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Public pension boards are sacrificing pensioners for politics

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by Jay Rogers, opinion contributor - 05/20/26 7:30 AM ET

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by Jay Rogers, opinion contributor - 05/20/26 7:30 AM ET

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In my work as an expert witness in fiduciary and securities matters, I have watched the same pattern repeat across dozens of board rooms: A pension fund trustee invokes “long-term value” to justify a so-called “Environment Social Governance” or ESG investment mandate. There, the conversation about financial performance ends.

The beneficiaries’ interest — the sole interest the trustee is legally required to serve — has been quietly subordinated to a broader political agenda. The public workers whose retirement security depends on these decisions have no effective mechanism to hold anyone accountable when it goes wrong. That is the accountability gap at the center of public pension governance. It is not a partisan problem. It is a structural one.

The fiduciary law governing public pension funds is explicit. California’s Government Code requires CalPERS trustees to act “for the exclusive benefit of the members and beneficiaries of the system.” Federal law governing private pensions under ERISA uses identical language: “exclusive purpose of providing benefits to participants and their beneficiaries.”

The common word is “exclusive” — not even just “primary,” and certainly not “subject to other social objectives the board finds compelling.” The common law rule against using trust assets to benefit third parties at the expense of the beneficiaries is not a new legal theory. It is the foundational principle of trust law, developed over centuries specifically because beneficiaries typically cannot closely monitor or constrain trustees managing assets on their behalf.

CalPERS, the nation’s largest public pension fund, committed $468 million to a clean energy private equity fund in 2007. By March 2025, combined distributions and remaining value had declined to approximately $138 million, a loss greater than 71 percent. The S&P 500 returned well above 300 percent over the same period. The fund’s managers collected at least $22 million in fees, but CalPERS declined The Center Square’s public records request for the management contracts. That also means the two million public employees whose retirement security depends on this fund cannot find out on what terms their money was managed.

CalPERS has since committed $5 billion to a custom climate-transition equity index and installed a Chief DEI Officer. Meanwhile, its 20-year annualized return of 6.7 percent trails its own 6.8 percent discount rate — the annual return assumption that determines how much the fund needs to cover future obligations. The fund’s reported unfunded liability now stands at $178.6 billion.

The structural feature that insulates the trustees from accountability is equally worth examining. In 2023, participants in the New York City Retirement System sued three municipal pension funds over a $4 billion fossil fuel divestment. The court dismissed the case in 2024 on grounds of standing. Defined-benefit participants, the reasoning went, cannot demonstrate concrete injury when taxpayers backstop their benefits regardless of investment returns. And the taxpayers who must cover any shortfall generally lack standing to challenge the investment decisions of a trust they do not control. The substantive question, whether politically motivated investment decisions breach the exclusive-benefit rule, was never reached on the merits in that case.

The conservative legislative response in Texas and elsewhere has, in practice, compounded the problem. Texas’s Senate Bill 13 mandated divestment from managers deemed to be boycotting fossil fuel producers. An assessment estimated it could cost more than $6 billion in lost returns over ten years. A federal court permanently enjoined the law in February 2026 for impermissibly targeting speakers based on their viewpoints. Courts have struck down similar measures in Missouri and Oklahoma.

More to the point, replacing one form of politically mandated investment restriction with another is not fiduciary reform. Both parties have now demonstrated the capacity to use pension fund assets as instruments of policy. The beneficiaries are the ones paying for it.

Genuine reform is not ideological but procedural. Mandatory return attribution — a requirement that every public pension’s annual report to include an independent analysis of what ESG mandates cost against a passive benchmark — would make the governance conversation concrete.

Independent fiduciary review of any investment policy constraint with a