By Jeb Spaulding
Contrary to the implication of the April 4 Pensions & Investments editorial "Bullying tactics," the recent decision by the trustees of the Vermont State Teachers' Retirement System to consider the involvement of investment firms in efforts to promote privatization of Social Security during the manager selection and retention process was entirely appropriate, consistent with our fiduciary responsibilities and in the best interests of our members.
Returns for the Vermont teachers' pension fund have been in the top quintile of public pension funds over 10 years. We are proud of our fund's investment performance and intend to continue to work with the best performing managers available.
That doesn't mean we shouldn't let our managers and advisers know our position on important related issues likely to affect our members' well-being or the long-term performance of our investment portfolio. Following the logic of your editorial, one would think it a violation of fiduciary duty to provide clear proxy voting guidelines for our managers to ensure strong corporate governance. We know that is not true. Fiduciaries have a responsibility to have more than a laissez-faire relationship with our managers and advisers, as well as with the companies of which we are part owners. Good governance efforts pay real dividends. For example, a recent report by GovernanceMetrics International Inc., New York, demonstrated that the 34 companies that received the highest marks for corporate governance outperformed the Standard & Poor's 500 by 15.9 percentage points over the last five years.
You argue that we are muzzling the free expression of investment firms and preventing them from participating in the debate about Social Security private accounts. Say what? How about our right to participate in the debate? The fact is our pension plan is designed to provide a benefit that, in conjunction with Social Security and other savings, will make possible a secure retirement for our members. To the extent we believe one of the legs of the retirement security stool for our members will be weakened, we do have a legitimate interest in the debate and our members' interests at heart.
The reality is that a large and increasing number of Americans, even with Social Security and whatever pension plan they are lucky enough to have, will not achieve retirement security. Now, that is a crisis. Instead of diverting money from Social Security into private accounts, policy-makers should focus on ways to shore up Social Security's finances and to encourage more savings as a complement to this highly successful program. Keep in mind, almost all parties acknowledge that revising Social Security with private accounts will make the process of bringing revenue and expenditures into long-term balance more difficult, not to mention the negative effect it will have on a more immediate crisis — our already swollen federal deficit.
Investors need not choose between optimum investment performance and involved ownership. We can have both. In practice, by the time a well-run manager search gets down to the finalists, the firms are all extremely good at what they do. While I would never recommend hiring or firing a firm based solely on its position on something like privatizing Social Security, if all else were equal, why wouldn't we consider their involvement in an effort we believe will undermine retirement security for the members and beneficiaries of our retirement plan?
I am proud that the Vermont State Teachers' Retirement System board of trustees will attempt to select and retain firms that do not engage in activities detrimental to our members, while not breaching our fiduciary responsibility to earn the highest return possible consistent with the safety of the funds.
Jeb Spaulding is the state treasurer of Vermont, Montpelier. As state treasurer, he is a member of the board of trustees of the Vermont State Teachers' Retirement System, as well as the Vermont State Employees' Retirement System and the Vermont Municipal Employees' Retirement System.