Worried about the tobacco industry's future financial health, Maryland has emptied its $20 billion employee pension fund of all tobacco stocks -- a possible first such action by a state.
Trustees of the Maryland Retirement and Pension System announced yesterday that they had quietly sold $75.5 million worth of tobacco holdings in late March at a substantial profit.
The sale was triggered by financial considerations, not the morality of smoking, several trustees said. The board was concerned that bad publicity and a growing number of lawsuits against cigarette manufacturers could make tobacco stocks less profitable in the future.
"It was simply a business decision," said board Vice Chairman Richard N. Dixon, the state treasurer. "I don't buy and sell securities for social reasons."
Many pension funds have considered divesting their tobacco holdings for several years, but few have taken any drastic steps. The debate intensified as states passed anti-smoking laws and filed suit against tobacco companies to recoup the money they spend treating poor people with smoking-related illnesses.
Maryland, for one, expects to sue cigarette manufacturers this spring in an effort to regain hundreds of millions of dollars spent through its Medicaid program for the poor and disabled.
The state pension system earned $35.6 million by selling various stocks and bonds of major U.S. tobacco companies: American Brands Inc., Philip Morris, UST Inc., Loews Corp. and RJR Nabisco. The holdings represented less than 1 percent of the assets of the fund, which covers state and local government employees, teachers, judges, legislators and state police.
The pension board did not go as far as to prohibit itself from buying stocks and bonds of tobacco companies in the future, although it appears unlikely it will reinvest anytime soon.
The sale surprised some people who follow investments by state, local and institutional pension funds.
Maryland is the first state to sell off all its tobacco holdings, said Alyssa Machold, deputy director of the Council of Institutional Investors, a Washington-based association of pension funds whose combined assets exceed $900 billion.
She said pension funds generally have investments in tobacco companies.
Brad S. Krevor, executive director of the Tobacco Control Resource Center, a nonprofit anti-tobacco foundation in Boston, said a couple of state pension funds do not own tobacco stocks for various reasons.
The New York State and Local Employees' Retirement Systems announced last month that it will stop buying tobacco stocks, but will not sell its current holdings.
"These stocks are doing pretty well, so there really isn't a compelling reason to sell them. We invest on a purely economic basis," said Linda Scott, spokeswoman for New York Comptroller H. Carl McCall.
Anti-smoking groups have urged institutions to divest for social reasons for years, and some, such as Johns Hopkins University, have done so.
Most pension systems, however, have been more concerned about the financial effects of the legal and regulatory climate surrounding the tobacco industry.
"The more bad news you hear about these companies, the more the value of the stock is depressed," said Peter Vaughn, director of the Maryland State Retirement Agency.
Regardless of the reason, Mr. Krevor welcomed Maryland's sale.
"When huge sectors of the institutional investment community shun tobacco, all investors will become very wary," he said.
"We as an organization have argued they should not profit from addiction."
Two anti-smoking advocates in Maryland said they were pleased at the sale, although both said they would prefer a policy banning future tobacco investments.
Attorney General J. Joseph Curran Jr., who has fought tobacco companies in court, called for divestment in 1994. "It would make sense that the retirement system not profit off of the health risks to Maryland citizens," he said yesterday.
Eric Gally, a spokesman for the American Cancer Society's Maryland Division and the Smoke Free Maryland coalition, said: "We're very pleased with what the state has done."
Pub Date: 4/17/96