Will pension funds unite to invest in job creation?

Using their massive investment funds to create jobs might be a way for embattled public pension systems to aid the struggling California economy, while also generating some sorely needed good publicity.

Gov. Brown may propose a job-creating pension investment program, state Treasurer Bill Lockyer’s representative, Steve Cooney, told the CalPERS board this month.

Cooney said after the meeting the treasurer’s office has not been told that Brown will make the proposal. He said Brown expressed interest in harnessing pension investments near the end of his last term, and the current situation points in that direction.

“I think it won’t be long before we are going to be asked by this governor, who wants to figure out how we can do a better job delivering state services to business and to increase the impact the state actually has on economic development,” Cooney told the board.

He said the California Public Employees Retirement System should designate a California investment coordinator to speak to government, business and labor “to figure out what an appropriate role may be for public pension funds, particularly for CalPERS.”

For example, Cooney said, pension funds may be able to “move the needle” in infrastructure. If conventional financing is lacking, pension funds could back renewable energy and transmission lines, getting a guaranteed return through regulation.

Cooney said CalPERS, the nation’s largest public pension fund, should not “go it alone.” Among the state’s 85 public pension systems is the nation’s second largest, the California State Teachers Retirement System.

“I think we should be talking to the other pension funds,” Cooney said. “They are all going to get talked to pretty soon, anyway. We are all in the same boat in terms of the public perception of what we are here for.”

As never before, public pensions are under fire. Their costs, which can’t be cut, are going up as state and local governments struggle with deep budget cuts during a weak economy.

Investment earnings expected to pay for generous pension increases became massive losses during the stock market crash, requiring taxpayer money to help cover the shortfall.

Pension costs said to be “unsustainable” are being reduced by some labor contracts. But savings from lower pensions for new hires (pensions promised current workers can’t be cut) and higher employee contributions are slow and may fall short.

Reports of padded government pensions, a few paying retirees more than they earned on the job, and long lists of the “$100,000 club” are appearing at a time of dwindling retirement security for workers in the private sector.

Polls show voters favor cutting public pensions. Brown and Republican legislators, whose votes are needed to place a tax extension on the ballot, have been talking about cost-cutting pension reform.

A long-term death blow for public pensions, a proposal to switch new hires to 401(k)-style individual investment plans, may be placed before San Diego voters next year — perhaps voters statewide, depending on a reform group’s initiative decision.

Times are particularly tough for CalPERS, which has aspired to be an industry leader. A former board member and a former chief executive are in a bribery-related investment scandal, hit with a state civil lawsuit and facing possible criminal charges.

CalPERS sponsored a major benefit increase for state workers, SB 400 in 1999, that legislators were wrongly told would be paid for by investment earnings. The bill is said to have touched off a statewide round of unsustainable pension increases.

CalPERS investments have been hurt by well-publicized real estate blunders and other problems. Among public pensions with more than $10 billion in assets, CalPERS five-year earnings rank in the bottom 10 percent, a Wilshire report said last month.

In response, the CalPERS board, led by Chairman Rob Feckner, has brought in new top staff and investment management and taken other corrective steps.

It was CalPERS’ own probe, launched after a pension scandal in New York, that revealed that former board member Al Villalobos was paid more than $50 million by firms receiving CalPERS investments.

A law firm hired by CalPERS found that former chief executive Fred Buenrostro pressured investment staff to give money to Villalobos clients. CalPERS has made more than a dozen internal reforms recommended by the law firm.

At a forum this week, several candidates running for a CalPERS board seat abruptly vacated by Kurato Shimada, who once worked for Villalobos, mentioned the need to counter media “scare tactics” and negative publicity about public pensions.

Demonstrating that public pensions are not just a burden for taxpayers is one of the past attempts at positive publicity.

A think tank-like organization formed by CalPERS and CalSTRS and other public pension funds issued a report two years ago on the economic importance of monthly pension checks.

Public pensions in California paid $23.5 billion in benefits to nearly one million retirees in fiscal 2005-06, said the National Institute on Retirement Security, which when spent had a “multiplier effect” producing a total economic impact of $34.5 billion.

The institute said monthly pension checks can be an “automatic stabilizer” in a down economy. Retirees with pensions can continue to spend, while retirees relying on shrinking 401(k) investments or Individual Retirement Accounts may cut back.

Using pension investments to improve the California economy was proposed by former state Treasurer Phil Angelides in 2000. The “Double Bottom Line” was aimed at getting solid investment returns while promoting economic growth in low-income areas.

The Angelides proposal cited two successful CalPERS investment programs for California — a $525 million housing program launched in 1992 when financing was scarce and a $350 million venture capital program for small firms in 1998.

An update of California investments given to the CalPERS board this month mentions two private equity programs — the $475 million California Initiative launched in 2001 and $500 million to the Golden State Investment Fund in 2006.

The update also listed about $17 billion in CalPERS investments in California as of last June 30. It’s the California share of a diversified portfolio of stocks, bonds, private equity, real estate, infrastructure and other investments.

Concentrating investments in one area could violate sound practice, not to mention the legal “fiduciary” obligation of the CalPERS board to protect member benefits. Uniting with other pension funds would amplify modest increases.

“We are going to get asked in the next few months,” Cooney told the board, “and I hope we are prepared in some strategic way to begin to answer those questions.”

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at http://calpensions.com/ Posted 28 Apr 11

13 Responses to “Will pension funds unite to invest in job creation?”

  1. john moore Says:

    Here in Pacific Grove,Calpers has lost 51 million dollars out of a 100 million dollar pension program. Granted,incompetent city managers and city attys added to the losses(particularly huge safety raises) as did the untimely issuance of pension bonds. That number,by the way,includes the recent results,but the deficit grows at the investment rate(7.75% per annum),so 3@ 50 cities like Pacific Grove are DOA. Letting incompetents like Calpers use its fund for social programs would be like a new PONZI scheme. Of course,if Calpers would lend PG 51 million dollars at 1% per annum,that would not only be ok,but “Justified” as well.

  2. Tough Love Says:

    What amazes me is how CalPERS evolved into what it is today … a clear advocate for the employees, including all means of artificially (and often inappropriately) underestimating Plan costs so as to keep (and raise) benefits level as high as possible.

    What CalPERS SHOULD BE is simply an administrator of approved Plan formulas, and a fiduciary investor/protector of Plan assets. Given that TAXPAYERS assume ALL the risk for asset shortfalls (as well as the impact of false/misleading information from current and past Board members) why should the Board not be comprised of 90% taxpayer representatives with one token representative from the labor Unions, and one from state government management ?

  3. SeeSaw Says:

    Every member of the CalPERS Board should be a stakeholder in the Plan.

  4. Tough Love Says:

    Taxpayers ARE the ultimate stakeholder and must control this currently OUT-OF-CONTROL Board.

    Decisions made by the current and past Boards result in …. Heads the employees win, and Tails the Taxpayers’ lose.

    That needs to change.

  5. SeeSaw Says:

    The CalPERS members are the Plan’s stakeholders. No one else qualifies to participate in decisions regarding its investments.

  6. SeeSaw Says:

    Cut and paste from Wikipedia:

    In 1991, Governor Pete Wilson wished to use PERS funds to help cover a state budget deficit;[8] however, Proposition 162, also known as the “California Pension Protection Act of 1992,” gave the PERS board “the sole and exclusive fiduciary responsibility over the assets of” PERS.[9][11]

  7. SeeSaw Says:

    More from Wikipedia:

    CalPERS is overseen by a 13-member Board of Administration whose members are elected, appointed, or ex officio:[15]

    Six are elected from CalPERS members (two by all CalPERS members, one by active State members, one by active CalPERS school members, one by active CalPERS public agency members, and one by retired members of CalPERS)
    Three are appointed (two by the Governor, one by specified leaders of the Legislature)
    Four are ex officio (California State Treasurer, California State Controller, Director of the Department of Personnel Administration, and designee of the State Personnel Board)

    As you can see, TL, only CalPERS stakeholders determine who is going to sit on the board.

  8. Tough Love Says:

    SeeSaw, All you done is PROVEN why the Board member configuration should be changed to primarily non-CalPERS Taxpayers ……….. look at the meess the current structure has caused .

    Although I suppose from your (the member’s) perspective, the excessive benefits (near impossible to fund, and with TAXPAYERS assuming all the risk) is a good thing.

  9. SeeSaw Says:

    That some get excessive benefits, I concede. That’s about 1% of the total number of almost 500,000 annuitants. I am not in the 1%–I have nothing to apologize for. CalPERS is just the gatekeeper for the funds that are entrusted with it. The problem with excessive payments, for a very few, are with the respective entity members who have set their salary scales they way they have. Employer-member payments are a specified percentage of payroll. If there are workers on the payroll, the pension payments are part of the overhead for hiring those workers. No big deal, unless an entity does not meet its obligations, and the debt piles up.

    Taxpayers assume the risk for every service and benefit we have in this country. My CalPERS membership has nothing to do with the fact that I am a taxpayer, both federal and state. Living in America, we really have nothing to complain about.

    The mess, to which you refer, was the result of a humongous, world-wide collapse of our finance system–caused by Wall Street. You cannot pin it on CalPERS or any other pension plan, or entity. There is nothing wrong with the structure of CalPERS–a few people who allowed themselves to be bribed, was due to personal character flaws of those individuals, not the whole CalPERS Board. The Board is configured fine as it is. CalPERS is a trust fund that is to be protected for the members–therefore, the board must be elected and appointed by stakeholders.

  10. Tough Love Says:

    Sorry, but an “excessive” pension is not defined as a “high dollar amount” … it is defined as MULTIPLES MORE than what a comparably paid Private Sector worker retiring at the SAME age and with the SAME years of service receives from his employer …. a pension which when combined with relative equal cash pay (in the Public and Private sector) yields a MUCH MUCH greater Total Compensation for the Civil Servant.

    This is unjustified, unsustainable, and grossly unfair to taxpayer whose contributions (together with the interest earned thereon) pay for 80-90% of Civil Servant pensions.

  11. SeeSaw Says:

    We live in a capitalist society. In a socialistic society, everyone will work for the state and everyone will be paid the same. I am happy with the captilistic one, that we have in America. I am happy to be an American. I am not going to cry and moan about the fact that my former CM makes six times more in pension benefits than I do, and that some CEO somewhere got an unfair advantage, due to cronyism, and gets 1,000 times more than I do. I am not going to cry about the fact that I lost my SS Spousal share to the GPO, while the spouse of a billionaire may collect such if he/she does not have a public sector pension. You say my pension is excessive, and I say it is not. I win–I have the pension.

  12. Tough Love Says:

    For now …. until the money runs out ….or until the powers that be decide to give everyone a haircut when it’s clear there is insufficient money to pay everyone what they were promised.

  13. SeeSaw Says:

    I don’t worry about things that might happen. I might get run over crossing the street tomorrow.

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