Retirement Fund Told to Sever S. Africa Links

Director William Paparian is calling for the sale of all investments made by the fire and police retirement fund in companies that do business with South Africa.

The city adopted a policy two years ago for its investments that prohibited financial involvement with companies that have investments in the white-minority-ruled country.

But the $33.5-million retirement fund is governed by an independent city board, which decided at the time not to follow the city Board of Directors’ lead.

Paparian, who is the directors’ representative on the five-member board, raised the issue Monday, saying the directors set a clear policy that should have been followed.

“It may involve some cost, but that is the price we will have to pay,” he said. “It must be done and it will be done.”

But officials from Lehman Management Co. Inc., which manages the retirement fund, said selling the targeted stock could have a serious effect on the troubled retirement fund.

A preliminary city estimate indicates the investments in question amount to as much as $7.6 million in stocks, or 23% of the fund’s holdings.

Even if the company could find new investments, the fund would lose some money because of the commissions involved in transferring thousands of shares.

Another concern is how the retirement board would determine which companies are not connected to South Africa.

David M. Davis, vice chairman of the retirement board, said that because of the complex structure of large companies it is difficult to tell which have holdings in South Africa.

“The problem with doing this is that there are companies that are going to qualify because of the shell game they play,” he said.

The city’s policy on South African investments came two years ago on the prodding of the Pasadena chapter of the National Assn. for the Advancement of Colored People.

Implementing the policy was relatively simple for the city because it had no stock investments, according to Mary Bradley, city finance director.

State law allows cities to make only low-risk investments in such areas as government securities and municipal bonds. The state prohibits investments in stocks and corporate bonds, which are considered riskier.

Stop Business With Banks

The main impact of the policy was to force the city to stop doing business with banks and investment houses that were involved with South Africa, Bradley said.

Divestiture would be more difficult for the retirement fund, which has roughly half of its holdings in stocks.

High returns are critical for the fund because of its longstanding financial problems.

The problems were created in 1969 when voters approved an unlimited cost-of-living increase for retirees, linking their benefits to the consumer price index. Before that, benefits could rise a maximum of 2% a year.

The result was that the fund fell behind on what it needs to cover projected expenses.

Analysts say that earnings from the $33.5-million fund will fall far short of the $781 million it will eventually pay in benefits before the system is closed. The city estimates that it will be 80 years before the last beneficiary of the fund dies. The fund has been closed to new members since 1977.

Paparian said he believed the fund could divest with little loss by selling its stocks in companies that do business with South Africa and increasing its current holdings in companies that do not.

Impact of Selling Stock

The retirement board has asked the Finance Department and Lehman Management to report at the board’s meeting next month on ways to divest and the impact of selling the stock.

If the board refuses to adopt a divestiture policy, Paparian said he is willing to take the issue to the Board of Directors.

It is unclear whether the directors have the power to force the retirement board to act.

But Paparian said the directors could remove three members of the retirement board. The other two members of the retirement board are representatives of the police and fire departments.

“Its a five-member board, and three members are directly responsible to the Board of Directors,” Paparian said. “They are obligated to follow the board’s policies.”