual transaction costs could run $250,000 per year, she said.

The state plan board could potentially team with the New Hampshire Judicial Retirement Plan board on the divestment issue.

The pension board previously explored suing over the divestment law.  (See NH Funds Consider Suing Governor over Sudan Divestment Mandate ).