There are also economic problems with ETIs. The Department of Labor insists that ETIs will bring a risk‐adjusted rate of return equal to or higher than that of traditional investments. Study after study, however, has shown that ETIs generally produce a subpar rate of return.
The public pension funds can ill afford philanthropy. Vulnerable to political pressures and unprotected by ERISA, a significant number of them are substantially underfunded. ETIs will further compromise funds that already show strain, leading to reductions in benefits or to higher taxes.
Careful investment designed solely to benefit plan participants, whether in the public or the private sector, should be the exclusive objective of all pension fund managers. Congress should nip in the bud the Department of Labor’s ETI initiative by passing the Pension Protection Act of 1995.