Texas Fund Divestiture Policy Includes Caveat

December 17, 2007 (PLANSPONSOR.com) - Texas Teacher Retirement System trustees have approved a Iran/Sudan-linked divestiture policy that calls for dropping investments only if "comparable investments offering similar quality, return and safety are available."

The Austin American-Statesman reports that, by a 7-1 vote, trustees approved the policy that could require the pension fund to sell shares in companies doing business in Iran and Sudan. The policy says companies are subject to divestment if they have invested more than $20 million in Iran’s oil industry in any year since August 5, 1996, according to the news report.

The system will first identify companies that do business in either county and ask the companies to stop operations. If they refuse, the fund will sell its holdings in the companies only if comparable investments are available. The definition of comparable investments will be determined by trustees and investment staff.

Ronnie Jung, executive director of the Teacher Retirement System, told the American-Statesman the provision is intended to protect the pension fund from losses and allow trustees to fulfill their duty of running the fund for the benefit of members. The fund holds $951 million in Iran-linked companies, all in the energy sector.

Pressure from the governor and state lawmakers led to adoption of the policy. Earlier this year, Governor Rick Perry signed legislation that requires the funds to sell shares of companies that do business in Sudan (See Texas House Approves Sudan Divestment Bill).

David Mattax, chief of the attorney general’s financial litigation division, in testimony to the state House before it approved the legislation, argued initiatives such as requiring public funds to sell off investments connected to Sudan-linked companies would violate the requirement that pension administrators’ actions must be for the workers’ and retirees’ benefit (See TX State Lawyer: Divestment Bills are Unconstitutional ).