California Pensions' $65 Million Middleman
In the wake of a scandal, a ballot initiative to reform the state's pension system gains new fuel.
I'm sad. I'm mad. I'm bewildered. Until this week I always thought that California's public pension goliath CalPERS was just large, bureaucratic, inflexible and a little aloof, but generally was well-intended. Public servants trying to do the right thing and all that.
No more. Not after this week's shocking exposé by the Los Angeles Times of $53 million of finders' fees going to a paid hustler with cozy connections to the board and the former CEO who is now on his payroll. Top that off with $33,000 in campaign contributions to the former chair of the board's investment committee, and you've got a colossal "pay to play" scandal that will undoubtedly draw the attention and the ire of the S.E.C.
Yesterday, the Wall Street Journal reported that payments were higher than the $53 million reported in the LA Times and now appear to exceed $65 million.
My favorite quote so far came from Willie Brown, the former Assembly speaker. Here's what he had to say about the news of this goliath case of influence-peddling: "I'm blown away by the amount of money [the placement agent] was paid. Fifty million in seven years is a lot of money."
A few months ago I wrote two columns about the S.E.C.'s proposal to regulate this kind of back-alley influence-peddling. As would be expected, the "placement agent" industry hired a lobbyist to press their case with the S.E.C while nobody is looking. Well guess what, guys? You now have a bigger problem. If I can have any influence in this matter, there will eventually be a ballot proposal before the voters in California to shut this nonsense down altogether.
Until now, I have stood on the journalistic sidelines reporting about efforts by a California citizen-taxpayers group calling itself the California Foundation for Fiscal Responsibility, which has drafted a ballot initiative to curb the pension abuses in the Golden State. Rather than taking sides on their issues, I have simply tried to point out the problems with California's current system -- and the uphill battle these watchdogs face in trying to get the required signatures to place their proposal on the ballot, let alone fight the public employee unions and their financial multi-million-dollar war chests in a general election.
But this CalPERS fiasco changes my attitude on their efforts. If the watchdogs are willing to accept some reasonable enhancements of the pension caps they have proposed so that retired public employees don't have to eat cat food, and if they will include a strong governance section in their proposal, I will get off the fence and support their effort as the best option available in comparison with a do-nothing state legislature that will never pass pension reform on its own, and no other serious proposals coming from anybody else.
The height of hypocrisy. Before I unveil my proposed ballot language for these folks to consider, I want to have a few more words about CalPERS. How dare you? How dare you run around the world as big-shot investors swaggering your big blocks of voting shares, telling corporations how to govern themselves and holding yourselves out as the great protectors of good governance and the public interest, when you have such absolute rot festering in your own boardroom? Every member of your board should be ashamed. Some of you should be resigning -- immediately. Where were the internal whistle-blowers and self-discipline police that the pension-fund corporate governance reform advocates herald as the solution to problems in the private sector? The hypocrisy at 400 Q Street in Sacramento is just amazing. As my mom used to tell me as a child, "Sweep your own doorstep first."
I predict that the S.E.C. will make this CalPERS story a poster child for its initiative to put some handcuffs on the mercenaries who try to wangle their way into pension fund boardrooms to win business by hook or by crook.
But rather than just wagging my finger at the CalPERS board, I have decided it's time to do something constructive, like write some constitutional amendment language.
So here's what I'd suggest those California Foundation for Fiscal Responsibility people should tack on to their ballot initiative. Couple that with the $100,000-a-year-pensioner headlines, and they'll get the attention of the electorate. I can't imagine a single newspaper or public affairs TV producer in the state that would not support these governance reforms, especially in light of the CalPERS influence-peddling scandal.
Public Retirement Plan Reform Initiative
Independent trustees and fiduciary standards. A majority of a plan's trustees shall be independent of that retirement system and all its participating employers. No independent trustee may be employed by a public agency or be a participant or retiree in the system. No independent trustee may presently be affiliated with a service provider or vendor to the system, or an employee or retiree organization affiliated with the system. At least two-thirds of a board's independent trustees shall be qualified for service as certified or licensed financial, actuarial, accounting, legal, benefits or investment professionals at the time they are selected. All trustees shall be held to the highest reasonable standards of fiduciary law.
Code of ethics. The Attorney General shall publish a code of ethics to govern public pension fund governance and commercial transactions and relationships. The legislature shall establish sanctions for violations of the public pension code of ethics which may include both civil and criminal penalties.
"Pay to Play" prohibitions. No person or organization may be engaged and compensated as an investment advisor or service provider to a retirement plan board or fund if, within the past five years, that person or organization or any of its employees, officers, partners or agents have made gifts or campaign contributions benefiting or supporting any person presently serving in any capacity related to the system's governance.