The Oklahoma Public Employees Retirement System takes the exemption from the Banking Act

The trustees of the Oklahoma Public Employees Retirement System voted last week to seek financial relief from a new law that bars state pension systems from doing business with banks that are seen as hostile to oil and gas companies. Obtaining the exemption means that the pension system, which has more than $10 billion in assets for retirees, will not have to divest more than 60% of its holdings from BlackRock Inc, one of the remaining six banks on the list of listed companies. By Treasury Secretary Todd Ross. System employees and outside investment advisors said that divestment of properties invested with BlackRock and the other banks on the list could cost an estimated $10 million.

The trustees voted 9-1, with Ross casting his sole no vote. He said the system could open itself up to legal challenges by obtaining credit fee waivers under the Energy Elimination of Discrimination Act. Ross said the exemption does not cover trading losses or brokerage fees, which he said made up most of the estimated losses.

“The letter of the law is very clear,” Ross said after Wednesday’s vote. “It says loss of asset value. I think the legislature was wise enough to assume that there would be administrative costs and those kinds of costs weren’t enough of a barrier to stop us divesting from these companies that discriminate against the energy industry.

Other trustees said they believed the offers made by the pension scheme’s employees and its outside financial advisor, Ferrus, were compelling enough to get the exemption. In a separate vote, the trustees approved a contract change with BlackRock that would cut its management fees by an estimated $75,000 annually.

The pension system submitted several requests for proposals in July soliciting bids for other financial firms to replace BlackRock or State Street in the event the system is forced to divest. Many financial and legal advisors recommended taking the credit fee waiver. More than 50 companies responded to the request for proposals.

“The opportunity to provide fees to affected states was uncertain, extraordinarily long for the system to extract any benefit, or simply did not exist,” said a note by pension system employees to its board and investment committee. “The chances of improving performance without fundamental change have also proven elusive in the states as well.”

During the meeting, Ross said the evaluation process was incomplete and designed to remain the status quo. He said the law requires clear and convincing evidence to obtain an exemption from credit fees.

Ross questions commitment to ‘bad actors’

“Until we finish the negotiation process, this is how we can bring these costs down,” he said. “If we make wild assumptions, you will get stuck in them. I have people behind me who say that this is much more than what we see.

Instead, Ross said, the trustees should ask Attorney General Gentner Drummond to provide a legal opinion on what kind of investment losses might result in the trust being forgiven. Ross said his office has not requested a formal opinion from the attorney general on this issue.

“I would be very interested to hear what the Attorney General thinks,” Ross said after the meeting. “And I may not ask, but I very much doubt there will be some people who will want to know why we are not willing to divest from these bad actors.”

Ross said outside interest groups or the energy industry might be interested in suing to force pension systems to follow banking law.

“The remedy I would suggest is just to follow the law and base it on whether there is any loss in the actual value of the assets, which would be the portfolio,” Ross said.

Ross, whose office released the first version of the list of restricted financial firms in May, has received political and media support in implementing the law from the Kansas-based nonprofit, the State Financial Officers Foundation. It provides Republican state treasurers and fiscal officials with talking points and opinion columns targeting what they view as out-of-control climate policies approved by shareholders in publicly traded banks and financial firms.

Oklahoma is among dozens of Republican-led states that have passed anti-discrimination laws in the energy industry in the past few years. Lawmakers allege that the climate policies of some of the big banks discriminate against oil and gas interests, which are major contributors to Oklahoma’s economy and tax base.

Aside from state pension systems, cities and counties are covered by the Energy Elimination of Discrimination Act if they have contracts of more than $100,000 with banks on the restricted list.

The City of Stillwater put the project on hold after Bank of America was listed. Drummond sent a letter to city officials last month saying the city could exercise an exception in the law because the bank’s next-best loan offer would have cost the city an additional $1.2 million.

Oklahoma Watch, at oklahomawatch. orgis a nonprofit, nonpartisan news organization covering public policy issues facing the state.

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