CalPERS Must Set Aside Politics and Remember Its Fiduciary Responsibility

There is a fundamental dichotomy at the heart of the growing trend in socially responsible investing, in which pension funds or other investors focus on inherently political issues rather than solely on financial results. Research recently published by the Spectrem Group, a market research firm, tries to determine what pension participants think ought to be the primary purpose of public pension funds. It finds that the perspective of the pension participants is at odds with those who manage the funds.

Spectrem surveyed more than 800 members of the California Public Employee Retirement System, or CalPERS, to elicit their views on recent fund performance. The survey revealed that the participants have a high degree of confidence in their fund. Nearly half of respondents believe the fund has beat the market in recent years and almost two-thirds believe that their pension fund is fully funded, with sufficient finances to cover all members’ pensions.

Of course, the truth at the nation’s largest public pension fund is starkly different.

Over Thanksgiving the fund quietly released over two hundred pages of information reviewing its 2017 performance. The sheer volume of words hid the most important takeaway: CalPERS does not have nearly enough money to cover its future obligations.

The report notes that there is a $138 billion unfunded liability, up $25 billion from 2016 —  despite a booming year in the stock market — amounting to a funding ratio of only 68 percent.

Perhaps the most concerning point raised by Spectrem’s study, however, is a deep-seated inconsistency between the objectives of the fund’s members and its professional investment managers.

Read the full piece at Morning Consult:

Dubious Investments Further Imperil Calif. Pension Plan

The California Public Employee Retirement System, known as CalPERS, is in crisis. And it sure looks like things are going to get a whole lot worse before they can get a whole lot better.

The system already has a $153 billion unfunded liability, one of the largest shortfalls of any state, and it only has funds to cover 68 percent of promised benefits into the future. And because CalPERS is already cash negative, paying out $5 billion more in benefits to retirees each year than it takes in, there aren’t many scenarios whereby the system would be able to make good on those promises absent outside intervention (read: taxpayer bailout).

Lawmakers and the fund’s board should be considering reforms to improve the system, but California voters and taxpayers faced another setback recently. Overseers of the pension plan—the nation’s largest—passed a funding plan earlier this year that projects shortfalls over the next decade but assumes rosy investment returns in coming decades to make up the difference. Given the high market valuations today, that assumption seems dubious.

When the CalPERS investment committee reallocated its investments recently, it assumed a 7 percent annualized rate of return. While CalPERS has enjoyed some good years—for example, its 2017 return may exceed 11 percent—that’s not the norm. The fund has averaged a 4.6 percent rate over the past decade, and its 2016 rate was an abysmal 0.6 percent.

Read the full piece at

Iowa should learn from Puerto Rico’s crises

What’s the matter with Puerto Rico, and why should Iowans care?

It’s become increasingly clear that Congress will soon need to provide some sort of assistance to the U.S. Territory. The island has weathered a decade of recession, holds $72 billion in debt it cannot fully repay, and its pension plan verges on bankruptcy.

Widespread agreement exists that something must be done, but no easy fix has emerged. As chairman of the Senate Judiciary Committee, Republican Sen. Chuck Grassley, sits at the epicenter of this crisis. Iowa taxpayers should closely watch how Congress resolves this issue because it could end up worsening the state’s finances.

Puerto Rico wound up in its fiscal predicament by borrowing money to postpone tough tax and spending decisions whenever possible—a strategy Iowans would recognize as bond measures have ballooned state debt in recent years.

Read the full piece at the Quad-City Times:

Stephen Colbert Lampoons the First Amendment

Comedy Central host Stephen Colbert took his vaudeville routine to the Federal Election Commission (FEC) Thursday morning. He emerged from the choreographed hearing with approval from the agency to form what’s called a super PAC, an entity that may raise and spend unlimited funds to blast or boost federal candidates.

Steve Dingledine, a 43-year-old Washington resident, arrived at 5:45 a.m. to catch a glimpse of the faux-newsman. Colbert is a “court jester par excellence,” Dingledine declared, but he said he also hopes that the comedian’s shtick will shift public opinion. “The awareness is going to be raised to a point where the loophole cannot be exploited by media companies,” the Colbert groupie said.

What advocates of strict campaign finance regulation call a “loophole,” others call protected political speech under the First Amendment. In May, Colbert submitted an advisory opinion request through an attorney asking the FEC to sanction his political action committee.

The central question was whether Comedy Central’s corporate parent company, Viacom, had to report administrative assistance to the PAC and potential payments to air political ads on other television stations. FEC lawyers submitted three different drafts responding to Colbert, and the agency ultimately approved a compromise version allowing Colbert to claim the “press exemption” to campaign finance law. Viacom must therefore report PAC involvement not relating to the late-night program, including logistical support for the PAC and advertising placement on other networks.

Inside the packed hearing room, Colbert’s request didn’t sound like an effort to open a loophole for laughs. A subdued Colbert was nearly mute as his lawyer, Trevor Potter, blandly answered commissioners’ questions with only brief interjections from his client. After all the hype, Colbert’s appearance seemed anti-climatic, in contrast to his cheering fans waiting outside.

By 9:30 a.m., more than 30 of those fans were standing in line, along with a few campaign finance lawyers and Capitol Hill staffers. Six “coordinators” clad in red t-shirts reading “COLBERT SUPER PAC” arrived with signs to energize the crowd. Four Department of Homeland Security officers, who were there to provide security, told the redshirts that no “signs or protests were allowed” in the FEC hearing room. The redshirts assured the police that they planned to remain on the sidewalk’s de facto free speech zone.

Read the full piece at