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GFOA of NJ Day at the Races

News & Press: Pension

State Pension Banned from Investing in Companies Boycotting Israel

Friday, August 19, 2016   (0 Comments)
Share | 08/19/16

New Jersey’s $72 billion public-employee pension system is now banned from investing in companies that boycott Israel to protest its treatment of Palestinians under a measure Gov. Chris Christie signed into law yesterday. But questions are already being raised about the constitutionality of the law and whether it could withstand a court challenge on free-speech grounds. The legislation seeking to establish the ban was passed with overwhelming bipartisan support by both houses of the state Legislature earlier this year in response to a movement known as BDS, which stands for Boycott, Divestment, and Sanction.

The new law requires the state Division of Investment, the agency within the Department of Treasury that manages the pension system’s assets on a daily basis, to shed within two years any stakes in companies that boycott “the goods, products, or businesses of Israel.” The law also calls for an annual report updating measures that DOI has taken to comply with the new prohibition. Similar bans are already in place to keep state pension-system assets from being invested in companies doing business with Iran and Sudan.

The investment ban’s Democratic sponsors offered similar comments after the bill-signing, pointing to the more than $1 billion in goods and services that are traded each year between New Jersey and Israel. “Israel has been a vibrant trading partner with New Jersey, and making sure that we are not investing in companies that seek to hurt its interests or those of its people sends a clear message that we will not stand for this kind of discrimination,” said Senate Majority Leader Loretta Weinberg (D-Bergen). “Our multibillion-dollar pension fund is a formidable disincentive for those considering boycotting Israel,” said Assembly Budget Committee Chairman Gary Schaer (D-Passaic).

It’s unclear exactly how the new ban will impact the overall pension system, which covers the retirement of an estimated 770,000 current and retired public workers in New Jersey but remains deep in debt due to years of underfunding. When asked earlier this year whether any current investments would run afoul of the legislation seeking to enact the ban, a spokesman for Treasury said he was not aware of any.

A fiscal note prepared earlier this summer by the nonpartisan state Office of Legislative Services said the state would likely have to spend some money to hire a firm to conduct the evaluation of companies that could be subject to the new ban. But the legislative analysts said it’s unclear whether the broader ban would help or hurt the health of the system given the imprecise nature of predicting future financial-market conditions. The analysts also said it may be impossible to fully prohibit such investments since outside managers of hedge funds and other alternative investments that the pension system currently owns often shield their investments from disclosure, citing the need to protect proprietary strategies.

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