Wed, Jun

CalPERS - Life Without Oversight


THE EASTSIDER - Here’s the scenario. CalPERS General Council Matte Jacobs and his puppet CEO Marcie Frost have finally rid themselves of any Board members who would dare stand up and ask real questions of the Executive Committee.

Actually, make that all three of the Executive Committee. 

That would be Teresa Taylor, recently voted in as President. For those who don’t know about Taylor, I recently wrote about her, and you can find the article here.  

Over the last few years, the CalPERS trio of General Council Matt Jacobs, GM Marcie Frost, and the tame President have quietly run the organization as a secret club, stifling all dissent, particularly legitimate questions. 

They have coopted all the Presidents, be it, Teresa Taylor, or prior Presidents like retread Rob Feckner, who returns as the Vice-President of CalPERS. They proudly announce the end of any bit of transparency in their Election announcement. 

Of course they haven’t come off looking so good in court, as prior Board members JJ Jelincic and Margaret Brown have successfully sued them, but so what. Now the Executive Committee can do anything they want, without a single protest or probing question from anyone on the Board of Directors.  

Fatal Failings

$440 Billion dollars of public employee pension money deserves competence. Fiduciary responsibility demands it. As the largest single public pension in the United States, CalPERS should be the gold standard of governance, instead of one of the worst managed and most secretive ones. 

Before I note the CalPERS Boards recent demonstrations of incompetence, many thanks to the blog Naked Captitalism, and to the ongoing work by former Board members JJ Jelincic and Margaret Brown for their work as they continue to  peek under the hood of what used to be a $440 Billion dollar fund. You can find the blog here, and its well worth a subscription. 

Here are some recent examples while CalPERS says nothing to we the beneficiaries. 

(1) Pay too much to shut up the troops 

“As we will explain in more detail, CalPERS’ new compensation consultant, Global Governance Advisors, is enabling the giant pension fund’s staff in misappropriating from beneficiaries via the device of fundamentally and pervasively flawed pay benchmarking. The biggest fail is benchmarking CalPERS against private fund managers, without making adjustments for the considerable benefits that CalPERS employees get by working for a public pension fund, the biggest being that it’s virtually impossible to fire them once they get past probation. The second is not recognizing and allowing for the fact that the sort of fund management that CalPERS is doing is not high-skill active management, but lower-skilled running of index funds (which let us be clear actually does take skill) and choosing third-party fund managers…with the assistance of consultants…begging the question of the value added by CalPERS employees.” 

(2)Mislead 100,000 Employees Over Their Long Term Care 

“So the CalPERS long-term care insurance plans will clearly and undeniably will never be able to pay out the stipulated benefits while complying with the original terms, which included an inflation protection option that most sensibly chose. As former board member, JJ Jelincic, explained:

The product was mispriced from day one. Providing long dated, unlimited inflation adjusted benefits meant that the program was offering undefined and unlimited coverage. There was no way to reasonably price the policy.

What makes this ugly situation worse is the way CalPERS has abused these policy holders. First some key background, from a 2019 post:

It doesn’t look like there will be a happy ending for the over 100,000 CalPERS long-term care policy holders who are represented in the class action lawsuit, Wedding v. CalPERS. That doesn’t mean there’s a good outcome for CalPERS either. However, things should work out for the plaintiffs’ attorneys.

The bone of contention is that CalPERS approved an eye-popping 85% increase in premiums in 2013, hitting only the policies with the most generous payment features. The plaintiffs contend that these increases weren’t permissible and are seeking substantial damages.

The case has been grinding through the California courts since 2013. Judge William Highberger, in his decision from a June 10 trial, explicitly called on the legislature and state government to bail out the long-term care scheme.” 

(3)Mislead Employees About Improper COVID Policies 

“Readers may recall that last month we broke the story of CalPERS’ gross negligence on the workplace safety front. The short version is that despite having a persistent high level of Covid cases, CalPERS has refused to reinstate telework policies, when other similarly afflicted California agencies. So it appears that maintaining the Cult of Marcie Frost outranks employees health and complying with Covid-related regulations.

As we’ll explain, CalPERS flagrant disregard for the well-being of its workers has persisted despite pushback from the union representing the workers at the CalPERS headquarters complex in Sacramento, complaints first at at least one “stakeholder” session in May and then the Board of Administration meeting in June, and the Sacramento Bee reporting on this continuing scandal.

The stakes are even higher than CalPERS and the Bee have acknowledged. A new study, admittedly now at the preprint stage but from a highly respected team using the high-quality Veterans Administration database, supports an idea we’ve suggested from the get-go: that every Covid infection has a health cost, and those costs accumulate. Some reactions from top experts:” 

(4)Dump $6 Billion in Private Equity at a Huge Loss 

“CalPERS is up to its old crooked, value-destroying ways. Its sale of $6 billion in private equity positions, at a big discount….because CalPERS was in a hurry despite no basis for urgency, shows yet again the sort of thing the giant fund routinely does that puts it at the very bottom of financial returns for major public pension funds.

Oh, and on top of that, CalPERS admitted to Bloomberg that it is lying in its financial reports for the fiscal year just ended this June 30 by not writing down these private equity assets. As former board member Margaret Brown stated:

In Dawm Lim’s Bloomberg story, Calpers Unloads Record $6 Billion of Private Equity at Discount, CalPERS admits to cooking the books. Not recognizing the sale (the loss in value) in the same fiscal year can only be to play shenanigans with the rate of return. So if, or more likely when, CalPERS again does badly in comparison to CalSTRS and similar funds, remember it would be even worse if CalPERS was accounting honestly.

CalPERS admits it took a hit for unloading such a big interest in a rush. From the story:

The California Public Employees’ Retirement System sold about $6 billion of its stakes in private equity funds to second-hand buyers, severing ties with a slew of past managers and freeing up cash for new wagers.

The $440 billion public pension fund, the largest in the US, has cycled through four investment chiefs since 2009 and has long wrestled with the complexity of its $50 billion in private equity holdings. Calpers hired Jefferies Financial Group Inc. to explore ways to clean up its portfolio and shop a swath of assets, according to people familiar with the matter….

the deal is not only the largest of its kind by Calpers, but private equity executives said it’s probably the biggest-ever involving second-hand fund stakes changing hands.

Trading in such size came at a price: Calpers sold its holdings at a roughly 10% discount to their value in September 2021, some of the people said 

The Takeaway

There are remedies for the 1.5 million or so beneficiaries when an out of control Board of Directors fail in their fiduciary obligations to the beneficiaries. Maybe, just maybe it’s time for us CalPERS members to do something about this sad situation. Does anyone know a really good class action attorney specializing in fiduciary duties of a Board?


(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.) 

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