The underfunded California Public Employees’ Retirement System faces daunting challenges in coming years, with local governments increasingly vocal about not being able to afford the ever-growing cost of their CalPERS-managed pension programs, as CalWatchdog

The nation’s largest public pension fund could face these challenges with a board that appears both solidly pro-union and solidly in the corner of the pension giant’s top management. Or the board could once again have a rabble-rouser in its midst.

That was the takeaway from the voting that concluded last week for two of the six member-at-large seats on the 13-member board that are elected by CalPERS members. (The other seven members are chosen by various state leaders.)

David Miller, a state regulator and former president of the California Association of Professional Scientists, was elected to replace J.J. Jelincic, a maverick board member who has long accused CalPERS executives of poor management, bad decisions and a lack of openness.

Jelincic decided not to seek re-election in June after facing harsh criticism from other CalPERS leaders for allegedly leaking confidential information. In May, he made headlines on investment blogs for likening a top CalPERS lawyer to Roy Cohn, a notorious New York lawyer known for his ruthlessness. In particular, Jelincic’s acidic remarks have long drawn praise from writers at the Naked Capitalism website who share his low opening of how CalPERS is run.

Miller, who was backed by public employee unions and has emphasized the importance of preserving and protecting government pensions, easily defeated former CalPERS board member Michael Flaherman, who was backed by Jelincic and has a history of being open to pension reform.

Union-backed board incumbent denied re-election in initial voting

The union-backed candidate for a second member-at-large seat, incumbent Michael Bilbrey, led voting but was forced into a runoff next month after no one garnered majority support in a four-way race. Bilbrey’s opponent is a Jelincic-like wild card – Garden Grove Unified School District manager Margaret Brown.

While Brown too has vowed to protect and preserve government pensions, she has offered sharp criticism of CalPERS’ upper ranks.

In May, she accused CalPERS’ top officials of knowingly cooking the books – hiding investment costs to make the pension agency’s investment record look better than it actually was so annual bonuses would be larger.

In September, Brown wrote a letter to CalPERS CEO Marcie Frost, CalPERS board members and state officials including Attorney General Xavier Becerra alleging that the new rules for mail voting for the just-held elections broke state laws and made it possible that individual union members’ votes could be made public.

The runoff is also a mail election. Ballots must be mailed by Nov. 10. In initial voting, Bilbrey got 49,801 votes (40.8 percent) to Brown’s 43,132 (35.4 percent).

Jelincic took a final shot at a top CalPERS official on his way out the door. In a September email to Naked Capitalism, Jelincic mocked board President Rob Feckner’s remark that he had never been misled by CalPERS staff in his 18 years on the board.

Jelincic noted that Feckner was “board president while the CEO was collecting shoe boxes of cash.”

That was a reference to Fred Buenrostro, who was sentenced to a 4½-year prison term last year after after pleading guilty in 2014 to taking more than $250,000 in bribes during his six years as CalPERS CEO.

The giant California Public Employees’ Retirement System – with $320 billion-plus in assets, the nation’s largest pension system – is going to lose its only outspoken internal watchdog.

J.J. Jelincic – an eight-year incumbent on the CalPERS board who is on leave from his job as an agency investment officer – indicated earlier this year that he would seek another term in the mail-in election for his seat among CalPERS members this September and October. But Jelincic changed his mind and didn’t meet the recent election filing deadline, apparently meaning he’s going back to his old job.

While not returning media calls, Jelincic posted a statement on his website essentially trashing his board colleagues: “I originally ran for the CalPERS board because I thought the board was not doing its job and was too often being manipulated by staff,” he wrote. “After eight years on the board, I can tell you it was even worse than I realized.”

Jelincic’s run-ins with CalPERS’ board members and top officials began soon after his 2009 election and never stopped.

In January, he was accused by fellow board member Bill Staton of repeated leaking of confidential material since 2015 and urged to resign. Staton offered no evidence or examples of leaks, but a subsequent inquiry concluded there had been at least one leak. As punishment, Jelincic was ordered to attend a State Bar workshop on laws governing the CalPERS board’s responsibilities. Staton’s accusations came a month after Jelincic won wide attention for his failed attempts to get CalPERS to publicly explain major changes in its asset allocation.

National media sees bid to silence Jelincic

National financial media that keep close track of CalPERS’ affairs depicted the punishment as an attempt to silence Jelincic for his years of assailing the pension agency’s staff as secretive and of dubious competence and its board as ineffectual and uninterested in getting to the bottom of problems. The backdrop to Jelincic’s attacks gave them particular weight: a bribery scandal uncovered in 2009 that led to former CalPERS CEO Fred Buenrostro being sent to prison for getting kickbacks for some CalPERS’ investments.

“Jelincic is the one CalPERS board member who regularly challenges staff, with the result that he has repeatedly and unintentionally caught them out making obvious false statements and appearing to be seriously out of their depth,” the Naked Capitalism website wrote in February after breaking the story that Jelincic faced punishment.

“CalPERS’ is out to quash independent views and badly-needed inquiries because they are seen as socially uncomfortable. … CalPERS lives in a bubble and routinely denies well-warranted criticism.”

In 2015, Jelincic’s questioning of staffers established that – by choice – they weren’t keeping tabs on the fees that portfolio managers were charging. The revelation prompted an incredulous reaction from Fortune magazine.

Reprimanded for ripping choice of chief investment officer

In 2014, Jelincic was publicly reprimanded for criticizing the selection of Ted Eliopoulos as CalSTRS’ new chief investment officer in a media interview. He said Eliopoulos had done a poor job in his previous role as CalSTRS’ chief of real estate investments and didn’t merit a promotion. One of Jelincic’s favorite anecdotes is about his 2008 discovery that CalPERS had lost track of the fact that it owned 26,000 acres of land in the Phoenix area.

The filing deadline for Jelincic’s seat was extended after his surprise decision to not seek re-election. The first three to file appeared to be in the don’t-rock-the-boat category that CalPERS prefers: Long Beach Unified School Board member Felton William; David Miller, a scientist with the California Department of Toxic Substance Control; and State Personnel Board member Richard Costigan, who already serves on the CalPERS board representing his agency but wants a full, regular seat.

However, the last candidate to file, former CalPERS board member Michael Flaherman, appears to be in the Jelincic mold. Calpensions reported Flaherman is a harsh critic of the CalPERS status quo and thinks its board should be far less passive.

Yes, of course, the phenomenon of government agency leaders and their managing boards getting into mutually beneficial, mutually reinforcing praise parties is common, especially where there’s a homogenous quality to board membership.

I covered the all-Republican Orange County Board of Supervisors from 1999 to 2001 for the OC Register, and members mostly couldn’t get enough of CEO Jan Mittermeier’s narrative of how the county had rebounded with amazing surefootedness from its 1994 bankruptcy.  Mittermeier was so intoxicated with her spiel that I even got her in a taped interview to say the largest municipal bankruptcy in U.S. history was arguably a positive thing.

Now, as a San Diego journo, I’m confronted with more of the same from what until recently was an all-GOP county board, which ignores its chaotic pension system and operates million-dollar-per-member slush funds while simultaneously depicting itself as a divine inspiration to the rest of the planet. This is an actual passage from an actual story (by actual Chris Cadelago) about an actual California government official named Walt Ekard upon his retirement:

“I have been privileged for the past 13 ½ years to lead the finest local government in America, and I say that without fear of legitimate contradiction,” Ekard said.

“Without fear of legitimate contradiction”? Wow. There are some dark chords in that note — and some crazy ones.

Where’s CalPERS’ claim to glory?

But at least in each case, the counties had fig leafs. Mittermeier was plainly way better than her predecessors, even if Orange County’s economic boom was mostly what made its recovery from the 1994 bankruptcy relatively painless. San Diego County’s bond ratings are strong — although it also benefits from the contrast with the city of San Diego’s intensely bad press from the early 2000s.

But what is one to make of this we’re-awesome mindset from the California Public Employees’ Retirement System? Its board meetings, dealings with the media and general demeanor all reflect the notion that it is a “forward-thinking” organization that should be held in high esteem — an agency with a history that is pristine. When I made fun of this attitude, the push-back was quick.

Which was pretty incredible, given CalPERS’ central role in both the state government’s and many local governments’ pension debacles. In a 2011 story about Gov. Jerry Brown’s pension reform manifesto, Ed Mendel — the king of the California pension beat — explained why Brown thought CalPERS was, ahem, unsophisticated:

The “unaffordable” pension increases [Brown cited] were not identified. But the reference may have been to two bills backed by the powerful CalPERS board, which sets annual rates that must be paid by government employers in the giant retirement system.

When a booming stock market gave pension funds a surplus, a CalPERS sponsored bill, SB 400 in 1999, sharply boosted Highway Patrol pensions and authorized the same pension formula for local police, which many obtained through bargaining.

For state workers, SB 400 rolled back a pension cut given new hires earlier in the decade. Low pensions earned under the old plan could be boosted through a “buy back” with increased contributions. Retirees received a 1 to 6 percent pension increase.

A second bill, AB 616 in 2001, authorized three escalating pension formulas for local governments in CalPERS and 20 county systems operating under a 1937 act. The top formula, “3 at 60,” provides 120 percent of pay after 40 years of service at age 60. (See table at bottom)

The CalPERS board, rejecting the advice of its chief actuary, encouraged local governments to boost pensions authorized under AB 616 by offering in 2001 to inflate the value of their pension fund investments to help cover the increased cost.

Yet in 2009, I couldn’t get a substantive reaction from CalPERS on the 10-year anniversary of the SB 400 mega-fiasco. Why? The pension fund would not admit that it was fiscal arson to tell the Legislature in 1999 that increasing pension-benefit formulas by 50 percent would have little or no long-term cost to taxpayers.

CalPERS’ bonfire of vanities

Now a story that broke Friday adds more fuel to the CalPERS bonfire of vanities.

The first two payments were made in paper bags. The last installment came in a shoebox. The handoffs all came at a Sacramento hotel near the Capitol.

In a stunning admission covering years of corruption, the former chief executive of CalPERS said Friday he accepted $200,000 in cash, along with a series of other bribes, from a Lake Tahoe businessman who was attempting to influence billions of dollars in pension fund investment decisions.

Fred Buenrostro, who ran the nation’s largest public pension fund from 2002 to 2008, pleaded guilty in U.S. District Court to a charge of conspiracy to commit bribery and fraud. He has agreed to cooperate with federal prosecutors as they pursue charges against his longtime friend, Nevada businessman Alfred Villalobos, a former CalPERS board member. …

Most of those allegations had been aired publicly already. What was new Friday was the blockbuster admission that Buenrostro took $200,000 in cash from Villalobos. In his written plea agreement, Buenrostro said Villalobos paid him in three installments in 2007, “all of which was delivered directly to me in the Hyatt hotel in downtown Sacramento across from the Capitol.”

That’s from the Sac Bee.

There is no way, or at least no sane way, that this grotesque corruption can be compartmentalized away. CalPERS’ whistleblowers didn’t turn Buenrostro in. Instead, he was caught as part of a far-reaching federal probe into “pay-to-play” pension scams. This is a sad and troubling comment on how CalPERS functions.

The next time you see CalPERS start to pat itself on the back, feel free to laugh. Or maybe to start convulsing in pain.