Gov. Brown, CalPERS face off in 2015

A piece of this year’s politics moving into 2015 is Gov. Jerry Brown’s tiff with the California Public Employees’ Retirement System. In particular, Brown remains steamed over CalPERS’ use of temporary pay to pad pensions. In a letter to CalPERS, he said the action “would improperly allow temporary pay resulting from short-term promotions to count towards workers’ pensions.”

Divisions on CalPERS’ Board of Administration, where Brown can count on allied appointees, opened around the controversy. Although Brown’s side in the controversy lost a close vote, plans have already been hatched for a rematch.

The bout has been a long time in coming. As summer turned to fall, Controller John Chiang took CalPERS to task for juicing up pensions while dishing them out at unsustainably high levels. Chiang was just elected state treasurer, so he will remain an ex officio member of the CalPERS board.

In late August, Brown tasked his team with doing all it could legally to prevent CalPERS from engaging in the pension spiking.

In that procedure, a public pension fund passes rules that allow pension levels to be adjusted significantly upward by taking temporary or exceptional kinds of work and pay into account. CalPERS had pushed the credibility of these measures to the breaking point, in effect securing special pension increases simply because employees did their jobs, such as librarians shelving books.

But Brown made a point to object only to CalPERS’ temporary pay rules, which allowed unique, fleeting raises for non-permanent work to be factored into pension setting.

By mid-September, Chiang had concluded that CalPERS’ pension spiking was unacceptable in theory, but unpunishable in practice. CalPERS’ “available resources” for spiking oversight, Chiang concluded, “limit its annual reviews to only 45, or 1.5 percent of the more than 3,000 reporting entities. At this current rate, pension spiking could go undetected for an extended period of time, as each reporting entity would be reviewed, at the earliest, every 66 years.”

The task of auditing CalPERS’ shenanigans had to fall, in other words, to the Legislature.

As a matter of common sense, it was much more attractive for Brown to try to exercise oversight by reforming the rules CalPERS used to set pensions, instead of by pouring the state’s time and energy into auditing those rules after scores of changes went into effect.

A tough matchup

That is why, as the Sacramento Bee reported, Brown’s appointees on the CalPERS board proceeded to force a vote on removing temporary pay from the fund’s cornucopia of pension-spiking sweeteners. Unfortunately for Brown, the vote failed, splitting 7-5 in favor of retaining the objectionable rule.

In an interview, state human resources head Richard Gillihan — a Brown ally on the board who voted against temporary-pay pension spiking — told the Bee that 2015 would offer another shot at reform. “What should or shouldn’t be included in final compensation is absolutely something that we think needs broader revisitation,” he said. “We hope to see that sooner rather than later.”

According to the fund’s website, “The CalPERS Board of Administration consists of 13 members — six elected ‘member representatives,’ three appointed representatives, and four ‘ex officio’ representatives. The elected candidates will serve a four-year term and represent active and retired members in all aspects of CalPERS’ business – including benefit and membership issues, and oversight and investment of Fund assets.”

But as the Bee observed, “The board’s composition will lean more heavily toward labor’s interests next year.” The Service Employees International Union shelled out some $250,000 to secure the election of incoming member Theresa Taylor.

Even though California taxpayers are on the hook for any CalPERS shortfall, they have no say in the six elected “member” representatives. Those representatives are chosen, according to CalPERS, by ballots “mailed to eligible, active state and public agency CalPERS members.”

Leadership trouble

A complication, however, has added further difficulties to the equation. September also saw the board approve the appointment of Ted Eliopoulos, former CalPERS senior investment officer for real estate, as its new chief investment officer.

That provoked the ire of J.J. Jelincic, a board member unable to vote against Eliopoulos because he was recused for being on leave. Jelincic told Pensions and Investments that Eliopoulos lacked “the temperament and management skills” needed for the job.

Pensions and Investments noted, “He said Mr. Eliopoulos relied 四人打麻将 too much on the advice of consultants, made the wrong decision to increase CalPERS’ exposure to riskier non-core real estate assets before the financial crisis, and played favorites with employees.”

The enmity has served to cloud Brown’s prospects even further for charting an effective course toward CalPERS reform.