In Defense of the 800 Pound Gorilla of the Public Pension World

PLAYTIME AT CalPERS (Part 1)--Grab a cup of coffee - this one’s a bit long. CalPERS and other public pension plans have had a rough go of it in recent months, Mostly, the Federal Reserve’s policy of 0% interest & buying back toxic financial assets on the taxpayers dime, has managed to wreck the investment assumptions of public pensions. 

As the long term assumptions of return on investment go significantly down, there is a necessary increase in the employer/employee contributions to the system, in order to keep their long term payoff ability intact. This puts Cities, Counties, & Special Districts on the hook for a higher percentage of their annual budget going to pay CalPERS, and the media has by and large responded with hit pieces about ‘greedy public employees’. 

Why’s Everybody Pickin’ On CalPERS?

As the 800 pound gorilla of the public pension world, CalPERS seems to have become the poster boy for hit pieces, even though the articles tend to ignore the basic math that all defined benefit plans are trying to deal with. Lower returns. So when the New York Times does a hit piece on CalPERS, I don’t pay too much attention. They are probably just tired of talking about their very own Donald Trump. 

But when the Los Angeles Times starts a multi part investigatory series on “the consequences of an historic expansion of retirement benefits for California public employees”, you know it’s a hit piece. And by the way, it is not really an LA Times series -- it is billed as a collaboration with something called CALmatters and an associated radio station, Capital Public Radio. 

As near as I can figure it out from their website, CALmatters is an attempt to provide California political news for sale much as the AP & Reuters do. It looks to me like the Chicago Tribune/Los Angeles Times owners are engaging in even more cost cutting of staff & using deals like this to provide the illusion of investigatve reporting. Sheesh. 

Anyhow, about this series of articles on CalPERS. Since it is clear that CalPERS itself incapable of explaining, much less defending, itself, I thought someone should at least explain what CalPERS is, who’s on their Board, who’s on their staff, how they function (or all too often don’t function), so that people can make up their own minds about the agency.

To provide context, a lot of the articles to date have implied that CalPERS should be ‘privitatized’ into 401(k) type plans. Oh yeah, that works. Just ask me and an entire generation what happened to their 401 plans (not to mention real estate values) when the financial collapse of 2007/08 took place. A lot of us watched instant decreases of around 40% of the value in our ‘retirement portfolio’. Many of my friends will never be able to retire, and will work until they die or get too sick to work. 

That doesn’t mean that there aren’t problems at CalPERS. There are. But to understand their dysfunction, it is necessary to take a look at how the giant $300 Billion plan that impacts over 1 million beneficiaries & their dependents actually operates. Both at a Board of Directors level and at a staff level.

The LA Times Article

You can read the first LA Times article here. Their central thesis is that then Governor Pete Wilson was desperate to find money since the State was broke, and wanted to gain control of the State’s retirement fund, CalPERS. Gee whiz. Every desperate politician that I can remember has wanted to do the same thing. Pete’s scheme involved taking over the actuarial function of the Plan so he could diddle the numbers, and to be able to directly appoint a majority of the CalPERS Board to validate the fix.  

The article then goes on to imply that the Unions response was to launch an preemptive ballot measure in 1992 (Proposition 162) which wound up meaning that “pension directors were no longer required to balance benefits with costs.”   They also characterized CalPERS doing it’s own actuarial projections was somehow suspect and found it “quite independent” as if that’s a bad thing.   

Honestly , the article is largely much ado about nothing. You could argue that by having sole and exclusive control over actuarial projections, the CalPERS Board has an extremely high fiduciary duty to be very conservative and prudent with their numbers. And the language which talked about the Board’s duties to beneficiaries taking “precedence” also says that they have to “minimize employer contributions thereto”, a balancing offset. 

Finally, Proposition 162 in no way changed the composition of the Board, nor did it change the appointment/election process of any of the seats. 

Ok, so I find the Times article misleading. What then, does the Board of CalPERS really look like? 

Composition of the CalPERS Board

In almost all public sector pension plans in California that I’m aware of, the Board of Directors structure is carefully set up to provide that the number of elected Public Employee Members are less than the number of appointed Board members, and the total of both is always an odd sum - like 13 in the case of CalPERS. This to avoid tie votes and to guarantee that the management “grown-ups” will ultimately be able to control the majority vote. 

At least that’s the theory. In the case of CalPERS, here’s how the appointment process works for the Board of Administration: 

6 members are elected - 1 elected by school members, 1 elected by retired members, 2 elected by active and retired members, 1 elected by public agency members, and 1 elected by state members. 

4 members are ‘ex officio’, a fancy way of saying that they automatically have a seat by virtue of their public office. Those officials are the State Treasurer, State Personnel Board designee, Director of Human Resources for the State, and the State Controller. In the case of these officials, the actual person sitting on the CalPERS Board is usually one of a number of designated staff members, and they can rotate. 

2 members are appointed by the Governor. One Represents the Insurance Industry, and the other represents local government. 

1 ‘public’ member is appointed jointly by the Assembly & Senate of the State. 

The Elected Members

Of the 6 elected members, two are pretty much straight up Union folks. 

Rob Feckner, current President of the Board, is elected by school members of CalPERS. He is out of CSEA (California School Employees Association), and is the longest serving Board member, going back to 1999. He’s been working for the Napa Valley USD for some 39 years as a ‘glazing specialist’, which should tell you how hot he is for power. Most of us would have retired a long time gone. 

Henry Jones is Vice-President, and holds the retired CalPERS members seat. He is a product of that exemplar of fiscal prudence, the Los Angeles Unified School District, where he was their Chief Financial Officer and retired in 1998. He has ‘only’ been on the CalPERS Board for some 8 years, but evidently the lust for power has overtaken him as well, since he recently and unsuccessfully challenged Rob Feckner for the post ion of President of CalPERS. 

Theresa Taylor was elected in 2015 to represent state members on the Board. She is Secretary-Treasurer of the very large SEIU Local 1000 (Service Employees International Union), as well as being on their State Council Executive Board. She works for the Franchise Tax Board & lives in Carmichael. 

There are also 3 other directly elected Board members. Pyria Mathur is the elected member from public agency members (read employers), and has been around since 2003. She has worked for BART (Bay Area Rapid Transit District) since 1998, and prior to that worked as a consultant massaging Municipal Bonds. 

The last 2 elected members are elected by all CalPERS members at large. First is Michael Bilbrey, who works for the Bookstore at Citrus Community College in Glendora. He also is a past-president of CSEA, which makes him the second straight up Union type.

And finally we have JJ Jelincic, the second at-large elected member. JJ has been on the Board since 2010. Interestingly, he works directly for CalPERS, and once upon a time was President of the California State Employees Association, which was largely supplanted by SEIU after the State passed a collective bargaining law for state employees (SEERA). JJ is my favorite Board member, since he knows where some of the bodies are buried, and actually asks honest and direct questions of both the Board, and even scarier, the paid CalPERS staff. More on the paid staff in a follow up article. 

JJ’s actions have caused the Board and staff to try and marginalize him, thus exposing their true siege mentality & lack of intestinal fortitude. To demonstrate that I’m not making this up, check out this article at Calpensions.

The Ex-Officio Members

Of the 4 ex-officio members, clearly the grown-up in the group is John Chiang, currently the State Treasurer, and one of the few technically competent elected officials in the State of California. Prior to this position, he served as State Controller, and on the Board of Equalization. Unfortunately for us, he is currently busy in running for Governor when Jerry Brown terms out. His usual designee, Grant Boyken, has engaged in some seriously questionable acts regarding legislation sponsored by Chiang that directly impacts CalPERS private equity interests, while he (Boyken) sat on the Board as representative of the Treasurer. 

Richard Gillihan is a member because he’s the head of the State’s Department of Human Resources, where he acts as the State’s employer of record for all collective bargaining matters, including pension reform. He was appointed by Governor Brown in 2014, and has been of the CalPERS Board since then. He remains a mystery to me, in that as an HR Director, he clearly knows better as he passively allows the staff of CalPERS to violate many basic principles in their hiring and personnel practices.  

Betty Yee is the current State Controller, and as such sits on the Board. She’s sort of following in Chiang’s footsteps, having started out with the Board of Equalization before becoming Controller. For whatever reason, she rarely personally shows up at CalPERS Board meetings, sending a designee who tends to go along to get along. 

The final ex-officio member is Richard Costigan, who represents the California State Personnel Board. Mr. Costigan is a type we are all familiar with - professional pol. He comes from Manatt, Phelps & Phillips, one of the seriously big time political lobbyist law firms. After working in the assembly as Chief of Staff to a couple of minority leaders (read Republican), he jumped up as Deputy Chief of Staff and legislative affairs secretary for Governor Arnold Schwarzenegger. He was elected as the State Personnel Board’s representative in late 2010, and continues to hold that position as we speak. He, of all people, should know how this stuff works and be more vocal.  

The Appointees

There are three appointed members to fill out the 13. Two are directly appointed by the Governor, and one is appointed jointly by the Assembly & the Senate. 

First there is Dana Hollinger, the Insurance Industry Representative, appointed by the Governor in 2014 to the CalPERS Board. Her public resume says virtually nothing other than she is a 25 year veteran of the life insurance industry, and “is a sought after speaker”. She got a JD from Southwestern, her insurance group The Hollinger Group is based in Century City, and she’s licensed in Beverly Hills :-).

The second gubernatorial appointee is Bill Slaton, first appointed in 2012. He originally came out of IBM in the seventies, handled structured asset financing for public agencies with particular emphasis on IT projects, and was on the Board of two Northern California community banks. He is on the high profile SMUD (Sacramento Municipal Utility District), where he was President for two terms and is currently Vice-President. 

The final appointee is Ron Lind, jointly appointed by the Assembly & Senate. Wouldn’t you like to know how that one gets handled:-). Anyhow, Mr. Lind comes via a large private sector union, the UFCW (United Food & Commercial Workers) in the Bay area. He was appointed in 2013, and stepped down from his union positions - UFCW International, California Labor Federation, South Bay Labor Council, and the Northern California UFCW Employers Pension Fund - in 2014. 

So There You Have It - the CalPERS Board of Administration

I should be clear that I do not personally know any of these people. This article was derived from publically available information, and notes from some prior articles I”ve written about CalPERS over the last couple of years. 

It is important to know who these 13 Board members are, however, as we go forward and analyze their actions, and their interactions with CalPERS staff. As should be apparent from these brief descriptions, the composition and range of the CalPERS Board members is a lot more complex than advertised in the Times article.  

The second part of this series will be about the staff of the agency, their history and how the interactions between the staff and the Board take place. Also by then further articles from the LA Times series should have appeared. 

Stay tuned.


(Tony Butka is an Eastside community activist, who has served on a neighborhood council, has a background in government and is a contributor to CityWatch.)