While Maryland is fighting to ban workplace smoking, the state's employee pension fund will not divest tens of millions of dollars in tobacco company investments.
Trustees of the State Pension and Retirement Systems unanimously voted yesterday to continue investing in tobacco, even though cigarette manufacturers are suing the state over a proposed ban on workplace smoking.
The state had $112 million in stocks and bonds in companies such as Philip Morris Cos., the maker of Marlboro cigarettes, and RJR Nabisco Holdings Corp., which produces Camels, as of late July. More recent figures were not available yesterday.
Tobacco investments make up almost 1 percent of the state pension fund's total holdings.
Decisions on tobacco investments will be "based exclusively on economic fundamentals," rather than social concerns about smoking, the policy approved yesterday says. Trustees said the corporations that make cigarettes also produce food, making it difficult to separate tobacco investments from nontobacco ones.
Divesting from tobacco also would encourage divestment proposals from everyone with a complaint against an industry, said trustee Joseph Adler, chief of the Maryland personnel department.
"There are people who don't want you to invest in Perdue chicken because they believe you shouldn't eat animals," Mr. Adler said. "So where do you draw the line with regard to social issues?"
"You're going to get to the point where you can't buy any stocks because someone has a problem with the policies of that company," Mr. Adler said.
Until recently, few government and institutional pension funds gave serious thought to selling off their tobacco stocks, but the debate is expected to intensify as more states pass anti-smoking laws. Cambridge, Mass., Pittsburgh, and several universities, including Johns Hopkins in Baltimore, have divested already.
Focus on financial returns
Members of the Maryland pension board took up the issue late last summer after state Attorney General J. Joseph Curran Jr. urged them to consider divesting immediately.
"I believe the state should be speaking with one loud and clear voice on the issue of smoking: it is a tremendous health risk and an enormous drain on our budget," Mr. Curran said in a letter to the board.
"To highlight these dangers and costs, while simultaneously investing and seeking to profit in the very companies which cause these problems, is ill-advised, hypocritical and just plain wrong," he said.
State occupational safety officials tried to ban workplace smoking beginning last summer, but tobacco companies have kept the proposal tied up in court.
Pension board members have said their first priority -- and legal duty -- is to make the best investments possible for current and future retirees.
Historically, they have tried to focus on financial returns, not politics or social issues.
The board conducted a detailed review before putting those principles into the policy approved yesterday.
"We have validated our current process," said Peter Vaughn, executive director of the state retirement agency. "Until market conditions tell us it's time to sell, we will continue to hold them."
Tobacco vs. nontobacco firms
Some trustees said they found it difficult to tell a tobacco company from a nontobacco firm. For example, RJR Nabisco "makes some of the finest food products in the world," said state Comptroller Louis L. Goldstein, chairman of the pension board.
Philip Morris owns Kraft foods and makes Oscar Mayer hot dogs, Jell-O and Miller beer.
Still, those companies get most of their profits from tobacco, said Brad Krevor of the Tobacco Control Resource Center, an anti-tobacco group in Boston.
Last year, cigarettes produced 62 percent of the operating profits at Philip Morris.
"The [Maryland] trustees have shown a very nearsighted view of tobacco investments and a very nearsighted view of what their fiduciary responsibilities are," Mr. Krevor said.
About 63,000 retirees receive checks from the state's $16.3 billion fund, which covers state employees and many teachers and county and municipal workers.
Mr. Curran said yesterday he still hopes the pension board will consider the cost to taxpayers of treating smoking-related illness among uninsured Marylanders.