Sacramento Political Bosses Order Insolvent CalPERS to Divest Coal Stocks

CalPERS Seth Wenig, AP
Seth Wenig/AP
Newport Beach, CA

Despite actuaries stating that CalPERS’ public pension plan used an “inappropriate assumption” to justify pension spiking and contribution underfunding, the Democrat controlled California State Assembly just passed a partisan first of its kind bill that orders CalPERS’ and CalSTRS’ pension plans to sell all of their coal investments.

The California Public Employees’ Retirement System (CalPERS) has compounded investment earnings over the past three and five years at a ripping 10.9 and 10.7 percent respectively. But the pension plan actuaries in April demanded that, due to an “inappropriate assumption,” the 3,094 government entities in CalPERS representing about 1.72 million active members must  increase their annual pension payment by a stunning 10 percent for each of the next five years,

“Inappropriate assumption” is code for CalPERS trustees being allowed huge pension payment spikes, but failing to order California government employees to make adequate payments to fund the promised benefits. As Breitbart News’ Joel Pollack reported, the irresponsibility of CalPERS appears to have dumped another $5 billion a year funding shortfall onto the backs of taxpayers.

The state’s actuaries’ order requires the CalPERS participants to raise their total annual pension contributions over the next five years by 61 percent, from $4.5 billion this year to $7.25 billion by 2021. The increase will devastate the finances of hundreds of state agencies and cities that participate in CalPERS.

Facing a $65 million increase over the next five years in their CalPERS contributions that would bankrupt the city again, the San Bernardino city council voted last week to dump the state pension plan and transfer their firemen to the county pension plan. The city will save $4.7 million next year and increasing amounts in each of the next four years.

With San Bernardino demonstrating how much can be saved by dumping CalPERS, it is expected that a number of cities and local districts may also bailout of the insolvent and increasingly expensive pension plan. Each participant that leaves will cause CalPERS pension contribution rates to rise even faster in what could result in a death spiral.

In spite of the funding crisis they helped create, the California Legislature now wants to undermine the impartiality of their money managers by playing politics with investments.

California’s state constitution sought to keep politics out of pension investments by adopting the following two basic principles of financial trusteeship:

  1. The prudent person rule:

“The members of the retirement board of a public pension or retirement system shall discharge their duties…with the care, skill, prudence and diligence…that a prudent person…would use.”

  1. The exclusivity rule:

“The assets of a public pension or retirement system…shall be held for the exclusive purposes of providing benefits to participants.”

The Legislature’s actions appear to violate the prudent person rule by limiting the scope of possible investments; and the exclusivity rule since funds in the plan are assets of the pensioners rather than “public money.”

The bill could still be vetoed by Governor Jerry Brown, but he said in June, when talking about climate action, “We are talking about extinction. We are talking about climate regimes that have not been seen for tens of millions of years. We’re not there yet, but we’re on our way.”

The extremist thinkprogress blog reported Governor Brown is expected to sign the divestment bill.