Pension policy goes up in smoke

Washington County Commissioner Bracken Burns was fuming Thursday when it appeared that a ban on tobacco-related stocks in the county employees’ pension fund was about to go up in smoke.

Even after Burns read an eight-minute statement on tobacco-related mortality statistics and the high cost of illness from smoking, the retirement board voted 2-1 to lift a restriction excluding tobacco stocks from its employees’ pension portfolio.

“These people are actively in the business of addicting our young folks to a known carcinogen,” Burns said of tobacco companies after the meeting. “The link between tobacco and cancer death and the deleterious effect it has on our society is 100 percent clear.”

Burns said he quit smoking 40 years ago, but that wasn’t the reason he favored a continuation of a tobacco-stock ban he and then-members of the retirement board voted for 12 years ago.

The two votes to reverse the no-tobacco stocks policy were also those of nonsmokers: Commission Chairman Larry Maggi and Controller Michael Namie, who were not on the board in 1997.

While each said they had no quarrel with Burns’ statistics, Namie cited a report in June from Twin Capital Management that the county’s investment restrictions, “particularly the 5 percent initialization restriction on Exxon Mobil and the restriction on cheap tobacco holdings,” were responsible for about 30 percent underperformance.

The tobacco stock ban did not apply to the county’s mutual funds, so he voted in favor of lifting the ban as a housekeeping item.

“It’s about allowing them to choose companies that may have a holding in a tobacco-related business,” Maggi said. “We’re not telling them to go out and invest in a tobacco farm and grow tobacco.”

Washington County taxpayers this year contributed a record $2.4 million to shore up the employees’ pension fund. The county had no choice in the matter; it’s required by state law.

If the investment funds had performed even a little better, the amount of the taxpayer contribution to the $72 million pension fund would have been smaller, Maggi said.

Michael Shone, president of Peirce Park Group Investment Management Consultants of West Chester, said of the 42 entities his firm represents, Washington County was the only one that had a tobacco-stock ban.

Two members of the retirement board who supported the tobacco stock ban in 1997 were absent from Thursday’s meeting.

With two more negative votes, Burns would have prevailed, but Commissioner Diana Irey, reached Thursday afternoon, said, “I would have supported lifting the ban. In talking with other counties, no one else I knew had this in place. What other restrictions or activities do you apply? We opened up a Pandora’s box when we put this in place. It was hurting our investment, so I decided to bring it up for another review.”

Irey said she is primarily concerned about “what’s best for the taxpayer right now. Many taxpayer dollars are going into the pension fund. It’s being the best fiscal stewards of this plan. In better economic times, this wasn’t an issue.”

In May, Irey questioned Geoff Gerber of Twin Capital Management whether the plan would have performed better if the county did not have a tobacco restriction.

Washington County Treasurer Francis King, who missed his first retirement board meeting in 14 years because of a vacation, also would have voted with the majority.

“We have a fiduciary responsibility to invest in the best funds available to the county,” King said. He asked how many restrictions should be in place, and noted he had previously questioned whether the county’s investments included firms doing business in Iran.

“Nowadays, we’re into mutual funds. We have no control in how we invest our funds,” King said.

Meanwhile, Shone reported that Washington County’s pension investments performed in the top 8 percent of all public plans during the second quarter in an index he monitors.

“If the year ended right now, you’d be ahead by 4 percent,” Shone said. “That lowers your contribution.”


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