calpers

By Ed Mendel
August 25, 2014

Last week was not a good one for CalPERS, which carefully tracks mentions of the giant pension system in the media and gives each story a rating of positive, neutral or negative.

Wednesday, Gov. Brown said CalPERS adopted regulations that undermine the anti-spiking provisions for new hires in his pension reform. He directed his staff to determine what actions can be taken to protect the legislation enacted two years ago.

Thursday, the state Fair Practices Political Commission rejected a proposed $1,000 fine for CalPERS board member Priya Mathur, suggesting a $4,000 fine for a serial offender who has repeatedly failed to file campaign funding reports.

A major CalPERS increase in employer costs is under way for several reasons, including big investment losses during the recession. But for a decade, CalPERS has been under fire from critics, who say it’s an “unsustainable” drain on government services.

Former Gov. Arnold Schwarzenegger briefly backed a proposal early in 2005 to switch all new state and local government hires to 401(k)-style individual investment plans, which avoid long-term government debt but switch investment risk to employees.

Schwarzenegger dropped the proposal after being hit with a union-backed statewide television campaign attacking him and the proposal, one of the first setbacks of his administration. But for CalPERS the threat remains.

A statewide poll issued last January by the nonpartisan Public Policy Institute of California found, as in previous polls, strong support for switching new government hires to a 401(k) plan, 73 percent of likely voters with majorities in both parties.

The question about switching to a 401(k) plan was preceded by another question about whether public pensions are a state and local government budget problem, getting even stronger support, 85 percent of likely voters.

Beyond cost, another potential problem for CalPERS, a fiduciary entrusted with protecting member benefits, is the issue of inequality. The private sector continues to switch to 401(k) plans, which critics say are risky for retirees and often inadequate.

Some don’t even have 401(k) plans. A Federal Reserve report issued early this month said “one in five people who are near retirement have zero money saved,” the Washington Post reported.

The California Public Employees Retirement System is a rare state agency that faces a continuing cloud over its existence. While working to improve services and control costs, CalPERS keeps an eye on movement that, one way or another, might begin to phase it out.

So, it’s probably no surprise that in an annual report on the CalPERS five-year strategic plan issued this month, two of the three listed goals mention “sustainability” in addition to cultivating a high-performing organization.

The report shows progress. Investments earned 18.4 percent last fiscal year, well above the 7.5 percent target. The funding level, after dropping to 61 percent in 2009, is now about 76 percent of the projected assets needed to pay promised pensions.

A small section on “our perception in the media” at the end of the annual report summarizes the monthly media reports to the board last fiscal year. Negative mentions were 13 percent of the total, down “significantly” from the previous year.

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