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California Blues
Pensions Must Prioritize Pensioners

For many years, California’s public employee pension funds have made feel-good social activism a higher priority than generating returns for their retirees. And now that the funds are facing an utterly massive shortfall, the costs of this kind of politically folly are becoming painfully clear. From Reuters:

CalPERS is learning that social responsibility can be a drag. The $290 billion California pension manager may reinvest in tobacco stocks after a report found that exiting the sector cost it $3 billion of potential investment gains over 15 years.

… CalPERS generated a mere 2.4 percent return in the fiscal year ended last June, far short of its 7.5 percent target.

California’s pension funds, like the many others like it in cities and states across the country, have been woefully underperforming, in part because their basic mission—generating returns large enough to fund the retirement guarantees of public employees—have been corrupted by the social and political agendas of the unions and bureaucrats that control them. (The next frontier: Bill DeBlasio has called for the struggling New York City pension fund to divest from gun manufacturers). As we argued when CalPERS recently announced that it was responding to its dire financial situation by intensifying its green activism, these institutions desperately need to be reined in. In particular, they should be statutorily barred from adding bells and whistles to their portfolio until they meet their investment targets for several consecutive years and their finances are sound. As James Copland and Steven Malanga have argued, the legislature should also change the composition of the pension board, so that they “include citizen financial experts and a taxpayer advocate.”

If this kind of back-to-the-basics investment policy is unacceptable to the public sector unions, there are a number of options open to them. They could volunteer to have their members increase their own contribution schedules to make up for the pension funding gap. Or they could ask to dissolve public pension funds and have members gamble their own retirements, privately, on fashionable social causes. The important thing is that taxpayers—most of whom don’t have access to anywhere near the level of retirement security that CalPERS provides—are not forced to bail out the unions when their political stunts don’t work out.

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  • qet

    Unless and until these funds miss payments on pensions, their “dire financial condition” has essentially zero political significance. Votes of the pensioners are not lost because they keep getting their checks on time, and votes are gained by the left-liberal posturing and preening. It’s a state of political Pareto optimality.

    • Andrew Allison

      What makes it even worse is that it’s not clear that votes are actually gained. I suspect that public employees are far more interested in their (pre- and post-) retirement paychecks than green activism, and this is simple political posturing.

      • M Snow

        As a recipient of a CalPERS retirement check I can assure you I have zero interest in green activism or any other liberal investment nonsense for that matter.

        • qet

          Yes, but are you writing CalPERS or your local state rep letters telling them that if CalPERS’ green activism or other poor investment strategies causes it to be unable to continue writing your checks, you will be very very unhappy? Because I’m guessing not. And I’m guessing none of your fellow retirees is, either. So what possible reason does CalPERS or the state legislature actually have to make any changes at this time? What political price are any of them actually paying for the underfunding of the obligations?

          • M Snow

            I was only agreeing with Mr. Allison that CalPERS retirees have little or no interest in green activism. As to writing to my state reps, we no longer live in California. But even if we did, California is a one party state run by liberal fanatics who couldn’t care less what a few disgruntled conservatives have to say about anything. And I’m already very, very unhappy about the entire Social Security/state and municipal retirement fiasco we are handing to our children and grandchildren. Both parties are complicit in this horrible mess. I try to vote for candidates who will fix it but such people usually lose.

          • Jim__L

            You never know when something might get through. You should at least call CalPERS, to make sure their echo chamber isn’t unanimous.

            Pebbles can start an avalanche. =)

          • M Snow

            Well, I called. They don’t take complaints over the phone, but a nice lady directed me to their website, where they do take general comments. I suggested that they indulge their environmental whims with their own money instead of that of the retirees. They say it will take 30 days for a response. I wish I shared your optimism.

          • Jim__L

            It’s not that I think that this *will* get through. It’s that I think it *might*. Life is chaotic, and interesting things happen from the smallest push.

          • M Snow

            You are still more optimistic than I am, but I’m 68 and have been watching California politics for half a century.

  • Tall Talk

    having this much money centralized creates moral hazard. individual retirement accounts are the answer, people should invest on their own. end all this and purchase annuities for the participants and convert it all to individual accounts.

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