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Golden State Blues
The Fruits of Pension Politicization

Following up on news that California’s public worker pension funds are in even more dire straits than previously understood, Diana Furchtgott-Roth of the Manhattan Institute takes a closer look at how the union-run financial organization has been managing its workers’ retirement. The short answer: not well. Pensioners—and California taxpayers, who guarantee the funds—have taken a back seat to well-connected corporations and fashionable political causes.

[C]alPERS’ foray into what it calls “socially responsible” investing has cost California taxpayers substantially. Not only were the investments imprudent, but CalPERS funneled billions of dollars into politically connected firms.

To fulfill its social responsibility goals, CalPERS does not invest in tobacco stocks and bonds. Over the past year, the NYSA Arca Tobacco Index increased about 15%. During the same time period, the S&P 500 Index increased only 2%. In 2013, following the Sandy Hook shooting, CalPERS divested itself of $5 million invested in firearms manufacturers. In 2010, it allocated $500 million to HSBC Climate Change Index-benchmarked Global Equity Environmental Index Fund, which CalPERS admits returned half the gains seen from its Global Equity Policy Benchmark since its inception (6.61% compared to 12.79%). It was also co-chair of the UN’s Environmental Programme Finance Initiative, which focuses on reducing energy consumption. Additionally, CalPERS monitors companies for unfriendly labor policies.

As Roth says, “there’s nothing ‘socially responsible’ about low pension returns.” The underperformance of public pension funds threatens the retirement of hundreds of thousands of public workers. The African American community, which is disproportionately represented in the last generation of civil service employees, will be hardest hit in the increasingly likely event that severe cutbacks need to be implemented. Union elites’ virtue-signaling on gun control and environmentalism may help hasten this financial catastrophe.

The first task of any public pension fund should be to meet its obligations to pensioners; CalPERS’s finances should need to be sound before it goes on political crusades. Fixing the politicization of CalPERs won’t fix the state’s calamitous underfunding problem—it has been over-promising for too many years for that—but it would be a good first step toward addressing the rot at the heart of the system, and perhaps impel the state’s policymakers and union leaders to dispense with the dishonestly and distractions and begin the long and painful process of real reform.

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  • seattleoutcast

    I would not say that the pensioners are victims. They are greedy and had unrealistic expectations.

    • f1b0nacc1

      Poor math skills, at the very least.

    • Tall Talk

      most people are there, not to serve the public, but for the pay and benefits. not to mention they don’t do much of anything except repeated tasks.

  • Andrew Allison

    CalPERS is an agency of the California Executive branch. It is only union-run in the sense that Public Service Unions run California.

    • ctobserver

      Well, six of the thirteen board members are elected by union members. Three others are appointed (by the governor and legislative leaders) – I don’t know who those members are, or what the influence of the unions is in their selection. It might be a (slight) exaggeration to call CalPERS “union-run”, but it’s certainly heavily union-influenced.

  • Wayne Lusvardi

    The diversion of funds to “socially responsible” investments is just a euphemism for diverting funds from large donors to the Republican Party (Big Tobacco, fossil fuel companies, oil refiners, big corporate farming, etc.) but not away from Wall Street. Politicization has a price.
    Interesting that the Vanguard Composite Index Fund earned 4.17% this past year when CalPERs made 0.6% and CalSTRS 1.4%.

    • Andrew Allison

      Well yes, investing CalPERS assets in well-performing index funds would produce much better returns, but it wouldn’t produce the “investment management” fees which, in turn keep the Board fat, dumb and happy and justify

  • Blackbeard

    The unions aren’t worried about returns because they know that the taxpayers, both state and federal, will ultimately be forced to bail them out.

    • f1b0nacc1

      They ASSUME that this will be the case…I am less confident that this will actually happen.

      • Tall Talk

        not gonna happen. there is not enough money. the greedy always go too far and they kill the golden goose. younger participants will get nothing after the boomers retire, in fact, the bill from financing the boomer’s opulent retirements will be paid for decades after the last one dies.

        db plans are ponzi schemes. they should be illegal.

  • Tall Talk

    there is nothing socially responsible about defined benefit plans. they are ponzi schemes and should be illegal.

  • Tall Talk

    pensioners crying about payments is like the employees of enron complaining that they “lost their retirement savings.” the money never existed in the first place. enron played out in a decade or so. pension plans play out over many decades, at a slower pace. that is the only material difference between the two.

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