Pending bill opens door to pension corruption at CalPERS
Updated: May 24
Assembly Bill 386 sailed through the Assembly Judiciary Committee last week on a unanimous vote with virtually no discussion about its provisions. The measure also received express treatment a few days earlier from the Assembly committee that deals with public employee matters.
Given its cavalier handling, one might think that AB 386, carried by Assemblyman Jim Cooper, an Elk Grove Democrat, is just another minor change in law. In fact, however, it would allow the financially shaky California Public Employees Retirement System (CalPERS) to semi-secretly lend out untold billions of dollars by exempting details from the state’s Public Records Act.
Potentially it opens the door to insider dealing and corruption in an agency that’s already experienced too many scandals, including a huge one that sent CalPERS’ top administrator to prison for accepting bribes.
Get a veteran journalist's take on what's going on in California with a weekly round-up of Dan's column every Friday. CalPERS, which is sponsoring the bill with support from some unions and local governments, claims that the exemption is no big deal since the money it lends through “alternative investment vehicles” such as venture capital funds and hedge funds is already partially exempted from disclosure.
However, there is a big difference. Using outside entities to invest means they have skin in the game. Direct lending by CalPERS means that its board members, administrators and other insiders would be making lending decisions on their own without outside scrutiny. CalPERS’ rationale is that using alternative investment partners is costly because of their fees, and that direct lending could potentially result in higher earnings. However, it says, disclosing loan details would discourage many would-be borrowers from seeking CalPERS loans, thus limiting potential gains.
Underlying that rationale is that CalPERS’ $440 billion in assets are, by its own calculations, only about 71% of what’s needed to make pension payments that state and local governments have promised their workers. It has ratcheted up mandatory “contributions” from its client agencies to close the gap, but it’s also been chronically unable to meet its self-proclaimed investment earnings goal of 7% a year.