Teachers’ pension fund rethinks whether to light up again

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In politically correct society, teachers and cigarettes are a bad combo.

So the California State Teachers’ Retirement System should have known it would be courting brickbats by considering new investments in stocks of tobacco companies, after divesting itself of them in 2000.

The board of CalSTRS, as the pension fund is known, took up the question of tobacco-company investing at a meeting this afternoon, and then voted to continue the discussion later this year.

That was after the Sacramento Bee, in a story today, flagged the item on the board’s agenda, bringing an angry response from the American Lung Assn. of California and a more muted (but still negative) reaction from state Treasurer Bill Lockyer.

Tobacco stocks were ousted eight years ago from the portfolios of CalSTRS and from CalPERS, the California Public Employees’ Retirement System, under a policy that was only indirectly related to the horrors of lung cancer and emphysema: The issue was, would the companies be financially ruined by product-liability lawsuits?

They weren’t. Instead, an index of nine big tobacco stocks has racked up a 292% total return (price appreciation and dividends) since the end of 2000, compared with a mere 21% return for the Standard & Poor’s 500 index.

That would have meant some extra money for CalSTRS’ now $170-billion portfolio, and therefore a bit more retirement security for the state’s teachers. So the fund is reconsidering the tobacco-stock ban ‘based on fiduciary issues,’ spokeswoman Sherry Reser said.

Hooey, says the American Lung Assn. of California. Investing in the stocks would be ‘contrary to the state’s policy on reducing tobacco use,’ said Paul Knepprath, the association’s vice president of government relations. ‘There are other issues here besides the responsibility to make money for teachers’ retirement,’ he said.

Lockyer, too, took a swipe at the idea, saying he wanted more study as to whether ‘we can fulfill our legal duty to teachers without investing in products that kill.’

Anyway, the ban applies to CalSTRS’ passive (indexed) stock portfolio. It doesn’t apply to about $20 billion of stock investments that are actively managed for CalSTRS by outside money managers. They can, and some do, continue to own tobacco stocks for the fund, Reser said.

CalPERS, so far, says it isn’t considering a policy change on smokes stocks.