PERSWatch

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“Top administrators and investment managers at the California Public Employees’ Retirement System were awarded $4.5 million in bonuses, averaging 41% of their base salaries for the year that ended June 30,” according to a report in the Los Angeles Times. (CalPERS awards $4.5 million in bonuses to managers, 10/8/2011)

The bonuses ranged from a high of 73% of the $240,000 salary of the senior portfolio manager for fixed income to a low of 14% of the $358,280 salary for the senior investment officer in charge of risk management.

While it has been some time since I have reviewed the bonus structure at CalPERS, I suspect much of the criticism I levied in March 2009 would still be applicable. Highlights include:

CalPERS’ bonus structure suffers, to some degree, from characteristics frequently criticized in the corporate sector. Like options grants to corporate executives, CalPERS bonuses are structured with no downside risk, only upside gain. Additionally, adjustments or “clawback” provisions are needed to recoup unearned bonuses.

Points are only awarded, not subtracted. So, managers who do poorly in factors that cost tens of millions can still get a bonus based on factors that yield only tens of thousands.

CalPERS annual bonuses are weighted (1 year performance counts 10%, 3 year 40%, and 5 year 50%) Adjustments to fund valuation aren’t applied retroactively. If there is no mark-to- market accounting, staff might be getting performance bonuses based on a bubble.

CalPERS should award negative points for under-performance and should subtract these from positive basis points. Payments should also be delayed to ensure performance reflects market, rather than book, value. This is especially important for real estate, alternative investment and other managers where value isn’t measured minute by minute, as it is with most equities.

According to the LATimes, “The bonuses are based on rolling averages of returns for the last three years.” That would be a step backwards from the five year look back used previously. See my CalPERS Testimony from March 16, 2009.

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California’s Governor Jerry Brown signed signed Assembly Bill 873, which prohibits former CalSTRS and CalPERS board members and high-level executives from lobbying their former employers for ten years.  The bill is the most stringent measure yet to get at the “placement agent” scandals that in wrote about back in 1997.

In his signing message, Brown noted “what’s good for the goose, should be good for the gander,” meaning members of the Legislature should send him a similar bill prohibiting former members from lobbying current members for ten years, instead of the current one year limitation.

That seems highly unlikely. In 1997 I testified before a Senate hearing about gift giving at CalPERS. I remember one of the Senators leaning forward and looking at me over his glasses: “…and I suppose you think we shouldn’t be able to take gifts either?” I’m sure many in both chambers would not want to give up a lucrative career in lobbying.

Signing AB 873 was easy. However, Brown vetoed another measure, Senate Bill 439, that no member of either house opposed on the floor. It would have lowered the annual limit on gifts that CalPERS / CalSTRS board members and executives could accept from the current $420, that applies state-wide, to $50 from anyone doing business with CalPERS or CalSTRS.

Brown’s veto message says that the measure would “create a special set of rules that will apply exclusively to CalPERS and CalSTRS” and further complicate an already complex state reporting system without advancing government transparency very much.

Brown did a good job on these bills. While I’m generally against CalPERS / CalSTRS board members and execs accepting gifts, it was unreasonable to single out these two agencies.

I used to be an ethics officer for a department within CalEPA and would frequently get questions from officials wanting to accept small gifts from those doing business with our department. The laws in this area can be quite complex and frequently the cost of my time to answer their questions far exceeded the value of the gift in question.

A $4 sandwich, for example, could end up being valued at a true cost of $100 after factoring in all the expenses of the sponsor. You need to factor in the cost of invitations, speakers, room rental, catering etc. and if it were a poorly attended function that would drive up the cost of that $4 sandwich. This is an area that cries out for reform and simplification but is something that should apply to all public agencies, not just the two largest pension funds.

For more, see Jerry Brown signs one CalPERS bill, vetoes another, Sacramento Bee, 10/7/2011.

What do you think? Did he get it right?

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Michael Bilbrey is the apparent winner of a special runoff election to fill a vacancy on the 13-member CalPERS Board of Administration.

According to the unofficial vote count, Bilbrey received 117,034 votes, while Richard Ross received 78,718 votes.  The result is not official until certified by the California Secretary of State’s Office.

Bilbrey and Ross were among a field of eight candidates vying for a member-at-large board seat following the resignation of Kurato Shimada, who left under something of a cloud last August.  A runoff election was held after no candidate received the majority of votes in the first round of the election that took place earlier this spring.  CalPERS regulations, adopted with the support of PERSWatch.net, require the winning candidate to receive a majority of the votes cast.

Bilbrey, a Vice President with the California School Employees Association, will seve out the remainder of the term vacated by Shimada, which ends on January 15, 2014. Learn more about Bilbrey at his campaign web site, bilbrey4calpers.com.

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Videos are now available from the “CalPERS Candidates’ Forum,” moderated by the League of Women Voters of Sacramento County, on Wednesday, July 6, 2011 in the CalPERS Auditorium. Although less than 50 people showed up for the forum, I expect many more will watch them online. We will need to consider other options for the next forum to ensure a better turnout. Your ideas are welcome. Please e-mail them to jm@perswatch.net.

In the first round of the current election only 14% of members voted. Let’s hope more vote in the run-off.

CalPERS members as of June 1, 2011 are eligible to vote in the runoff election. Ballot packages were mailed beginning June 30, 2011 and must be postmarked or received by CalPERS on or before July 28, 2011 in order to count. Unofficial election results will be available online in mid-August 2011.  Below are links to documents previously posted by CalPERS and you can click on candidate names to go to Read more…

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CalPERS Auditorium Looking Toward Board Seats

PERSWatch.net will sponsor a “CalPERS Candidates’ Forum,” moderated by the League of Women Voters of Sacramento County, on Wednesday, July 6, 2011 from 6:00 p.m. to 8:00 p.m. The forum will take place in the CalPERS Auditorium, Lincoln Plaza North, 400 P St., Sacramento, California. Free parking will be available under the building. Enter on the Q Street side between 3rd and 5th Streets.

As discussed below, no new information is forthcoming from CalPERS regarding the candidates. Candidate statements and videos remain unchanged for the runoff. Although you may find some new information on candidate websites, you know these are essentially ads, created to put candidates in the best light possible. At our forum you can put candidates on the spot with tough questions and compare them side by side.

Democracy is a two way street. It works best when an educated electorate fully participates and evaluates the candidates – their experience, qualifications, platform, dedication – whatever you place as high priorities. Hopefully, engagement with members continues after the election to ensure directors are truly representing our interests.

In the first round of the current election only 14% of members voted. Perhaps low turnout is attributable to a low interest or knowledge, a declining sense that voting as a civic duty, the difficulty of voting, or limited contact with the candidates. Whatever the reason, I personally can’t remember a time when the stakes were higher.

Both candidates running in the Special Runoff Election, to fill the Member-At-Large Position B vacancy, have confirmed their attendance. The forum is open to all CalPERS members, media and the general public and is free of charge. Attendees will have the opportunity to submit questions to the candidates via question cards, available upon arrival. League volunteers will group and consolidate questions submitted in order to avoid repetition and cover a broad range of material.

No food or drinks will be allowed in the Auditorium. Seating is limited. Please minimize the use of perfume and cologne out of respect for those with asthma or chemical sensitivities. In addition, please arrive several minutes in advance so the program can start on time without distraction.

Since there was no majority vote winner in the balloting held earlier this year, a runoff election will be held between the two candidates who received the highest number of votes, Michael Bilbrey and Richard H. Ross. As a result of a random drawing, Bilbrey’s name will appear first on the ballot.

CalPERS members as of June 1, 2011 are eligible to vote in the runoff election. Ballot packages will be mailed beginning June 30, 2011 and must be postmarked or received by CalPERS on or before July 28, 2011 in order to count. Unofficial election results will be available online in mid-August 2011.  Below are links to documents previously posted by CalPERS and you can click on candidate names to go to their campaign sites.

Richard H. Ross

• Candidate Statement
• Candidate Statement Video
• Transcript

Michael Bilbrey

• Candidate Statement
• Candidate Statement Video
• Transcript

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Michael Bilbrey got 46,032 preliminary count votes. Richard Ross placed second with 26,522 votes to qualify for a runoff. Donna Snodgrass and David Miller were close behind with 24,101 and 23,627 respectively. Ballots go out June 30 and are due back July 28. PERSWatch.net will hold another CalPERS Candidate Forum on July 6, from 6-8 pm, in the CalPERS auditorium at 400 P Street, Sacramento. The League of Women Voters of Sacramento County will again facilitate the forum.

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PERSWatch sponsored the “CalPERS Candidates’ Forum,” moderated by the League of Women Voters of Sacramento County, on Tuesday, April 26, 2011. The forum took place in the CalPERS Auditorium, Lincoln Plaza North, 400 P Street, Sacramento, California.

Seven candidates running in the Special Election, to fill the Member-At-Large Position B vacancy, participated in the event. This forum was open to all CalPERS members, media and the general public. Attendees had the opportunity to submit questions to the candidates via question cards.

Over 120 people were able to attend in person, twice the number that attended our last CalPERS Candidates’ Forum and four times the number that attended our first forum. We hope these forums will improve the dialogue between candidates, CalPERS members, and the general public, as well as helping members make more informed voting choices.

Special thanks to the League of Women Voters of Sacramento County for facilitating the Forum and to CalPERS for the use of their auditorium and for creating the following videos so that those of you who could not attend in person can still benefit from this effort.

1. Video: Introduction and Opening Statements, Part 1 – Read the transcript (PDF, 33 KB)
2. Video: Question and Answer Session, Part 2 – Read the transcript (PDF, 45 KB)
3. Video: Question and Answer Session, Part 3 – Read the transcript (PDF, 56 KB)
4. Video: Closing Statements and Conclusion, Part 4 – Read the transcript (PDF, 28 KB)

Please remember to vote by May 20, 2011. Thanks to the election reform efforts of PERSWatch, if no candidate receives a majority vote in the initial election, a runoff election will be conducted between the two candidates who received the highest number of votes.

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If you are a retiree, hopefully, you saw the brief article on the Ambassador Program in the California State Retiree or on the CSEA Retirees Inc. website. If you aren’t a retiree, contact CalPERS at the e-mail below and ask them if you can attend as well. You may need to take some time off from work, but it could be a good investment of your time. Now, as Paul Harvey used to say, “the rest of the story.”

According to Scott Yates, newly hired to run the Office of Stakeholder Relations, the CalPERS Ambassador Program has been built in line with the successful Ambassador Program run by the Public Employee’s System of Nevada (NVPERS). Mr. Yates and his staff studied how NVPERS’ Ambassador program educates and empowers their volunteer corps of Ambassadors to communicate the facts about public pensions in Nevada. They are trained to communicate facts with their friends and neighbors, engage community and business leaders, and to work with the editorial boards of community newspapers. Volunteers are not Read more…

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Disclaimer: These are my notes from the second day of a conference of mostly California pension funds. I try, but don’t guarantee accuracy. These notes are very abbreviated and do not cover several speakers.

The LA Trustees Roundup keeps getting better every year. If you’re a trustee or even just a member of a public pension fund, you should plan on attending next year. Coverage of day one: AM sessions, PM sessions.

Pension Plan Attacks: State and National Efforts to Eliminate Quality Retirements in the Public and Private Sector

Hank Kim, National Conference of Public Employee Retirement Systems

We used to suffer from benign neglect. Public sector employees and unions were an after-thought when it came Read more…

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The CalPERS Board will consider lowering its investment return expectations from the current 7.75 percent to 7.5 percent.  If you are a CaPERS member and are thinking about buying “air time.” If the discount rate is changed, it will apply to all applications postmarked on or after March 17, 2011.

Lowering the discount rate to 7.5% will result in an increase in cost for members to purchase service. Costs are expected to increase between 2% and 5%. (The State Worker: How CalPERS’ rate change would affect ‘air time’ purchases, 3/10/2011)

“Air Time” or Additional Retirement Service Credit (ARSC) gives active CalPERS members with five years of earned service credit the opportunity to purchase from one to five years of additional service credit to increase their unmodified retirement allowance. Note that purchased Airtime does not change eligibility for additional benefits (e.g., retirement, disability, death, or any other benefit).

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