Ann Arbor Considers Cutting Lucrative Fossil Fuel Stocks From Underfunded Pension Plan

The Ann Arbor City Council is considering divesting its city retirees’ pension fund from investments involving fossil fuel companies in an effort to combat "global warming." 

But the city could be urging its pension board to pull out from lucrative stocks at a time when the system is already underfunded. The city’s Employees’ Retirement System has its own board and it would make the final decision.

A recent study showed that oil and natural gas stocks have been among the most lucrative nationwide for many public pension funds. Financial experts warn against limiting investments (or excluding certain categories) if investors want to maximize returns.

Ann Arbor’s own pension report states that the retirement system is underfunded and may be in need of increased contributions from the city.

According to the city’s retirement system 2012 report, which is the most recently released by the city, the retirement system is funded at 82.7 percent. Without “significant investment gains,” the report says the city will need to increase its contributions to the retirement system. In 2012, contributions were $12.7 million, according to the report.

Ann Arbor City Council Member Stephen Kunselman said the resolution has been postponed so they could get more information. Kunselman said he wants to know more about what divesting from fossil fuel stocks would have on the fiduciary responsibilities of the city’s pension board.

Carlton Carroll, spokesman for The American Petroleum Institute, said oil and natural gas stocks have been great investments for municipality pension funds.

“It does a disservice to our nation’s pursuit of long-term energy security and to the thousands of families that rely on the substantial investment returns provided to state and local governments by the oil and natural gas industry,” Carroll said in an email. “The oil and natural gas industry has been one of the few bright spots in our economic recovery and how the energy revolution taking place in America can create millions of new American jobs and trillions of dollars of revenue for the government at a time when we need it most.”

A 2011 study found that oil and natural gas stocks provided seven times the returns per-dollar-invested as the other fund investments when looking at the five largest public employee pension funds in 17 states. 

The analysis was done by Sonecon, an advisory firm that does economic studies. The company says it has provided analyses for Bill Clinton, Al Gore, Hillary Clinton, Barack Obama and numerous senior officials for the Obama administration.

“The development of oil and natural gas in America has done more to create jobs and generate revenue than any other industry during these difficult economic times,” Carroll said. “State pension fund investments in oil and natural gas companies are providing strong returns for teachers, firefighters, police officers, and other public pension retirees, according to a Sonecon study.”

According to an article posted at MLive, the city of Ann Arbor’s Energy Commission urged the council to divest from the top 200 publicly traded fossil fuel companies.

Ann Arbor Mayor John Hieftje and Nancy Walker, executive director of the City of Ann Arbor Employees’ Retirement System, didn’t respond to requests for comment.