CalPERS numbers attract fresh scrutiny

CalPERS numbers attract fresh scrutiny

Calpers logoThe California Public Employees’ Retirement System looks to see 2015 as another controversial year, especially around four budding controversies.

First, attention has focused in recent weeks around the way CalPERS pays its board members and executives. An investigation by the Sacramento Bee revealed that, for 15 years, CalPERS has reimbursed the “government pay and benefits of five board members who are on full- or part-time leave from their jobs to conduct fund business.”

While some board members receive little or even no money for their service, others received hundreds of thousands of dollars. Priya Mathur — recently stripped of her administrative posts, but not fired after repeatedly violating state ethics laws — was paid just shy of $300,000 during the last fiscal year. During the same period, John Chiang, an ex-officio board member in his capacity as the state controller, received nothing. He also will receive nothing when he remains on the board in January when he becomes the state treasurer, another ex-official CalPERS board membership.

Bonuses

Second, CalPERS executives received a substantial increase in lavish bonuses. The San Francisco Chronicle reported a 14 percent increase in bonus payments over the fiscal year before last, with $8.7 million going to investment staff and nearly $300,000 to the fund’s non-investment executives.

“The rewards are based on three-year performance verses a benchmark, as well as the earnings of each asset class and individual portfolios,” according to CalPERS spokesman Brad Pacheco. In an effort to deflect criticism for the windfalls, the Chronicle noted, CalPERS maintained it “must grant bonuses to help compete with the pay that employees could make if they went to work on Wall Street.”

According to Pacheco, “spending money on in-house investment management saves about $100 million a year that otherwise would be paid to Wall Street in fees.”

Secret deals

Third, in an area fraught with Wall Street competition of a different sort, CalPERS has proven itself willing to play political hardball to ensure financially stressed cities pay it first, and investor-creditors later. In an exclusive, Reuters cast a spotlight on how that process has played out secretly in the case of San Bernardino.

Speaking on condition of anonymity, a “senior city source” revealed details of CalPERS’ deal with the city that a judicial gag order had sought to keep under wraps. Although it hasn’t published a completed budget, San Bernardino has set aside over $10 million for an unnamed creditor — which the source identified as CalPERS.

The city’s decision “to strike a deal with Calpers first, and begin paying arrears before a bankruptcy exit plan could be formulated, shows the reluctance of California cities to take on the pension giant,” concluded Reuters.

Demographic destiny

Fourth, CalPERS has faced a new round of investor skepticism over its approach to funding. The Moody’s ratings agency warned this week that cities like San Bernardino will face increasing pressure from CalPERS obligations, “even after the relief provided by the bankruptcy adjustments” authorized by the courts. “The ratings agency calculated that San Bernardino’s adjusted net pension liability for the 12 months to the end of June 2014 was $731 million — nearly 10 times its outstanding debt,” according to the Chief Investment Officer website.

CalPERS’ unfavorable demographics were likely responsible for the projected future increases in required contributions. At PublicCEO.com, Ed Mendel reported that “in a few years CalPERS retirees are expected to outnumber active workers, a national trend among public pension funds that makes them more vulnerable to big employer rate increases.”

CalPERS has managed in recent years to boost its funding level to some 77 percent. But now, Mendel observed, “some think getting to 100 percent funding may become difficult if not impossible. Employer contribution rates would have to be raised to an impractical level, crowding out funding for other programs, and investments would have to yield unlikely returns.”

According to prevailing interpretations of the California Constitution, taxpayers are on the hook for any fund shortfalls.

33 comments

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  1. T Ted Super Duper
    T Ted Super Duper 26 November, 2014, 15:14

    #)) BILLION?

    I say a few of these guys deserve bonuses!

    Enjoy your holidays Doomera!

    Reply this comment
  2. T Ted Super Duper
    T Ted Super Duper 26 November, 2014, 15:14

    300 BILLION!

    Reply this comment
  3. Ulysses Uhaul
    Ulysses Uhaul 26 November, 2014, 17:37

    Why a devisive pension article during holidays?

    Geese.

    Give the Doomeratti a break!

    -we love you Donkey.

    Reply this comment
  4. T Mind of Ted Your God
    T Mind of Ted Your God 26 November, 2014, 22:13

    LOL

    Reply this comment
  5. Desmond
    Desmond 27 November, 2014, 02:18

    Increase the planned future earnings to 9.5 percent per year, plenty of money for comrade bonuses. Use the excess over funded for homes, cars, living expenses, tuition, pensions for any one who wants to live in California. To ensure this happening, extend voting rights to everyone in Mexico and Central America. $300 billion and growing. Fairness and the audacity of change.

    Reply this comment
  6. S Moderation Douglas
    S Moderation Douglas 27 November, 2014, 08:37

    It seems you will always be unsatisfied. Maybe because you are determined to be, in spite of all the advantages you have, just from the happy accident of being born in our wonderful country.

    From “The Winter of Our Discontent”, my second favorite book:

    “In poverty she is envious. In riches she may be a snob. Money does not change the sickness, only the symptoms.”

    Reply this comment
  7. S Moderation Douglas
    S Moderation Douglas 27 November, 2014, 08:40

    Have a happy Thanksgiving.

    Reply this comment
  8. S Moderation Douglas
    S Moderation Douglas 27 November, 2014, 09:29

    “According to prevailing interpretations of the California Constitution, taxpayers are on the hook for any fund shortfalls.”

    Actually, and it shouldn’t take a legal researcher long to verify this, I think the legal contract for a pension exists independent of CalPERS. If CalPERS, and its ROI didn’t exist, the state still has a contractual liability to pay. The judges system, I believe, works this way. Not prefunded, but paid from current funds.

    CALPERS could have been established as an agency to merely calculate pension amounts and distribute them to retirees from the general fund. The ROI is just icing on the cake.

    As judge Klein said in the Stockton case, there are two contracts involved. The city has a contract with workers for pay and pensions. They have a separate contract with CalPERS to collect, invest, and distribute the funds. Even if CalPERS lost ALL its principal, the city is still (legally), on the hook for the contracted pensions.

    Have you ever read the disclaimer on your medical or dental bill? IF your insurance doesn’t pay, for any reason, you are ultimately liable. Same principal.

    So, yes, “taxpayers are on the hook for any fund shortfalls.”

    Reply this comment
    • O'moore
      O'moore 28 November, 2014, 08:22

      Per Judge Klein, both contracts may be set aside in a Chap.9. But a city must ask; and that is where the staff and unions make sure that it doesn’t.

      Reply this comment
    • Donkey
      Donkey 28 November, 2014, 11:45

      The taxpayers are not on the hook for anything once BK is declared, and as the RAGWUS continues their habit of making pensions even more unaffordable the line will be crossed and the result will be lowered payouts, similar to what happed in Detroit. Prepare my RAGWUS feeders to pay full cost of your medical as a precursor to your lowered pensions. 🙂

      Reply this comment
      • S Moderation Douglas
        S Moderation Douglas 28 November, 2014, 12:26

        What is “RAGWUS” ?

        Reply this comment
      • S Moderation Douglas
        S Moderation Douglas 28 November, 2014, 12:29

        If it makes you feel better, any thing more than a minor reduction in my pension would be a very unsettling curve ball. We are meeting living expenses now, and have maybe a years living expenses in IRAs, from my wife’s private sector job. All things considered, I think before we get hit, there will be major economic turmoil that leaves everyone (almost) up the proverbial creek.

        You should not wish for that to occur.

        Reply this comment
        • Donkey
          Donkey 28 November, 2014, 22:54

          Things are already bad S&Md, there has been no real GDP growth in eight years. Buying debt at the Fed by the tune of $85 billion a month is not growth and can not continue much longer.
          It has nothing to do with what I want to occur, the RAGWUS and its feeders are making it happen, it is just simple math. 🙂

          Reply this comment
      • SeeSaw
        SeeSaw 28 November, 2014, 20:52

        I think you are wrong on that, Donkey. Bankruptcy costs a City, in that condition, millions in legal fees and they have to get that money from the taxpayers, because it doesn’t fall from the sky. There is really nothing new in this article.

        Reply this comment
        • Donkey
          Donkey 28 November, 2014, 23:00

          SeeSaw, the cities have no choice, in a few short years many cities will be spending 25% to 50% of their budgets on pensions and healthcare. As the RAGWUS demands more from the private sector and the state carbon taxes eat up even more disposable income the private sector will continue to shrink. Simple math tells the rational mind the end will come in a short amount of time. 🙂

          Reply this comment
  9. T Mind of Ted Your God
    T Mind of Ted Your God 27 November, 2014, 12:18

    Good analogy S Mod Doug– Happy Thanksgiving to you!

    Reply this comment
  10. Ulysses Uhaul
    Ulysses Uhaul 27 November, 2014, 23:01

    Finally, a succinct, bullet point analysis.

    Teddy we should be nice to this truth teller till at least January 1st.

    Reply this comment
  11. T Mind of Ted Your God
    T Mind of Ted Your God 28 November, 2014, 07:52

    Yes U haul– we are lucky to have him!

    Reply this comment
  12. S Moderation Douglas
    S Moderation Douglas 28 November, 2014, 13:27

    Sometimes…..He talks too much.

    There are things I know that I should not say.

    Reply this comment
  13. bob
    bob 28 November, 2014, 15:47

    Problems? What problems? There is no problem and these people earned every cent and these pensions will be fully funded, so just move along now, James. There’s nothing to see here, just ask Doglass.

    So, yes, “taxpayers are on the hook for any fund shortfalls.”

    Exactly, Doglass. There are no problems with these pensions but if there is it’s nothing a tax increase and more bond measures won’t cure.

    All you tax serfs get back to work. You may have shortfalls to meet.

    Reply this comment
  14. S Moderation Douglas
    S Moderation Douglas 28 November, 2014, 18:15

    If you can’t dazzle them with your brilliance, baffle them with your……sarcasm.

    Reply this comment
    • bob
      bob 28 November, 2014, 19:42

      Sarcasm? I am incapable of such a thing. I am just agreeing with everything you said.

      Reply this comment
      • T Mind of Ted Your God
        T Mind of Ted Your God 28 November, 2014, 20:06

        Oh Bo-Bo— It’s not even very CLEVER sarcasm !

        zzzzzzzzzzzz

        Reply this comment
        • bob
          bob 28 November, 2014, 23:34

          Geez Teddy, you must not be paying attention. Your billiance, the brilliance of Douglass has won me over just as you have won over Desmond. But you two continue your hostility. Talk about sore winners.

          Reply this comment
  15. Ulysses Uhaul
    Ulysses Uhaul 28 November, 2014, 21:46

    These pension threads are stale and blather. You all know it. Move on.

    Reply this comment
  16. Lansing
    Lansing 29 November, 2014, 19:07

    When I was young I went to Sunday School at Hollywood Presbyterian and Hollywood YMCA.They told us that we had three parts to us, body-mind-spirit, a lot more people attended church in the 1950’s and were thankful for what they had once a week, they exercised the spiritual part of us.
    My grandfather White developed Magnolia Park and parts of Burbank after 1910 and attended church at Encino Presbyterian and was instrumental in the Burbank YMCA. After the 60’s we threw God out of the picture, we now only exercise two parts of us, hedonism and compulsive materialism now and nothing is ever enough.
    When is enough, enough?
    I remember when President Kennedy was alive and said, “Ask not what your country can do for you, but what you can do for your country”!
    Volunteerism used to be alive when I was young, Boys clubs, YMCA’s, Assistance Leagues, Women’s clubs. Now all we seem to want to do is be more of a millionaire than someone else, and 600 channels on TV are not enough.
    America has been on a downhill slide for decades, it’s not only
    the problems of the political parties, it’s the problems of us
    as Americans, Lansing

    Reply this comment
  17. S Moderation Douglas
    S Moderation Douglas 30 November, 2014, 07:28

    The children now love luxury; they have bad manners, contempt for authority; they show disrespect for elders and love chatter in place of exercise. Children are now tyrants, not the servants of their households. They no longer rise when elders enter the room. They contradict their parents, chatter before company, gobble up dainties at the table, cross their legs, and tyrannize their teachers.

    Socrates. 400BC

    The glass is still half full, at least

    Reply this comment
  18. Hondo
    Hondo 30 November, 2014, 11:08

    Donkey is right. These are real numbers from LA. 10 years ago, LA spent only 3% of its budget on pensions. Now it is 18%. I’m guessing 20 years ago LA spent 1% or less on its pensions. By their own numbers LA is looking at 25% to 30% in 5 to 10 years. And those numbers are based on a ‘good’ economy. LA hasn’t created a net job in the private sector in 20 years. Their taxes are among the highest in the country. There is no way to fund these increases without massive budget cuts in services to the citizens.
    No Democrat has put forth a rational plan to lower the % of pensions from the budget. At best they hope to slow the rate of increase.
    Ten years ago LA treated their employees just fine with 3% going to pensions. There is no reason they can’t go back to that number without raising taxes.
    Hondo…..

    Reply this comment
  19. S Moderation Douglas
    S Moderation Douglas 1 December, 2014, 11:51

    Actually,20 years ago pension costs were much higher than they were ten years ago 2000 to 2004 were very low cost years for most pension systems.

    Reply this comment
    • Donkey
      Donkey 1 December, 2014, 14:10

      S&Md would like us to believe that 20 years ago the actual cost of pensions was more than what is being sucked out of the taxpayers pockets and put into government finance departments to pay for the costs of RAGWUS feeders of today. S&Md is daft!!

      Capitan wrote: “Vallejo’s cost for public safety pension benefits, prior to SB400 and according to CalPERS, was about 12% of payroll. Post SB400 the [email protected] pension plan cost Vallejo about 16% of payroll (the taxpayer portion). Because the benefit was made retroactive it cost Vallejo/taxpayers about 27% of payroll. In the current fiscal year Vallejo is paying 47.4 of payroll toward pension benefits according to CalPERS. Next year (FY 2014/15 beginning July1) Vallejo will be paying 52% of payroll toward pension benefits.

      In other words, for every 100k of payroll Vallejo sends 52K to CalPERS to cover the pension cost. Because the average safety employee earns about 120K in pensionable salary (which doesn‘t include the entire salary: overtime pay, medical benefits, insurance costs, or the cost of retiree medical benefits (average safety employee cost is over 225K), Vallejo/taxpayers will contribute on average, $62,400 dollars to each employees retirement account. Police Captains earnings 200K per year will have OVER 100K contributed to their CalPERS fund beginning July 1st 2014.” In short, 20 years ago we were paying a lot less into the black-hole of the RAGWUS pension scheme, which makes S&Md’s original point false. 🙂

      Reply this comment
  20. S Moderation Douglas
    S Moderation Douglas 1 December, 2014, 15:53

    Actually I said they paid less 20 years ago than ten years ago. It hasn’t been a straight line increase as Hondo implied. About 1999 to 2003, most pension systems were at or near 100%, so reduced the employer contributions…. temporarily.

    And the glass is, as you know, still half full.

    Reply this comment
    • Donkey
      Donkey 2 December, 2014, 07:38

      Stay in your fantasy RAGWUS world S&Md as the infrastructure crumbles around you. 🙂

      Reply this comment

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