L.A. Teachers Want Pension Fund to Dump Tobacco Stocks

The powerful Los Angeles teachers union has taken up a fight to end the investment of California teachers’ retirement funds in tobacco companies.

In the wake of a vote by its house of representatives, United Teachers-Los Angeles will urge the California State Teachers Retirement System to drop 19 tobacco companies from its portfolio of 3,000 American stocks. The vote last week was a victory for the union’s human rights committee, which last summer narrowly lost a vote to take up the divestment issue.

“How can we as teachers tell our kids not to smoke and to respect human rights when we as teachers are investing our own retirement moneys in these tobacco companies?” asked committee Chairwoman Karen Erlich.

The committee resubmitted the proposal after dropping a demand for divestment of Chevron Oil Co. stock over alleged illegal acts in Nigeria and after setting a timeline for action by the state retirement system.

The 41,000-member Los Angeles union has gone on record before in favor of divestment but got no reaction from the retirement system, said Gary Krane, treasurer of the committee. This time, however, the union will pursue legislation requiring divestment if the retirement system board does not take swift action.

Erlich said she will ask the California Teachers Assn., the statewide union, to adopt a similar position on divestment and to provide a grant for educating teachers on the issue.

“If CTA passes it, my next step is national,” Erlich said.

According to its latest report, the teachers’ retirement system, which has one of the largest institutional portfolios in the country, had about $432 million invested in tobacco-related companies as of June 30. The tobacco shares represent slightly more than 0.6% of the retirement system’s equity holdings.

Almost three-fourths of the tobacco investment is in 7.7 million shares of Philip Morris Cos.

Patrick Mitchell, chief investment officer for the retirement system, said any tobacco divestment would require that the board change its overall investment strategy. Most of the system’s domestic holdings are in passive investments, meaning they are linked to an index that tracks the nation’s 3,000 largest stocks, Mitchell said.

Dropping any specific stocks from the list could require a switch to active trading, which does not make sense for a fund of $46 billion invested in domestic stocks, he said.

“If we gave a manager $100 million to manage, we’d have 450 managers out trying to pick different stocks and add value, and we’d pretty much have the index anyway,” he said.

Another option would be to change the benchmark index to one that is tobacco-free, Mitchell said.