Massachusetts Pension Plan Urged to Invest in School Loans
According to journalist Casey Ross, Massachusetts Governor Deval Patrick is asking the state retirement system to allocate $50 million to the student loan business by buying about to be issued MEFA bonds. According to their website, the Massachusetts Educational Financing Authority ("MEFA") regrets that it is "unable to secure funding due to increasingly difficult capital market conditions." Harvard University and local colleges are likewise encouraged to do their fair share. (Read "A late try to salvage student loans" by Casey Ross, Boston Globe, August 7, 2008.)
Even if one accepts the premise that granting school loans is a good thing, the issue remains. Should state executives mandate investment policy? The student loan organization cites a low default rate of less than one percent, asserting that the $51+ billion pension plan can thereby avail itself of a relatively safe investment.
Here's the rub. The state pension trustees have a fiduciary duty to make sure that the plan is in good financial shape. Will statutory investing put those fiduciaries at risk for allegations of breach in the event that MEFA bonds sour or perhaps offer a sub-optimal return?
A pension plan is a “trust” that is created to benefit the plan participants (in this case state workers). Legal counsel is likely to confirm that those in charge of the plan should be acting solely in the best interest of the plan participants (duty of loyalty). Additionally, are trustees deemed truly independent if they make a decision that is tied to political exigencies? Unless school loans can be assessed as a suitable investment for the pension plan (and maybe they can), one wonders if trustees "do good" for Massachusetts youth at the expense of retirees.
