Archive for July, 2013

CalPERS still in choppy seas after ‘perfect storm’

July 29, 2013

Employer satisfaction with CalPERS dropped during the last two years, a new internal survey found, apparently the result of a “perfect storm” of investment losses, scandal, rising rates and other problems.

On a half dozen yes-or-no questions asked in an on-line survey in 2011 and again last month, the average approval rating from CalPERS employers dropped from 74 percent to 61 percent.

The president of the firm that conducted the survey, Peter Michael of Michael Strategic Analysis, told the CalPERS board this month that only 49 percent answering “yes” to the question “Is CalPERS customer service being managed well?” is a red flag.

“This ‘49’ here by employers — that is the single lowest approval rating in any survey for any question ever, all the way back to 1998,” said Michael, who began CalPERS surveys then. “So this really calls out for attention.”

Measuring customer satisfaction with the California Public Employees Retirement System had been limited in the past to active and retired members, now totaling 1.65 million.

Three years ago the CalPERS board approved an expanded look at the system’s “reputation and credibility” after huge investment losses, a pay-to-play scandal and an emerging national debate about whether public pensions are sustainable.

The stakeholder survey added a sample from employers (1,576 state and local government agencies and 1,488 school districts) in 2011. This year the survey began including CalPERS employees.

Another firm, Risk to Reputation, is scheduled to begin conducting in-depth interviews with stakeholders this summer and providing quarterly media analysis. The project is scheduled to continue through 2015.

CalPERS chart shows internal ratings rise and fall with economy

CalPERS chart shows internal ratings rise and fall with economy

Michael said CalPERS has been operating in an unprecedented “perfect storm” since 2009: a deep recession, lagging California economy, several municipal bankruptcies and a public debate over government pensions.

He said CalPERS took necessary steps affecting popularity: raised rates by lowering the earnings forecast and changing actuarial methods, uncovered a bribery-related investment scandal, complied with state furloughs, raised long-term care rates and launched a new computer system.

One of the findings in a part of the survey that asked for a response on a 1-to-10 scale was high approval from employers of raising their annual pension contribution rates during an economic downturn.

“There was overwhelming approval, nines and tens, by all three groups (members, employers and employees),” Michael said. “Even by employers?” a board member asked.

“Yes, they want safety and soundness,” Michael replied.

In a part of the survey where the response to open-ended questions was limited to a few key words CalPERS “weaknesses” dominated this year — customer service, followed by visibility and then politics.

Michael said in the 2011 survey “threats” (public perceptions and “iffy” markets) dominated, an unusual finding in screens of this kind. He said “threats” dropped to third this year and “strengths” (size of membership and investments) were second.

Board member J.J. Jelincic asked for clarification of “politics” as a weakness: “It’s very different if what they are concerned about is politics within the board.”

“It is something different than worrying about politics as the Sacramento Bee thinks it impacts us,” he said. “It’s something again very different if you are talking about the political environment and the whole attacks on defined benefits (pensions).”

Michael said: “I think it is almost exclusively the political environment.” He said there will be a chance to probe “politics” and other key-word findings in the interviews conducted by Risk to Reputation.

Saying he was straying from his usual presentation of findings, Michael offered an “opinion” that the low CalPERS rating on investment performance was the result of a “misperception” of reality.

Michael said that while the CalPERS fund plunged 27 percent during 2008, when the stock market crashed, the Dow Jones average dropped 34 percent. He said CalPERS saved 7 percent, or $15 billion, but five years later people only remember the big losses.

“Do you have low investment performance? No,” Michael told the board. “I think this is to an extent a misconception that you can correct with good communication about investment performance.”

Actually, Wilshire consultants told the board last year that among public pension funds with more than $10 billion in investments CalPERS performance ranked dead last during a five-year period ending Dec. 31, 2011.

The CalPERS diversified investment portfolio of stocks, bonds and other holdings peaked at $260 billion in the fall of 2007, dropped to about $160 billion in March 2009 and was back up to $263 billion last week.

Instead of spinning a favorable message about the losses, CalPERS brought in new investment management led by Joe Dear, reformed its troubled real estate and private equity units and is trying to develop a strategy to reduce the risk of another major loss.

But in a number of ways CalPERS also has responded to the findings in the 2011 survey that low approval ratings in part reflect “misperceptions” and a “communication gap,” lingering shadows from influential events.

CalPERS officials have met with newspaper editorial boards, appeared before a number of state and national groups and held a half dozen training sessions for retirees who volunteer to be “ambassadors” to spread the CalPERS message.

On the Internet, CalPERS responds to issues with a website that includes a series of “Insight” videos, posts annual valuations of 2,044 local retirement plans and webcasts board meetings, averaging about 2,000 viewers depending on the topic.

CalPERS planned to put a database on the Internet listing retirees and their pension amounts, arguing that member data would be “better protected” than on CalPERS retiree databases already posted by the news media and a reform group.

But CalPERS postponed the database earlier this month when three employee groups said they wanted time to propose legislation to limit the amount of retiree information in the database, possibly omitting names.

George Linn of the Retired Public Employees Association of California, who has written articles opposing the database, said the groups plan to meet with CalPERS and want to avoid pushing legislation that would be overturned by the courts.

CalPERS has released the names and pension amounts of retirees when asked, unlike at least seven county retirement systems. Newspapers and First Amendment groups had to file lawsuits to force release of the county pension information.

Terry Francke of Californians Aware, a nonprofit First Amendment watchdog, said in a San Jose Mercury-News op-ed article that in the county suits the courts rejected the argument that elderly retirees would be made more vulnerable to financial predators.

He said any attempt to amend the California Public Records Act to limit pension information would have to demonstrate a need for secrecy to comply with Proposition 59, a constitutional amendment in 2004 that strengthened public records laws.

“These groups do their members no favors in raising their hopes of protection from imagined threats of exploitation when, whether through lawsuits or legislative action, they cannot possibly deliver on those promises,” Francke wrote.

Listening to the objecting stakeholder groups on this issue may have done CalPERS no favor as it works to improve its image.

A lengthy and hard-hitting editorial in the Sacramento Bee, urging lawmakers to protect the state open records law, concluded: “There is no problem here to fix — only one ginned up by CalPERS and the employee groups that control it.”

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Posted 29 Jul 13

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