Indiana Anti-ESG Bill Could Cost State Pensions $6.7 Billion Over 10 Years

Bill aimed at protecting pensions’ financial interest may instead box them out of lucrative private markets.


A bill working its way through the Indiana legislature that purportedly aims to ensure fiduciaries act solely in the financial interest of public pensions, is not exactly in the pensions’ best financial interest, according to a government analysis.

In fact, the bill could cause the state’s retirement system to miss out on nearly $7 billion in investment returns over the next 10 years, according to the Indiana Legislative Services Agency. The LSA is the legislative service agency of the Indiana general assembly that handles all fiscal analysis and research.

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Indiana House Bill 1008, which was introduced last month by Republican Rep. Ethan Manning, requires the state’s public retirement system to divest from and stop doing business with companies or funds that use environmental, social, and non-governance factors in their investment decisions.

The bill is intended to provide that “a fiduciary, in making and supervising investments of a reserve fund of the public pension system shall discharge the fiduciary’s duties solely in the financial interest of the participants and beneficiaries of the public pension system.”

However, an analysis by the LSA said the bill could result in reduced aggregated investment returns of $6.4 billion for the state’s public defined benefit plans and $300 million for its defined contribution funds over the next decade, citing an estimate by the Indiana Public Retirement System.

The LSA said that large decreases in investment earnings would result in increased unfunded liability in the defined benefit funds, requiring a “significant increase” in employer contributions and state fund appropriations to compensate for lower investment returns.

“If the expectation of lower investment returns leads the INPRS board to reduce the expected target rate of return for defined benefit funds (currently 6.25%), employer contribution rates for the defined benefit funds managed by INPRS would likely increase beginning in FY 2025,” said the analysis.

Additionally, the analysis said the provisions in the bill to divest or limit investments in certain sectors would limit the potential for active management of INPRS funds and may effectively prohibit investment in private markets, such as private equity, and the use of active managers.

The LSA said that if INPRS can’t use active public managers, then they would no longer be able to offer the Stable Value Fund for the defined contribution accounts, since it is an actively managed account. However, having a stable value fund option is required under Indiana state law and currently represents $2.3 billion of INPRS’s assets, the analysis notes.

The provisions in the bill would apply to the nine funds administered by INPRS, including the Public Employees Retirement Fund, the Indiana State Teachers’ Retirement Fund, a police and firefighters’ pension and disability fund, as well as Indiana’s State Police Pension Trust, which is administered by the state treasurer.

The bill would also apply to any other retirement or pension plan maintained, provided, or offered by a state governmental entity. However, it does not include a sheriff’s pension trust or retirement funds managed by a state educational institution, a public school corporation, or a political subdivision.


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