Forensic investigation finds major issues at nation’s largest public pension fund
America’s largest public pension fund has some very serious issues. That’s according to a new independent investigation into the California Public Employees’ Retirement System, or CalPERS.
The head of the pension fund dismissed the findings as “baseless.”
The 255-page report was commissioned by a nonprofit group that included several state retirees.
“The largest fund in this case is the leader of the herd,” Edward Siedle, the author of the report and president of Benchmark Financial Services, told Straight Arrow. “When CalPERS misleads the public, the damage is severe, because all the other public pension funds follow its lead everywhere you go.”
Report findings
This pension plan is a $630 billion fund.
Among the significant findings of the nine-month investigation were four major points:
- Performative transparency.
- Profound conflicts of interest.
- Hidden excessive costs.
- Chronic underperformance.
“They are not remotely transparent,” Siedle said. “They pretend to be and put out a lot of confusing and incorrect, misleading disclosure, but they are not transparent.”
When it comes to conflicts of interest, the report said CalPERS has become too intertwined with private equity firms that manage pension money.
The report also repeatedly criticizes the CalPERS board for being insufficiently independent or financially sophisticated enough to oversee these complex agreements, calling it “inexperienced.”
The excessive costs include the pension system paying billions in fees that were difficult to track or undisclosed.
“I don’t think CalPERS even knows what the fees are,” Siedle said.
As for underperformance, the report showed the fund’s returns place it in the bottom 15% of every U.S. public pension fund over both a five-year and 10-year period.
The report also found staffers at CalPERS received significant compensation, including dozens making more than $500,000 per year.
What happens next?
“For every deficiency we noted, we asked the question, what would an inspector do to make things better?” Siedle said.
The report then laid out what an inspector general could or would do to improve on all of those issues.
Siedle said it’s unclear why CalPERS would not agree to having an inspector general review the funds.
“If you disagree with me, the independent inspector general would confirm your belief that I’m wrong,” Siedle said.
Before the group released the report, Siedle and his team sent the report to the Securities and Exchange Commission and the attorney general’s office.
Overall, Siedle believes the next step needs to be greater oversight on how these hundreds of billions of dollars are being managed.
“Why would you object to that?” he said. “If you think things are being run beautifully, then that’s what the inspector general would confirm.”
Reaction to the report
Marcie Frost, the CEO of CalPERS, called the report “an opinion piece full of baseless assertions and breathless language designed to make our members needlessly fear for the stability of their pensions.”
She also said the fund’s performance has improved over the last several years.
However, the group that commissioned the report agreed with Siedle’s conclusion that there needs to be more oversight.
“We need the Office of the Inspector General, somebody independent with subpoena powers, to get the records to investigate,” Margaret Brown, president of the Retired Public Employees Association of California, who funded the report, told NBC News.
Siedle said CalPERS provided him with nothing to help him in this investigation.
He added that overall, the people who commissioned him to write this report were happy with his work.
“This is unprecedented,” he said. “What I would want people to take away as a news item is this is the largest public pension fund in America, and a retiree group commissioned an expert forensic investigation. This hardly ever happens.”
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Ella Rae Greene, Editor In Chief
