Protecting public pension funds from divestment-related lawsuits: Exploring the state laws of the United States

Imagine: You are a public pension fund trustee, employee or investment advisor. The legislature of your state passes a law that requires you to divest some or all of your stock holdings in companies that do business with a specific country. You seek the advice of an outside research firm that specializes in the identification of such companies. You also seek advice from an in-house or contracted counsel to determine the lawful course of action. You then proceed with the state-mandated divestments and sell your holdings. As a result, the fund's performance suffers. Should you, and those who helped you make the divestment decision, be held liable by the pensioners and other beneficiaries claiming that you have breached your fiduciary duty? This article argues not. The article finds that while most states that have divestment laws against companies that do business in Cuba, Iran, Sudan and Syria do provide some level of lawsuit protection for public fund employees, the degree of protection varies significantly. The study ranks the states protection levels and proposes that the higher-ranked jurisdictions serve as models for the others.