California Leaders Must Protect Public Pensioners from Corporate Malfeasance

America owes a debt of gratitude to our first responders that we can never fully repay. Their dedication to protecting public safety, often in the face of extreme danger and personal sacrifice, embodies a level of selflessness and bravery that is both invaluable and irreplaceable in maintaining the fabric of society. The least we can do for these selfless public servants is to ensure they are taken care of when the time has come for them to hang up their uniform for good. 

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Unfortunately, in recent years the public pension funds responsible for upholding a key part of this commitment – ensuring they are taken care of in retirement – have been facing increasing financial pressures. Forced to grapple with the challenges of an aging population and the consequences of having been historically underfunded, many of these funds have been left with significant unfunded liabilities. Economic factors such as lower-than-expected investment returns, market volatility, and low interest rates have also further strained of many of these funds, leading to concerns about their long-term sustainability and ability to meet obligations to retirees. Now, a new threat is looming that could impact the solvency of many of these funds, and it has originated right in California’s own backyard. 

The state’s largest public utility, Pacific Gas & Electric (PG&E), is accused of allegedly defrauding several public pension funds that invested in the company by making misstatements and omissions regarding the safety of their electrical lines and failing to adequately disclose these risks to investors. Executives at the company appear to be trying to evade accountability, and it’s now up to elected officials in Sacramento to ensure that PG&E leadership be held to account. Failure to do so could set a dangerous legal precedent that could allow PG&E to continue to operate irresponsibly and encourage more of the same behavior across the rest of the corporate world.

The issue at hand stems from a series of devastating wildfires that PG&E is accused of causing throughout much of northern California such as the Paradise fire, which was started when a live wire broke free of a tower 25 years past its useful lifespan, destroying 14,000 homes and killing 84. The destruction wrought by the disaster left the company, its executives, and board members liable for tens of billions of dollars in damages from victims and creditors, as well as public pension fund investors who claimed the company’s actions wiped out “billions of dollars of economic value in the company’s stocks and bonds.”

Staring down the barrel of such massive damages, the company filed for Chapter 11 bankruptcy protection in January of 2019. Engaging in this process not only allowed the company to restructure its debt and provided access to the California Wildfire Fund established by the state legislature, but it has also been used as a shield to evade accountability from the public pension fund investors who were hurt by its involvement in the wildfires. 

While the company has admitted guilt and used $25.5 billion in taxpayer funds from the California Wildfire Fund to make restitution to many of the parties affected by the alleged negligence and inaction of the public utility, the outstanding dispute with the public pension fund shareholders has yet to be resolved. This circumstance has resulted because instead of suing the company directly, the Public Employees Retirement Association (PERA) of New Mexico – the lead plaintiff in the case and a public pension fund for government employees including teachers, police, and firefighters – is seeking to hold 44 of PG&E’s corporate executivesdirectly to account, instead of the company itself.

PERA is leading the charge for many of the other public sector pension funds that have lost money as a result of the utility’s alleged negligence. But attorneys for the defendants have pushed back, arguing that the securities fraud case only seeks to “repackage” wildfire-related claims as securities claims since the bankruptcy court stayed all legal actions related to wildfire claims. However, this argument does not appear to be gaining acceptance with the courts. 

In fact, the 9th U.S. Circuit Court of Appeals recently questioned why the class action case should be paused until the bankruptcy case concludes, as neither the plaintiffs nor the targeted PG&E executives who sit as defendants are involved in the bankruptcy case. The real motivation of PG&E seems to be a desire to avoid properly compensating institutional investors for their losses, effectively leaving public pension funds like PERA and others that invested in PG&E out in the cold.

This neglected class of public pension fund plaintiffs against PG&E represent some of the most essential and underappreciated American workers, and the utility’s refusal to make them whole cannot go unnoticed. California taxpayers spent billions bailing out PG&E, and it is only right that elected officials in the Golden State now hold its leadership to account and force the company to do what is right.

John T. Doolittle is a former member of Congress (representing California’s 4th congressional district) and served as the vice chairman of the House Appropriations Subcommittee on Energy and Water, Committee on Appropriations and as chairman of the House Subcommittee on Water and Power, Committee on Resources.