CalPERS pension fund defended by its most ferocious critic

The Los Angeles Times wasn’t the only big American newspaper with a big spread on the California Public Employees’ Retirement System this weekend. The New York Times had one as well.

The West Coast Times focused on the misleading campaign mounted by CalPERS to win passage of Senate Bill 400 in 1999. That’s the highly controversial law that provided a 50 percent increase in pensions to state employees, including for years already worked. The article, while hard-hitting, broke no new ground.

But the East Coast Times piece offered a sensational claim: CalPERS has two sets of books detailing members’ fiscal obligations — one upbeat, one grim. 

The N.Y. Times’ story amounted to an attack on the pension status quo of making long-term estimates of returns on investment in evaluating how well-funded CalPERS’ agencies were instead of using the more tough-minded “market approach,” which often results in much higher estimates of unfunded liability.

The anecdotal lead the paper used focused on the sticker shock in the tiny Citrus Pest Control District No. 2 when it tried to pull out of CalPERS and shift to a 401(k)-type system. The amount of money that CalPERS said the district was due was far less than what it had expected based on what it had been told about its funding liability.

CalPERS = Hotel California: ‘You can never leave’

To N.Y. Times reporter Mary Williams Walsh, this seemed like a Catch-22:

In California, some struggling local governments now doubt they can really afford their pension plans, and have told CalPERS they want out.

In response, CalPERS has calculated the heretofore unknown market value of their pension promises — and told them that’s the price of leaving, payable immediately. Few have that much cash, so it’s welcome to the Hotel California: You can check out anytime you like, but you can never leave.

CalPERS says it must bill departing governments for every penny their pensions could possibly cost because once they cash out, CalPERS has no way of going back and getting more money from them if something goes wrong. CalPERS keeps that money in a separate “termination pool.”

But a CalPERS spokeswoman said this approach was old news and was in keeping with state law. She suggested the N.Y. Times was confused about how pension agencies work: “CalPERS does not exist to make money. CalPERS exists to fully pay out benefits that are promised to its members.” 

The Naked Capitalism site agreed with CalPERS’ assessment. It knocked the two “Big Lies” of Walsh’s analysis:

First, CalPERS does not keep different sets of records. The pension fund has a very conservative, arguably punitive, methodology, which is enshrined in law for how to determine how much government entities that contract with CalPERS owe when they exit the pension system. … Second, the termination amount has been disclosed for every plan on CalPERS site since 2011, and prior to that, CalPERS would provide that information if an employer asked for it.

In other words, the failure of the six-employee Citrus Pest Control District No. 2, the itty bitty pension fund at the heart of this story, to access public information is being presented as some sort of nefarious plot. It had an overfunded pension, wanted to leave, but found that the method that CalPERS used to determine its “termination liability” resulted in the district owing money to CalPERS, not vice versa.

That means these rubes did not do their homework and got stuck with a big bill.

Website has trashed CalPERS for years

Pension reformers such as former state lawmaker Joe Nation might say Naked Capitalism is being too charitable to CalPERS, since the New York Times’ analysis gets to criticism that CalPERS has long faced for being unrealistic in its funding estimates.

But Naked Capitalism, which has ripped CalPERS for fudging the numbers on its returns, for being poorly managed and for being openly hostile to public criticism, has credibility. Author Yves Smith’s key points are that CalPERS is following national standards in assessing pension valuations and in penalizing agencies which seek to withdraw, and that it’s simply false to say the giant pension fund is hiding what it’s doing.

Smith suggests CalPERS’ history of dubious behavior makes it vulnerable to unfair attacks, but that this record doesn’t justify “a basic fail of journalism.”

Given CalPERS’ prominence — it is the largest public pension agency in the United States — the New York Times’ story could well end up before the newspaper’s de facto ombudsman, Public Editor Liz Spayd.