Athletic Investments - Part 2

Yesterday, we noted that a mysterious item at a closed-door Regents meeting likely had something to do with a proposed investment of UC pension and endowment funds into some kind of entity linked to UCLA's change in athletic conference.

The Regents have a duty of prudence when it comes to investment of funds. Pension funds are ultimately to be invested for the benefit of pension system participants. Investments that have some other purpose raise questions. In particular, investments aimed at bolstering the athletic program raise questions.

Recently, a group of retirees - suspicious of certain CalPERS policies - hired an independent investigator to audit activities in that retirement system.*

Unless what the Regents are planning to do with the funds to which they are entrusted is made clear, there could be similar pressures within the UC retirement system.

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*https://www.sacbee.com/news/politics-government/the-state-worker/article312576983.html.

We are not alone

As faithful blog readers will recall, the Regents considered a plan for UC Health to form its own Pharmacy Benefits Manager (PBM) as a way of holding down drug cost inflation.*

UC is not alone in trying to find a solution to drug inflation. CalPERS is facing the same problem. However, it doesn't have its own health enterprise the way UC does, so it is seeking a contractual arrangement with its PBM that shares risk. From the Sacramento Bee:

Over the next five years, the California Public Employees Retirement System hopes to save $600 million through a new contract with an intermediary that manages state workers’ and their families’ pharmacy benefits, with the goal of minimizing rising drug prices and stabilizing premium costs. Earlier this month, CalPERS announced a new agreement with CVS Caremark to serve as the pharmacy benefits manager (PBM) for 587,000 CalPERS members. That represents about 40% of the 1.5 million active and retired state workers and family members who are enrolled in the system’s HMO and PPO plans...

To ensure CVS Caremark maintains reasonable pharmaceutical costs that don’t exceed a projected 6.5% cost trend, the company agreed to put millions of dollars at risk. If CVS Caremark doesn’t meet quality goals for treating patients with high blood pressure and diabetes, it will also have to compensate CalPERS. Over the five-year contract, CVS Caremark is putting $250 million at risk...  

Full story at https://www.sacbee.com/news/politics-government/the-state-worker/article311498801.html.

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Note that were UC to create an internal PBM, it would have no one to shed risk to. If UC penalized its own PBM, it would effectively be penalizing itself. Yours truly is not arguing that therefore creating an internal PBM would inherently be a bad thing. But he does suggest that the issue is more complicated than assuming that an internal PBM will automatically fix the drug cost problem.

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*https://uclafacultyassociation.blogspot.com/2025/07/uc-health-considering-forming-its-own.html.

Premonition of UC Health Insurance Costs Next Year? - Part 2

We noted in a prior post that CalPERS was announcing big health insurance cost increases - which suggests that UC might be doing the same this year.* Now there is more evidence. From CalMatters:

Premiums for health insurance sold through the state marketplace will increase by nearly 10% next year, the highest rate hike since 2018, Covered California officials announced Tuesday. The projected 9.6% hike is the result of a “complicated time for health care,” Covered California Executive Director Jessica Altman said during a media briefing, but many Californians will be shielded from the increases as a result of federal and state financial assistance. 

About 90% of enrollees qualify for some type of federal or state financial aid and 20% will see no change in their monthly premium, officials said. About 1.6 million Californians turn to the marketplace for health insurance, which offers plans that cost as little as $10 a month. The rate increase, however, represents the return of a troubling trend: runaway health care costs, experts said...

Full article at https://calmatters.org/health/2023/07/covered-california-2024-health-rates/.

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*http://uclafacultyassociation.blogspot.com/2023/07/premonition-of-uc-health-insurance.html.

Cyber Insecurity - Part 4 (CalPERS releases some info)

As prior posts have noted, UCLA was subject to a data breach that has affected many other organizations. (The list keeps growing.) CalPERS is among those organizations. And now - under pressure to do so - it is releasing more information about those whose information was lost. From the Sacramento Bee we learn that those affected by the CalPERS breach are not satisfied with what they have learned. However, they seem to have more resources and information available to them - thanks to political pressure - than has occurred at UCLA:

The California Public Employee and Retirement System launched its three-day offsite meeting in Monterey with a long-awaited update on a June data breach that exposed Social Security numbers, birth dates and other personal information on nearly 1.2 million retirees and other beneficiaries. The update follows a call from California State Treasurer Fiona Ma, who sits on both the CalPERS and CalSTRS boards, for the nation’s two largest public pension funds to hold special meetings and provide members with an update on the organization’s response to the breach. 

“We know what an unsettling experience this has been for our retirees,” said CalPERS CEO Marcie Frost less than five minutes after the board convened at 9 a.m. “So, I want to address what we’re doing to make the recovery process as smooth as possible for them.” The third-party vendor that was hacked, PBI Research/Berwyn Group, works with CalPERS and the California State Teachers’ Retirement System to identify any members who have died, which helps the agencies prevent overpayments or other errors. 

CalPERS said that PBI was using a data transfer application called MoveIt Transfer, made by Progress Software, that organizations around the nation use to share data securely. The application boasts encryption, tracking and access controls for secure collaboration and automated transfers. In the Monday update, Frost said CalPERS has received nearly 4,000 calls about the breach at its own customer contact center. The average wait time is one minute, she said. Retirees can also send in questions to the email address pbiquestions@calpers.ca.gov, which Frost said is monitored by CalPERS managerial staff. The average wait time for an email response is less than 24 hours, she said. The pension fund also established a special call center with Experian, which has fielded nearly 34,000 calls. Callers were experiencing “alarming” wait times, Frost said, so last weekend the call center added 50 more representatives to help bring wait times back down to one to two minutes. 

So far, about 122,000 CalPERS retirees have signed up for two years of free credit monitoring and identity restoration services through Experian. Frost said this represents a higher-than-expected response, according to Experian, when compared to other companies that it’s worked with following data breaches. (Frost noted that these companies were largely private employers, rather than public pension funds.) 

Frost suggested members could find answers to their questions at calpers.ca.gov/page/home/pbi. She encouraged people who need more help to send an email to pbiquestions@calpers.ca.gov or contact the CalPERS call center at (833)-919-4735. The hours are 6 a.m. to 8 p.m. on weekdays and 8 a.m. to 5 p.m. on weekends. “We realize how sensitive this situation is,” Frost said, “and again, we want to reassure our retirees that we’ll do everything possible to help them through the situation.” 

RETIREES SAY CALPERS ISN’T DOING ENOUGH 

Devara “Dev” Berger, a retiree who used to work for CalPERS overseeing health legislation, didn’t know that the board would provide an update at its offsite meeting. When she looked at the agenda, she saw no indication that the board would discuss the breach or take public comments from members. “CalPERS is foisting the majority of action about the breach onto us,” Berger said. “That is what infuriates us. That shows a complete lack of integrity and leadership.” Berger is upset that the pension fund’s board hasn’t heeded the state treasurer’s request to host a public hearing or town hall where members can directly engage with board members. “I’m not buying into it,” Berger said. “I’m not buying into CalPERS telling me ‘c’est la vie.’”

Source: https://www.sacbee.com/news/politics-government/the-state-worker/article277400423.html.

Premonition of UC Health Insurance Costs Next Year?

From the Sacramento Bee: 

CalPERS health insurance policyholders will officially see their premiums grow close to 11% on average next year. The board of administration for the California Public Employees’ Retirement System approved the new rates Tuesday, during the second day of their offsite meeting in Monterey. The vote was split 6-5.

CalPERS provides health insurance for more than 1.5 million people, including roughly 770,000 state and local public employees and retirees, as well as about 770,000 dependents.

The price hikes reflect the larger trend of medical inflation across the country. A combination of rising demand for non-COVID-related health services, high labor costs and a desire to recoup pandemic-era losses have all driven health care providers to raise their prices...

Full story at https://www.sacbee.com/news/politics-government/the-state-worker/article277436178.html.

Cyber Insecurity - Part 3

Click to clarify

Remember the recent data breach that affected UCLA? If you search for MOVEit data breach, you quickly find - as the image to this post shows - that lots of other organizations were affected. The image is the tip of the iceberg; if you type MOVEit into Google, you'll get pages of references to other entities including CalPERS, Fidelity [any UC folks affected via that route?], New York City school records, Middlebury College, the US Dept. of Energy, Shell, TIAA, etc.

However, beyond naming names, the news accounts have little information. We still don't have a clear idea closer to home at UCLA as to how many people were affected, what the consequences were, whether they were provided with free data monitoring, or whether lawsuits have resulted from the breach.

Inquiring minds want to know. In any event, the lawyers are beginning to circle:

Cyber Insecurity - Part 2

We noted Wednesday that UCLA had suffered a cyber attack and data breach. All UCLA would say is that those people affected had been notified. It gave no indication of how many such people there are or exactly what data regarding those people had been exposed.

As it turns out, the same breach has affected CalPERS and CalSTRS. From the Sacramento Bee we learn that the breach involved such things as Social Security numbers and other personal information:

California State Treasurer Fiona Ma urged the chief executive officers of the nation’s two largest public pension funds to hold special board meetings on a recent data breach that exposed Social Security numbers, birth dates and other personal information on nearly 1.2 million retirees and other beneficiaries. Ma sits on the board of both pension funds: the California Public Employees Retirement System and the California State Teachers’ Retirement System. “While it appears that member retirement benefits are not at risk, those affected may ... now be especially vulnerable to identity theft and other fraudulent activity,” Ma said...

Full story at https://www.sacbee.com/news/politics-government/capitol-alert/article276811231.html.

Maybe UCLA needs to say something more about the magnitude of the breach. Are those affected being given free data monitoring?

CalPERS Long-Term Care Tentative Settlement

Although UC employees are not generally covered by CalPERS unless they did some prior work in a CalPERS-covered position, when CalPERS offered long-term care insurance, UC employees - because they were state employees - were eligible. Many did buy long-term care insurance from CalPERS, but then were hit with big premium increases. Litigation resulted. From CalMatters:

CalPERS is preparing to pay out roughly $800 million to settle claims that it misled retirees when it began offering long-term care insurance in the late 1990s and pledged it wouldn’t substantially raise rates on certain plans. The nation’s largest public pension fund in the 1990s and early 2000s sold long-term care insurance with so-called inflation-protection that members believed would shield them from dramatic spikes in premiums. CalPERS nonetheless hiked long-term care insurance rates by 85% in 2012 and continued to raise fees in subsequent years, straining household budgets for retirees on fixed incomes.

The settlement, tentatively approved by a Los Angeles Superior Court judge earlier this month, would resolve a lawsuit that centers on that steep 2012 fee increase. The settlement cannot take effect until plaintiffs in the class-action lawsuit review it and have an opportunity to submit comments to the court on it in a process that’s expected to take place between April and early June, according to court records. 

The California Public Employees’ Retirement System pays for long-term care out of a specific fund that is separate from the $443 billion portfolio that supports pensions for its 2 million members. The long-term care fund had about $4.9 billion as of June and about 105,000 active policies, according to CalPERS.

The agreement is the second court-approved settlement in the case. It is significantly less expensive for CalPERS than the first one. The previous agreement would have cost CalPERS as much as $2.7 billion and required retirees to drop their long-term care plans in exchange for payments of as much as $50,000 apiece. Thousands of retirees chose security over cash and rejected that agreement because they wanted to retain to long-term care insurance, according to attorneys representing the plaintiffs.

Under the new agreement, retirees who want to cancel their long-term care insurance will receive 80% of the premiums they paid into CalPERS’ long-term care fund. That could amount to tens of thousands of dollars for retirees. The settlement does not cap how much money a policyholder can receive. Members of the class who want to keep their long-term care insurance will receive $1,000 and a commitment from CalPERS that their rates will not increase until November 2024.

Source: https://calmatters.org/health/2023/03/calpers-long-term-care-lawsuit/.

Rumor Mill: Finding Fault With the RASC

As we have noted in the past, there have been problems with the UC Retirement Administration Service Center (RASC) for some time.* New retirees and spouses of deceased UC employees and retirees have trouble reaching the RASC, getting service from the RASC, etc. Delays in receipt of benefits, cutoffs of health insurance, and so on, have been reported. And various efforts have been made to fix the problem - which seems ultimately to stem from a decision to centralize case processing (taking it away from the campuses) and link it to a balky computer system.

A rumor has reached yours truly that the RASC topic was going to be discussed at the upcoming March meetings of the Regents, but has been delayed until the May meetings. How did it get on the agenda? Maybe some regent received a lot of complaints. It's not known. (It's very unlikely that UCOP would put it on the agenda since UCOP is in charge of the RASC.) Why was the topic delayed until May? Also, not known. How reliable is this rumor? Not known either.

If the topic does come before the Regents, a modest suggestion from yours truly would be for someone to take a look at case processing for the much larger CalPERS and CalSTRS systems. If they can do it without major problems, UC should be able to do it.

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*https://uclafacultyassociation.blogspot.com/2023/01/thinking-about-retiring-or-already.html.

CalPERS Spillover Effects

Any time there is bad news from CalPERS, as in the case of today's headlines about Russian investment losses, it's bad news for UCRP. Of course, the two pension funds are unconnected. But bad CalPERS news - CalPERS has had more than its share of scandals and bad headlines - reflects on public pension funds generally and thus on UC's fund. It's a political problem.

As for the Russian problem, we noted in an earlier post that UCRP has very little Russian exposure.*

If you want to read about CalPERS' Russian problems, the article is at:

https://www.sacbee.com/news/politics-government/the-state-worker/article263749188.html.

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*https://uclafacultyassociation.blogspot.com/2022/03/those-russian-assets.html.

No Oil - Part 2

Follow-up: In an earlier post this month, we noted that oil-related investments were removed from the various UC-operated savings plans.* CalPERS and CalSTRS, meanwhile, seem to have fought off a legislative attempt to order them to drop oil-related investments. (They have very small oil-related investments compared with their overall portfolios, mostly through index funds which they hold.) From the Sacramento Bee:

A bill that would have forced California’s public pension systems to sell their oil and gas holdings has been dropped from a state Assembly committee agenda for Wednesday, signaling that it won’t move forward this year. Senate Bill 1173, introduced earlier this year by Senator Lena Gonzalez, D-Long Beach, would have required the Public Employees’ Retirement System (CalPERS) and the State Teachers’ Retirement System (CalSTRS) to sell a combined $11.5 billion worth of publicly traded securities by 2030. The bill cleared the state Senate at the end of May on a 21-10 vote with nine abstentions, but was pulled Monday from a Wednesday hearing in the Assembly Committee on Public Employment and Retirement, which is chaired by Assemblyman Jim Cooper, D-Elk Grove. Cooper’s office didn’t immediately return a call Tuesday...

Full story at https://www.sacbee.com/news/politics-government/the-state-worker/article262741417.html.

The bill in question included a provision protecting members of the boards of the two funds from lawsuits if it turned out that such divestment harmed the funds.* The bill did not refer to UCRP, presumably because of the assertion that UCRP has already divested and because of the constitutional autonomy of the Regents.

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*http://uclafacultyassociation.blogspot.com/2022/06/no-oil.html. See section 2 for the protection provisions.

Watch the Regents' Investments Committee Session of 5-17-2022

The Regents meetings this week began on Tuesday with a meeting of the Investments Committee. The meeting opened with public comments on UC admissions standards and the dropping of the SAT, state vs. out-of-state UC admissions, electrifying UC campuses in response to global warming, the Hawaiian telescope, textbook costs, the UC-San Francisco Parnassus project, and labor issues. Four students (3 in-person; one by phone) complained of antisemitic incidents at UC-Davis and UC-Irvine. Apart from the general link below in which they are embedded, we provide a separate link to those four comments.

As for the actual subject of the day, investment returns, there was nothing unexpected. In a prior blog post, we noted that returns to the pension were negative in the first nine months of the current fiscal year ending March 31, thanks to the sinking stock market. We also noted that in our prior post that there would be gloomy results in the period after March 31 - and there were.* No one seemed particularly upset. However, such results - which inevitably will be mirrored at the larger CalPERS and CalSTRS pension funds, are likely to revive talk about underfunded public pensions.

There was some discussion as to why UC assets can't be used to finance UC campus building projects. It was said that such use would save money but that there were legal hurdles raised whenever the subject arose. It was decided to have a presentation on what those hurdles were at some future meeting.

As always, we preserve Regents meetings indefinitely since the Regents, for reasons unknown, delete them after one year. Links to the session are below:

Full session: https://archive.org/details/regents-investments-5-17-22.

Four incidents: https://archive.org/details/regents-investments-5-17-22/4+comments+UC+regents+5-17-2022.mp4.

Full meeting: https://archive.org/details/regents-investments-5-17-22/regents+investments+5-17-22.mp4.

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*http://uclafacultyassociation.blogspot.com/2022/05/pension-finance.html.

Long-Term Litigation for CalPERS Long-Term Care

Back in the day when long-term care insurance was beginning to be offered, CalPERS offered a policy to state employees. Although UC employees are not normally under CalPERS, as state employees they were able to buy these policies at what seemed to be very advantageous premiums at the time. But then CalPERS jacked up the premiums. Some subscribers dropped their policies. Some accepted cutback policies to avoid the full jacked-up premiums. Some paid. And finally, some sued.

The lawsuit has had its twists and turns. Back in September 2021, we reported a settlement.* But now it appears that the settlement has fallen apart and the lawsuit will go to a jury trial (eventually). From the Sacramento Bee:

The State Worker
$2.7 billion settlement in CalPERS long-term care insurance lawsuit is canceled

Wes Venteicher, May 16, 2022

An agreement in which CalPERS would have paid up to $2.7 billion to settle a lawsuit over the cost of its long-term care coverage has been scrapped, creating new uncertainty for tens of thousands of policyholders. A group of policyholders with inflation protection benefits sued the California Public Employees’ Retirement System over an 85% rate hike that was announced in 2013. CalPERS had promised in marketing materials that the optional benefit, which increased coverage amounts for things like nursing home stays, wouldn’t drive up their premiums. The policyholders argued in the lawsuit the rate hike violated their policy agreements. CalPERS argued they had the authority to raise rates and did so to keep the plans afloat.

The settlement in the class-action lawsuit, reached last July, gave policyholders a choice: they could give up their plans and get a refund of all premiums they had paid — up to about $50,000 — or they could opt out of the settlement and keep their coverage, which got even more expensive last year. The agreement included the caveat that if more than 10% of policyholders chose to keep their plans, CalPERS could exit the deal. Last month, attorneys representing the plaintiffs announced 30% had decided to stay, and both sides had agreed the settlement was off.

Attorneys for CalPERS and policyholders have resumed negotiations. If they don’t reach a new agreement, the case will go to a jury trial, likely not before next year. CalPERS declined to comment beyond an emailed statement attributed to general counsel Matt Jacobs, who said the parties are “working in good faith to reach an alternate settlement” and will proceed to trial if needed. In the email, Jacobs said CalPERS “acted appropriately at all times, and fully complied with its contractual obligations.”

MORE PRICE INCREASES

The settlement’s collapse means more difficult choices for about 60,000 policyholders who would have been covered by the deal, which helps cover costs associated with nursing home stays and in-home care. The agreement included those who elected to pay extra for inflation protection when they purchased long-term care insurance from CalPERS as early as the 1990s. Those in the settlement group purchased the plans before 2004 and were living in California in 2013, when CalPERS announced that it planned to raise rates by 85% in 2015 and 2016. The agreement covered people who paid the increases, those who dropped their plans to avoid the higher prices and beneficiaries of policyholders who have died...

FEW OTHER CARRIERS

Long-term care insurance was a new product in the 1990s when CalPERS and other insurers started selling it. But carriers paid more in claims than expected and did not earn enough on investment portfolios to cover extra costs. They have repeatedly raised premiums to keep pace with costs. Plans sold today are less generous and cost even more, and many insurers have dropped the product. Only five still sell long-term care insurance in California, while 56 have stopped, according to an Insurance Department website. CalPERS also has suspended enrollment, citing “uncertainty in the long-term care market.”

Plaintiffs’ attorneys tried to find another insurer for those who wanted to drop CalPERS but still wanted long-term care insurance, [policyholder attorney Mike] Bidart said. They shared data from the group that enabled carriers to evaluate risks and pricing, but couldn’t find a reputable one despite “a tremendous amount of effort,” he said. CalPERS representatives have said that any money it has to pay as a result of the lawsuit would come from the long-term care insurance fund, not from the system’s pension fund, recently valued at $446 billion. Payouts resulting from the lawsuit could result in more price hikes, according to CalPERS.

Full story at https://www.sacbee.com/news/politics-government/the-state-worker/article261395182.html.

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*http://uclafacultyassociation.blogspot.com/2021/09/more-on-calperslong-term-care-settlement.html.

Spillover from CalPERS

UC's pension fund is large by any standard. It had almost $90 billion in assets as of March 31. But it is dwarfed by CalPERS, the huge state pension fund that covers most state employees apart from UC employees, and many local employees. When the public thinks of government pensions, it thinks of CalPERS (and CalSTRS).

CalPERS continually makes headlines because of management problems, outright misconduct, and scandals. Such events tend to drive changes in state pension policy. Sadly, the headlines are continuing, to the indirect detriment of UC's pension system. See below:

THE STATE WORKER of Sacramento Bee 

CalPERS board violated open meetings law, judge rules. Ex-board member wants more information 

Wes Venteicher, 5-9-22

The CalPERS Board of Administration violated California’s open meetings law when it excluded the public from a discussion two years ago related to the exit of its former investment chief, a judge ruled last week. The retirement system’s board held a closed-session meeting in August 2020 after the sudden resignation of former Chief Investment Officer Ben Meng. Meng quit after someone filed a conflict-of-interest complaint over his personal investments in Blackstone, a private equity firm in which the pension fund also was invested. A notice published by the board said the meeting, held 12 days after Meng’s resignation, was closed so board members could discuss a “chief executive officer’s briefing on performance, employment, and personnel items.” 

J.J. Jelincic, a former CalPERS board member, requested a transcript of the meeting and other CalPERS records through the state’s Public Records Act. CalPERS denied his requests, and Jelincic sued in March 2021, saying the pension system had improperly closed the meeting and withheld records. Alameda County Superior Court Judge Michael Markman issued a final judgment in the case Tuesday, after determining nearly everything discussed in the meeting should have been held in open session, with the exception of some comments made by Matt Jacobs, the retirement system’s chief counsel. 

Judge Markman ordered the retirement system to provide the transcript to Jelincic but allowed redactions of Jacobs’ comments. On Wednesday, Jelincic appealed to the First Appellate District Court of Appeal, asking the higher court to remove the redactions. “PERS has become more and more secretive, and is frequently doing policy discussions in closed session,” Jelincic said. “Quite frankly, the beneficiaries are entitled to know what the hell their trustees and fiduciaries are doing, and they should understand why they’re making the decisions they did.” CalPERS spokesman Brad Pacheco said in an email that the system appreciates and respects the court’s decision and “will factor it into our decisions about future meetings.” 

Markman also denied Jelincic’s request for other records, including additional information related to a CalPERS audit that showed the system — recently valued at about $454 billion — had overestimated the value of some of its assets by about $583 million in fiscal year 2018-2019. Jelincic did not appeal that portion of the ruling. 

MEETING TRANSCRIPT 

In the course of the lawsuit, CalPERS submitted the transcript of the Aug. 17, 2020 meeting to the court for review. In an apparent mistake, the transcript — with redactions — was posted in a publicly visible way to the court’s online document system in August 2021. Naked Capitalism, a blog that covers CalPERS, posted the transcript online. The transcript shows the 13 members of the CalPERS board and at least six employees attended the meeting. They discussed CalPERS’ investigation into what happened with Meng, how to strengthen the system’s conflict-of-interest protections and the possibility that Meng might take legal action, among other matters. 

The potential for legal action from Meng was central to Judge Markman’s decision to uphold CalPERS’ redactions of Jacobs’ comments in the transcript. Jacobs’ comments took up about 27 of the transcript’s 167 pages. Markman determined CalPERS properly redacted Jacobs’ comments under a section of the California Public Records act that allows agencies to withhold information if they determine the public interest in withholding the information outweighs the public interest in disclosing it. “The discussion itself is the sort that would be privileged and would be properly discussed in a closed session,” Markman wrote. 

Judge Markman didn’t view the redacted portions himself, according to Jelincic’s appeal. The appeal argues a court must review the redacted portions before determining they should be withheld. The appeal also takes issue with withholding documents in anticipation of legal action, arguing the law’s exemption for discussing legal strategy is not that broad. In February of this year, CalPERS announced it was hiring Nicole Musicco, who most recently worked at New York private investment firm RedBird Capital Partners, as a permanent replacement for Meng. Deputy chief investment officer Dan Bienvenue filled the job in the time between Meng’s departure and Musicco’s hire.

Source: https://www.sacbee.com/news/politics-government/the-state-worker/article261195657.html.

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THE STATE WORKER of Sacramento Bee

CalPERS audit found widespread violation of laws meant to curb pension ‘double-dipping’ 

Wes Venteicher, 5-10-22

A CalPERS proposal to limit how many years retirees may work for public agencies while continuing to receive a pension has its origins in a 2019 audit that identified widespread violations of state retirement laws. The retirement system found violations in the use of retired annuitants at 72% of the 61 local government agencies it audited, according to a copy of the audit CalPERS provided in response to a Public Records Act request. Two dozen of the agencies didn’t report retired annuitant hires to CalPERS from summer 2014 through summer 2017, according to the audit. 

At 32 agencies, retirees worked more than 960 hours per year, the limit for working at a CalPERS agency in retirement, the audit showed. Retired annuitants who exceeded the 960-hour limit have had to return parts of their pension payments. And the system has taken action to prevent new violations, including automatically monitoring their hours, spokeswoman Amy Morgan said in an email. 

The audit also noted 39 agencies that employed retired annuitants for “several years.” That suggested the agencies were running afoul of the law’s requirement that such workers only be used in “limited duration” appointments, such as for emergencies. CalPERS is crafting new rules that would limit retired annuitant appointments to two years in most cases, with possibilities for extension. 

CalPERS executives have referenced the 2019 audit as they hashed out specifics of the proposal in meetings. Public agencies often hire retirees with specialized skills and knowledge to help on a short-term basis with projects like long-running lawsuits or work on highly technical state equipment, such as water infrastructure. But the arrangements have been exploited over the years by “double-dipping” former public employees who retired as early as age 50 and returned to their former agency at similar pay for similar work while collecting a pension. Lawmakers have attempted to rein in the abuse by limiting the hours per year retirees may work for CalPERS agencies, prohibiting an immediate return to work and restricting what retirees may do and what they are paid. The restrictions don’t apply to private-sector work or agencies that aren’t part of CalPERS. The 2019 audit, while covering only a fraction of the 2,900 agencies for which CalPERS provides retirement benefits, suggests many were slow to comply with laws regulating the use of retirees. 

RETIRED ANNUITANT VIOLATIONS 

Many of the agencies with violations told CalPERS they were unaware they had to report hours, or that specific employees had been retired. Some said they didn’t know they had retired employees who worked more than 960 hours annually. When agencies don’t report hours, CalPERS can’t track compliance with the 960-hour rule, according to the audit. The City and County of San Francisco failed to enroll six retired annuitants in the CalPERS system during the three-year audit period, according to the report. 

Auditors found a retiree who worked 1,016 hours in fiscal year 2014-2015, then left and was rehired as a full-time employee in another division of the agency. No one notified CalPERS, and the retiree went on to work for a total of 1,828 hours in the following fiscal year while remaining retired in CalPERS’ system. The employee worked similar hours the next two years. The division that hired the retiree was “unaware” of their status, according to the audit. The agency hadn’t checked with CalPERS since the City and County of San Francisco started enrolling new employees in the San Francisco Employees’ Retirement System in 2012, according to the audit. Four of the retirees worked for “several years,” suggesting the agency might be violating the law’s “limited duration” restriction according to the audit. It doesn’t say how many years the retired annuitants worked for the county. 

When The Bee asked San Francisco’s Office of the City Administrator about the audit last week, the office referred the request to the San Francisco Employees’ Retirement System. The retirement system said in an email that it didn’t have any information about CalPERS retirees. Monterey County did not enroll and report hours for nine retired annuitants in the audit period, according to the audit. Two other retired annuitants worked more than 960 hours per year, according to the audit. The agency told auditors it had misclassified some of the retirees as temporary employees and attributed the extra hours for the two properly classified retired annuitants to other mistakes. Additionally, three retired annuitants worked for “several years,” auditors found. A Monterey County spokesman did not respond to questions about the audit.

AUTOMATIC TRACKING 

Morgan, the CalPERS spokeswoman, said each of the audit findings has been “resolved,” but that auditors have not followed up at the agencies. “However, with our increased compliance and system-triggered monitoring we have more monitoring in place now than when this audit was originally conducted,” Morgan said in an email. The system now automatically tracks retired annuitants’ hours and their start dates, and investigates complaints brought through an ethics hotline, she said. In 2018, a new law took effect that fines employers if they don’t report retired annuitants’ hours, she said. CalPERS has also increased communication with employers and employees before and during retired annuitant appointments, including automated warnings to those who reach 600 and 700 hours, she said. “We have seen a significant increase in communication with employers and retirees to ensure post-retirement employment is in compliance,” she said.

Source: https://www.sacbee.com/news/politics-government/the-state-worker/article261281677.html.

What Did the Governor Actually Say?

He must be saying something.

In a previous post, we noted that the Sacramento Bee was reporting that the governor wanted CalPERS, CalSTRS, and UCRP to sell all their Russian assets due to the Ukraine invasion.* We noted that there may not be buyers for some types of assets and in other cases selling would occur at fire sale prices, not in keeping with the fiduciary duties of the plans.

Another version of the story, however, by LA Times columnist George Skelton has the governor calling for the plans just not to buy new Russian assets, which they would be unlikely to do, given the risks entailed.**

Whatever he may have said, it was surely more thoughtful than the LA Times Editorial Board which - while recognizing the no-buyer/fire-sale problem, says sell everything anyway because it is confident someone can figure out how to do it.***

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*http://uclafacultyassociation.blogspot.com/2022/03/newsom-calls-on-ca-pension-funds.html.

**https://www.latimes.com/california/story/2022-03-03/skelton-newsom-call-state-sanctions-against-russia. 

***https://www.latimes.com/opinion/story/2022-03-03/editorial-california-should-cut-its-economic-ties-with-russia.

Newsom calls on CA pension funds - including UC's - to sell more than $1.5 billion in Russia holdings

Where's the buyer?

From the Sacramento Bee: Gov. Gavin Newsom called on leaders of California’s public pension systems on Tuesday to sell their investments in Russia. The state’s Public Employees’ Retirement System and State Teachers’ Retirement System, along with the University of California Retirement Retirement Plan, have investments funds worth a combined $970 billion. They together hold more than $1.5 billion in investments in Russian stocks, private equity holdings, real estate, debt and other investments, Newsom said in a letter to the three chairpersons of the pension systems’ boards of directors.

CalPERS board President Theresa Taylor said... that while she was “personally appalled at Russia’s actions,” sanctions prevented the immediate sale of the system’s public assets in Russia, adding the system’s directors would have to weigh the affordability of getting rid of its private assets in the country

Newsom asked the three chairpersons to advise him of the steps they’re taking within 10 days...

Full story at https://www.sacbee.com/news/politics-government/the-state-worker/article258928008.html.

There may be significant problems and losses entailed in selling off Russian assets in a fire sale mode. Where are the quick buyers? It will be interesting to see what is said about this demand from the governor at the next meeting of the investments committee of the Regents about two weeks from now. Note that the Board of Regents - which includes the governor as an ex officio Regent - has a fiduciary duty to the fund.

Another CalPERS Scandal Coming at the Wrong Time

From the Sacramento Bee: Retired police officer Steve Landi complained to the California Public Employees’ Retirement System back in 2016 that his police chief was working full-time earning thousands a month while illegally collecting retirement benefits. A CalPERS audit team finally arrived in May 2021. Last month, it said that, sure enough, Landi’s boss, Broodmoor Police Chief David Parenti was one of three police chiefs and a top commander in the department that defrauded the pension system for a decade, together collecting as much as $2 million. It was one of the largest abuses of retirement benefits in years — so egregious that the local district attorney is considering criminal charges.

It also raises a question for Landi as well as Parenti’s two successors: Why did it take CalPERS so long to figure it out and take action? “They were lining their pockets for years,” said Landi, who joined the department in 2015 after retiring from the San Francisco Police Department. “It’s corruption at its finest.” 

CalPERS is a retirement system like no other in the U.S. It covers state employees but also the workers at some 3,000 municipalities, school districts, authorities and other governmental entities. More than 650,000 retirees and another 1 million or so current employees are covered by CalPERS. 

A FAILURE TO COMMUNICATE 

Broadmoor was under scrutiny by CalPERS for failing to enroll some officers in the pension fund at the time, but not for the chief’s double dipping. That suggests to former insiders such as J.J. Jelinic that the CalPERS division that monitors employee enrollment issues has little coordination with another unit assigned to examine double-dipping and other violations of state retirement law. “The right hand doesn’t know know what the left is doing,” said Jelinic, a former CalPERS investment staffer and board member...

Full story at: https://www.sacbee.com/article257232847.html.

You could ask what relevance this CalPERS scandal has to UC, which is not part of CalPERS and which has its own separate pension system. The problem is that CalPERS - which has a propensity for bad management and scandals - tends to tar public pension systems, including UC's, more generally. Recent adverse moves in the stock market suggest that all pension plans will be showing poor results unless the market quickly recovers. Issues of pension finance and unfunded liabilities will come to the fore again. UC tends to be caught up in the political problems of CalPERS (and CalSTRS), even though it is totally separate and doesn't have a history of scandals and bad management. That's the relevance.

Hey Guv! How about a billion for UCRP?

CalPERS - which covers CSU employees and many others - is due for an infusion of funding under Gov. Newsom's new budget plan. So is CalSTRS. But UCRP? Nothing there.

From the Sacramento Bee:

The State Worker

California would kick in CalPERS debt payments ahead of schedule under Newsom proposal

Wes Venteicher, 1-11-22 

California will whittle down its long-term debt in the fiscal year ahead with a supplemental pension payment of $3.5 billion, according to Gov. Gavin Newsom’s budget proposal. The state will pay the money to the California Public Employees’ Retirement System on top of a regular $8.4 billion payment toward the pensions of state workers and retirees, according to the proposal. Newsom highlighted the pension payments in a Monday press conference on his estimated $286.4 billion budget proposal for the fiscal year that starts July 1. 

The supplemental payment of $3.5 billion toward pension liabilities will save the state at least $7 billion over the next three decades, according to the budget proposal. Riding a stock market boom, CalPERS earned enough money on its investments in the last fiscal year to significantly improve its long-term fiscal position. As of July, the system had about 80% of the money it would need to cover all its long-term debts, up from 71% a year earlier. 

The retirement system, with an investment fund valued at $493 billion as of last week, charges the state and other public employers each year under a plan to pay down its liabilities and reach full funding by the mid-2040s. The state has been supplementing its payments over the last four years under provisions of Proposition 2, the 2014 ballot initiative backed by former Gov. Jerry Brown. The measure requires the state to dedicate money each year toward its debts and to a rainy day fund. The state has made $12.7 billion in supplemental payments to CalPERS and CalSTRS over the last four years, and would pay roughly $6 billion more to CalPERS through fiscal year 2025-2026 under current projections, according to the budget proposal. 

California will pay $3.7 billion to the California State Teachers’ Retirement System in the next fiscal year, according to the proposal. But at CalSTRS, which also reported a big investment return for the year ending in July, the return means California state government’s obligations toward the system’s unfunded liabilities could be eliminated in three years, much earlier than the previous target date of 2046. Schools are still projected to continue making contributions to the pension debt through 2046. CalSTRS, valued at $320 billion as of November, expects to reach 80% funding in 10 years and 100% funding in 2041, five years ahead of schedule, according to information presented at a November board meeting. 

Nonetheless, big losses in future years could send the numbers in the wrong direction, driving up state debts. “We are far removed from the public pension quicksand,” said Sen. Steve Glazer, D-Orinda. He said the pension debts are so significant the state should consider setting up a separate pension savings account while it’s benefiting from budget surpluses running in the tens of billions of dollars. Newsom’s office anticipates a $45.7 billion surplus in the next budget year following an $80 billion surplus in the current budget. Glazer has supported Newsom’s proposals to pay pension debt ahead of schedule.

 “Public employees have earned the right to a pension and we have to honestly and fully own that mutual commitment,” he said.

Source: https://www.sacbee.com/news/politics-government/the-state-worker/article257203302.html.

CalPERS Rate of Return Assumption Drops: What About UCRP?

From the Sacramento Bee: Public employees in California will bear the brunt of an investment policy change the CalPERS board made Monday, contributing more toward their pensions while their employers enjoy a short-term reprieve thanks to last year’s stock market boom. 

The vote by the California Public Employees’ Retirement System Board of Administration concluded a once-every-four-years review of the pension fund’s assets, which were recently valued at $495 billion. The approved changes, including added flexibility to borrow money, are aimed at adapting the fund to a shifting financial landscape in which stock market expectations decline and traditionally “safe” investments such as treasuries and bonds no longer earn nearly enough money to keep up with increasing pension costs. The board adopted an annual investment return target of 6.8%, two-tenths of a percentage point lower than last year’s 7% target...

Full story at https://amp.sacbee.com/news/politics-government/the-state-worker/article255854026.html.

Will the Regents feel pressure also to lower their expected rate of return for their pension system - UCRP? It's unlikely at this time. First, the Regents have already lowered their rate to 6.75%, i.e., slightly below the new CalPERS assumption. Second, on a market basis, recent strong returns in financial markets pushed the UCRP funding ratio into the 90% range. So, although the recent strong results will not go on forever, there is no immediate pressure on the Regents.

More on the CalPERS/Long-Term Care Settlement

We have been blogging on and off about the settlement reached in the case against CalPERS and its long-term care insurance policies.* UC employees - as state workers - were able to buy long-term care policies but the rates charged were jacked up after the initial purchase. Now UC has provided some guidance for affected employees. See below:

Know your options in the class action settlement involving CalPERS Long-Term Care Plan

Sept. 16, 2021: Updated with additional resources from UC emeriti and retiree associations

If you participated in the Long-Term Care Benefit Plan with California Public Employees' Retirement System (CalPERS) you may have received information in the mail about a class action settlement (officially referred to as Holly Wedding, et al. V. California Public Employees' Retirement System, et al., Case No. BC517444; or “Settlement”).

Unlike other benefit plans offered by the University, the Long-Term Care Plan is sponsored and managed independently by CalPERS, not by UC. As such, UC is not a party to this Settlement.

There is an important deadline on Sept. 22, 2021, for submitting an “Individual Award Acknowledgement and Election Form,” should you choose one of the options (option 2) described in the statement. If you do not submit this form by Sept. 22, your eventual options will be limited.

The final deadline to choose is Dec. 13, 2021. You may wish to consult your legal or financial advisor(s) concerning your options under the Settlement. UC is not able to provide legal advice regarding your rights under the Settlement.

Resources from UC emeriti and retiree associations.

To serve their members, UC emeriti and retiree associations have developed resources to help you better understand your options:

• Council of University of California Emeriti Associations (CUCEA): Statement on the CalPERS LTC SettlementPDF
• UC San Diego Retirement Association: Special session on CALPERS Long Term Care Insurance changes (video recording)

Please note: The resources referenced above may contain advice, opinions and statements of the information provider/content provider. UC does not represent or endorse the accuracy or reliability of any advice, opinion, statement or other information provided by any information provider/content provider. Reliance upon any such opinion, advice, statement or other information shall also be at each user’s own risk.

Questions?

The Settlement Administrator has established a website that contains complete information about the proposed settlement, instructions for filing claims, comprehensive FAQs, etc.  They also have a dedicated email address and phone number to answers questions or concerns qualifying participants may have.  If you have questions or need help please contact the Settlement Administrator directly.

• Website: www.CalPERSLTCClassAction.com
• Phone: 1-866-217-8056, Monday – Friday, 6 am to 6 pm PT
• Email: info@CalpersLTCClassAction.com 

Source: https://ucnet.universityofcalifornia.edu/news/2021/08/class-action-settlement-involving-calpers-long-term-care-plan.html.

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*Most recently at http://uclafacultyassociation.blogspot.com/2021/09/program-on-calpers-long-term-care.html.