Public Pension Plans:

Evaluation of Economically Targeted Investment Programs

PEMD-95-13: Published: Mar 17, 1995. Publicly Released: Apr 12, 1995.

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Pursuant to a congressional request, GAO reviewed economically targeted investments (ETI), focusing on the: (1) amount and types of ETI being invested by nonfederal public employee pension plans; (2) realization of competitive returns by ETI programs aimed at business development; and (3) economic effects of business development ETI programs.

GAO found that: (1) public pension plans have invested billions of dollars nationwide in ETI; (2) in a survey of large public pension plans, 50 of the 119 respondents indicated that they had invested a total of $19.8 billion in ETI to promote housing, real estate, or small business development; (3) ETI that promote business development include private placements, venture capital investments, and bond, loan, and certificate of deposit purchases; (4) the performance of ETI by the public pension plans studied was generally similar to the returns of comparison investments; (5) the performance of ETI venture capital programs sometimes lagged behind the comparison investments; and (6) no definitive conclusions have been reached regarding the economic effects of ETI programs due to insufficient data.

Matter for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: In the 104th Congress, the majority strongly opposed the promotion of ETIs and legislation was passed by the House that would prohibit ETIs. No action is likely in the 105th Congress.

    Matter: If Congress decides to initiate a program to promote public or private pension plan investment in ETI, it should ensure that participation in the program is voluntary, not mandatory.

Recommendation for Executive Action

  1. Status: Closed - Not Implemented

    Comments: In 1994, DOL entered into a 2-year contract to establish an information clearinghouse on ETIs. The contract expired in September 1996, and the Department plans no further action. The contractor established the clearinghouse and, subsequent to the contract, continues to gather and disseminate information on ETIs to the general public.

    Recommendation: The Department of Labor should explore methods to evaluate the success of ETI in promoting development objectives and then collect data that would permit such an evaluation, to the extent that is cost-beneficial.

    Agency Affected: Department of Labor

 

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