California’s $300 billion public employee pension fund reported the upbeat news that its rate of return exceeded 18 percent in the fiscal year that ended last month.
That doesn’t mean happy days are here again for the California Public Employees’ Retirement System, or for the taxpayers who must make good on government pensions.
“There’s much, much work to be done,” said Ted Eliopoulos, CalPERS’ interim chief investment officer. “We’re ever vigilant; we try not to get too excited in good years or bad years about one-year results.”
Eliopoulos knows better than most that CalPERS remains in a deep hole. Even with the 18.4 percent return, CalPERS estimates that it is only 76 percent funded, a remnant of overpromises made by the Legislature in 1999 and the financial crash of 2007 and 2008. CalPERS would need to make 18 percent on top of 18 percent for several years running, and no one should expect that to occur.
CalPERS was also in the news last week when its former chief executive, Fred Buenrostro, pleaded guilty in a sordid federal criminal case in which he admitted taking bribes of $200,000 in cash, some of it delivered in a shoebox. The criminal case against Buenrostro and the person who allegedly bribed him, placement agent Alfred Villalobos, shouldn’t obscure that the vast majority of CalPERS workers are honorable and dedicated to doing right by people who rely on the government pensions.
Ever since the Buenrostro-Villalobos matter became public, CalPERS has taken steps to restore confidence in its operation. It retained the law firm of Steptoe & Johnson to conduct an internal investigation and implemented the firm’s recommendations, which are intended to improve internal controls.
CalPERS made a point of publicly cooperating with other investigating agencies and has increased disclosure of what had been hard-to-get information, such as employee travel costs.
In 2009, long before the guilty plea, The Sacramento Bee’s Dale Kasler wrote about how the pension fund released piles of paperwork showing exorbitant fees Villalobos took in exchange for getting CalPERS business for various investment houses, and that Buenrostro knew of the payments. The fund since has instituted a disclosure policy affecting placement agents, and sacked a firm that had managed $1 billion in CalPERS’ money, but was tainted by its association with Villalobos.
The case against Buenrostro and Villalobos is salacious, but it’s also a sideshow. Their corruption, no matter how awful, did not affect the giant pension fund in any significant way.
The far bigger problem is CalPERS’ unfunded liability. That will take years to fix.
In February, CalPERS estimated that pension costs could rise by as much as 5 percent of payroll for most employees and 9 percent of payroll for police and firefighters during the next five years. Pensions promised to government workers must be paid. That’s where taxpayers come in. We ultimately will be responsible for keeping those promises.