John Chiang

State treasurer seeks probe of CalPERS CEO

October 3, 2018 By Chris Reed 3 Comments

A rowdy, muckraking financial blog that has repeatedly raised later-corroborated concerns about how the California Public Employees’ Retirement System operates has gotten traction with one of its new allegations.

The Naked Capitalism blog’s report that CalPERS CEO Marcie Frost had misled the giant pension fund about her education prompted state Treasurer John Chiang to seek an independent investigation.

Naked Capitalism blogger Susan Webber offered evidence that Frost – who does not have a college degree – allegedly told a consultant who evaluated her job application before her hiring in 2016 that she was enrolled in a degree program at Evergreen State College in Olympia, Washington. The Sacramento Bee reported that she hadn’t taken any classes at the college since 2010. Before coming to CalPERS, Frost led Washington’s Department of Retirement Services, which oversees more than a dozen defined-benefit state pension funds.

In May, Webber’s reporting led CalPERS to oust Chief Financial Officer Charles Asubonten for making misleading claims about his employment history before he was hired.

With CalPERS’ new mess, a potentially big problem for Frost is that while she might be able to dismiss questions about whether she was honest over her education as the result of a misunderstanding, Naked Capitalism’s recent reports actually raise bigger concerns.

Accuracy of death-benefits claim questioned

For one example, Naked Capitalism writer Yves Smith last week wrote a persuasive analysis that argued that CalPERS had cherry-picked among data in claiming it was doing a better job processing death benefits in 45 days or less.

“CalPERS used an obviously cooked-up basis of comparison. Rather than take the same time period in successive years, CalPERS instead chose a set number of cases to examine (300 each) before and after a suspiciously arbitrary-looking cutoff date, February 12. Under questioning, the presenters admitted the ‘before’ cases included ones submitted in November and December,” Smith wrote.

“Why does this matter? The beginning of November through end of January is certain to be the worst time of year in terms of efficiency for a government agency. First, you have a high density of holidays compared to the rest of the year (Veterans’ Day, Thanksgiving, Christmas, Martin Luther King Day). Output suffers due to distractions like holiday shopping, more interaction with family members, and even getting out of the mood to work. Second, many employees also take vacation days around these holidays (and recall that CalPERS employees have generous vacation allowances). So there was also almost certainly reduced manpower to process claims during this period.”

There is no sign that Chiang or others with oversight authority are looking at this allegation. Last week, the CalPERS board made its feelings known about Frost, voting to raise her pay by 4 percent to $330,720 and to give her an $84,873 bonus.

Board officials suspicious of blog’s motives

A Sacramento Bee story last week about Naked Capitalism’s critiques of CalPERS gave space to CalPERS’ officials’ claims that there is something suspicious or perhaps partisan about an East Coast-based blog paying so much attention to a pension system across the nation.

In comments that the Bee reported were intended for Webber, CalPERS Vice President Rob Feckner said, “You’re not from California. Why would you be involved in a California election for that board? Why is it so important to you to get someone elected in that board?” Webber has been sharply critical of Feckner and other board members who have close relationships with Frost.

Naked Capitalism’s tart response: “CalPERS likes to relish its status as the biggest, highest profile public pension fund, but when it gets bad press, its stance is that it’s a parochial organization and why isn’t it left alone?” wrote Yves Smith.

No one familiar with the blog would consider it obsessed with CalPERS. The website’s roster of authors with Wall Street or banking backgrounds is long and their targets are widely varied. The site’s index cites nearly 5,000 stories about the global finance industry versus 98 about CalPERS.

This article was originally published by CalWatchdog.com

Filed Under: Top Stories Tagged With: CalPERS, John Chiang

CA Teachers Pension Fund Weighs Divestment from Gun Retailers

November 3, 2017 By AWR Hawkins 10 Comments

The California State Teachers’ Retirement System (CalSTRS) is considering a divestment from any retailer that sells guns or ammunition, in the wake of the Oct. 1 mass shooting in Las Vegas.

California State Treasurer John Chiang believes the divestment should focus on retailers that sell “banned military-style assault weapons.”

According to the San Diego Union-Tribune, the case for divestment was pressed by Jason Irvine, a Reno, Nevada, resident whose sister, Jennifer Topaz Irvine, was shot and killed in the Vegas attack. He spoke of having to identify his sister’s body after she was shot and said, “I saw with my own eyes and felt with my hands the carnage these weapons inflict.”

Although weapons do not inflict damage — rather, people who misuse weapons do — Irvine’s words found their mark and CalSTRS investment committee chairman Harry Keiley voiced support for looking into divestment. Kieley said, “This is an issue that we alone cannot solve. At the same time, I don’t think we should sit by idly.”

State Treasurer Chiang approached divestment from the angle of minimizing investments in companies “who business efforts are a risk to public health and safety.” He said, “It would be difficult to argue that battlefield assault weapons and aftermarket accessories designed to rain down bullets don’t fall into this category.”

CalSTRS voted to divest of specific firearm and ammunition manufacturers following the December 14, 2012, attack on gun-free Sandy Hook Elementary. On April 3, 2015, Breitbart News reported that some teachers were outraged to find that the pension was still invested in Bushmaster Firearms over two years after the attack. (Bushmaster is the make of gun Adam Lanza stole and used to kill innocents at the school.)

Pension managers told the angry teachers that divestment is a process that could take years in some cases, and it was still ongoing in 2015.

Now Chiang and others want the fund to undertake divestment “in retail companies that sell the weapons and ammunition.”

AWR Hawkins is the Second Amendment columnist for Breitbart News and host of Bullets with AWR Hawkins, a Breitbart News podcast. He is also the political analyst for Armed American Radio. Follow him on Twitter: @AWRHawkins. Reach him directly at awrhawkins@breitbart.com.

This article was originally published by Breitbart.com/California

Filed Under: Top Stories Tagged With: CalSTRS, guns, John Chiang

Jerry Brown Leveraging Payroll in Scheme that Bankrupted Orange County

June 5, 2017 By Chriss W. Street 2 Comments

Gov. Jerry Brown and State Treasurer John Chiang plan to tap California’s government payroll accounts to make long-term subsidized loans to the state’s public pension plan in a scheme that hasn’t been tried since it bankrupted Orange County in 1994.

Breitbart News recently reported that although Gov. Brown’s 2017-2018 May Budget Revision trumpeted that California will collect an extra $2.5 billion in capital gains taxes, the same data revealed that sales taxes, which are considered the best measure of the health of the state’s economy, “were revised down by $1.2 billion, reflecting weak cash receipts.”

Deep in the 91-page budget report, Brown also revealed that last year’s 22 percent jump to $279 billion for the retiree pension and lifetime healthcare liabilities will force the state’s annual pension plan contributions to almost double from $5.8 billion this year to $9.2 billion by FY 2023-24.

Brown warned that deteriorating tax trends and mushrooming pension payments put California at risk of suffering a catastrophic $20 billion deficit in a “moderate recession.”

But according to the Los Angeles Times, Brown apparently has convinced State Treasurer and fellow Democrat John Chiang to bail out a big piece of the state’s rising pension costs for the next 12 years by making a $6 billion loan at a highly-subsidized interest rate from the Treasury’s $76.5 Billion “Pooled Money Investment Account” (PMIA).

The PMIA has traditionally served as a money-market fund for the state’s general fund, agencies, counties, and cities to invest short-term cash, including payroll accounts. According to the PMIA’s September 2016 audit, the fund earns only a 0.88 percent current yield, because it provides overnight cash liquidity to depositors by investing in U.S. Treasurys and agencies, plus high-quality repurchase agreements, certificates of deposit, and commercial paper with an average maturity of 185 days (about 6 months).

The last time a state or local treasurer running a government money market fund participated in this type of “borrowing short and lending long” scheme was Orange County’s Bob Citron.

The OC Treasurer was celebrated as a genius by local political leaders for making almost $1.3 billion in excess profits over an 9-year period by investing $7 billion of county and local government short term and payroll cash in longer term 5-year U.S. Treasury Bonds. Unfortunately, Citron’s fund suffered a $2.3 billion loss in 1994 and “the OC” filed the largest Chapter 9 municipal bankruptcy in history.

The resulting scandal and huge loss of taxpayers’ funds caused the Securities & Exchange Commission to adopt Rule 33-7320, which severely restricts money-market mutual funds from leveraging principal risk by “borrowing short and lending long.”

But under U.S. constitutional state sovereignty, the SEC has no jurisdiction over any funds managed by the Treasurer of the State of California.

Treasurer Chiang claims he supports the pension loan, because the CalPERS pension plan will pay his PMIA the more favorable yield of a 2-year Treasury Note, currently yielding 1.21 percent. But that means the PMIA is being asked to make a highly subsidized loan, since the current yield on an equivalent 12-year California General Obligation bond is 2.23 percent, or about 85 percent higher.

This piece was originally published by Breitbart.com/California

Filed Under: Top Stories Tagged With: CalPERS, Jerry Brown, John Chiang, Orange County

Will Federal Law Kill California’s Secure Choice Retirement Scheme?

May 28, 2017 By Chris Reed 4 Comments

An unprecedented state law meant to create 401(k)-style retirement accounts for millions of private-sector workers in California now faces a daunting obstacle to ever being implemented: one of the most powerful federal laws on the books.

Under the state law establishing the California Secure Choice Retirement Savings Program, after it is phased in, all companies with five or more workers which do not have retirement benefits eventually would have to withhold 3 percent of worker pay and send it to the state government, with the funds to be invested in safe financial instruments such as U.S. treasuries. Workers could opt out.

The proposal was championed by state Senate President Kevin de León (pictured), D-Los Angeles, with strong support from state Treasurer John Chiang. They depicted it as crucial to helping 7 million Californians working in jobs without retirement benefits to prepare for retirement.

But the Republican-controlled Congress recently passed, and President Trump subsequently signed, a law overturning an order issued last August by the Obama administration’s Department of Labor that exempted Secure Choice-type programs from the Employee Retirement Income Security Act (ERISA), a landmark 1974 law that established strict standards for retirement plans and their management. This erased legal concerns raised by pension lawyers aware of ERISA’s intricacies.

Yet at a news conference last week, de León and Chiang downplayed the significance of the lost ERISA exemption. They said they had only sought the federal action in response to concerns raised by the California Chamber of Commerce and the California Manufacturers and Technology Association – not because of a concern that Secure Choice would be subject to ERISA.

That’s not the conclusion one would be likely to gather after reading the language of Senate Bill 1234, the de León bill establishing Secure Choice that was signed by Gov. Jerry Brown in September. It makes specific reference to the ERISA exemption: “The United States Department of Labor has finalized a regulation setting forth a safe harbor for savings arrangements established by states for nongovernmental employees for the purposes of the federal Employee Retirement Income Security Act.”

And it says the Secure Choice governing board “shall not implement the program … if it is determined that the program is an employee benefit plan under the federal Employee Retirement Income Security Act” – which it now appears to be.

ERISA expert notes scope of landmark 1974 law

However, de León and Chiang cited a 2016 opinion from the K&L Gates law firm that sees no ERISA compliance problem. But the opinion is based on an earlier version of the bill – not the measure that passed and seemed built on the assumption that Secure Choice was only legal with the ERISA exemption.

In a March analysis released as the bill to overturn the exemption was advancing through Congress, the National Public Pension Coalition’s program manager, Tyler Bond, suggested courts might rescue Secure Choice-type laws by deciding ERISA doesn’t apply. But Bond’s background is as a communications specialist, not the law.

Michael A. McKuin, a Palm Desert lawyer who specializes in ERISA, notes on his website the long history of courts broadly interpreting ERISA’s scope because of the law’s sweeping language: “The provisions of … this chapter shall supersede any and all state laws insofar as they may now or hereafter relate to any employee benefit plan.”

McKuin writes: “In determining whether a plan is governed by ERISA, courts have generally followed the approach of the Eleventh Circuit in Donovan v. Dillingham, 688 F.2d 1367 (11th Cir. 1982) (en banc). Under the Dillingham test, an ERISA plan exists if a reasonable person can ascertain: (1) the intended benefits, (2) intended beneficiaries, (3) the source of financing, and (4) the procedures for receiving benefits. … The purported plan need not be formal or written to qualify as an ERISA benefit plan, but rather, the court must look to the ‘surrounding circumstances’ to see if the four factors have been met.”

“As a practical matter, it does not take much to satisfy the test and Courts will generally find the existence of an ERISA plan even where no such plan is wanted by anyone,” McKuin writes – unless the plan has the “safe harbor” specifically mentioned in SB 1234’s ballot language.

This piece was originally published by CalWatchdog.com

Filed Under: Top Stories Tagged With: John Chiang, Kevin de Leon, Retirement, Secure Choice

CA Threatened by Massive Unfunded Liabilities

February 22, 2016 By James Poulos 3 Comments

Despite a concerted effort from Gov. Jerry Brown to keep California from slipping back into the financial abyss, the state’s finances remain threatened by massive unfunded obligations.

“It’s California’s debt and liabilities that are concerning financial analysts, particularly the state’s rapidly growing unfunded retiree health care costs, which grew more than 80 percent over the past decade. California has promised $74 billion more in health and dental benefits to current and retired state workers than the state has put aside,” the San Francisco Chronicle reported.

Adding to the concern, new reporting rules have cast new light on local debt burdens. Changes issued by the Governmental Accounting Standards Board caused California governments to begin reporting “pension debts differently in their 2015 financial statements, which is becoming a wake-up call,” Reason noted. “Medical costs and other non-pension benefits will be accounted for differently in the 2017-2018 fiscal year. As a result, localities are facing much larger pension debts than previously reported.”

Observers have also had their eye on final developments in the case of one of California’s municipal canaries in the pension coal mine. “The bankrupt city of San Bernardino, California, said in a court filing […] it had reached a tentative agreement with the creditor holding its pension obligation bonds on how the debt would be treated in the city’s plan to exit bankruptcy but did not provide details,” according to Reuters.

Burdening Brown

Calpers headquarters is seen in Sacramento, California, October 21, 2009. REUTERS/Max Whittaker

CalPERS, the fund at the center of the ongoing pensions controversy, remained a sticking point. Its refusal to secure higher servicing payments created “a heavy political lift from Brown,” as the Contra Costa Times wrote in an editorial. “If CalPERS had required higher payments, he could have simply planned for it in his state budget. Without the requirement, he must persuade the Legislature to free the money.” Amid the recession, its funded ratio, the board wrote, “plummeted to 61 percent” in two years. “If that happened today, it would be devastating.”

“CalPERS is especially vulnerable because it assumes it can earn returns of 7.5 percent annually. To try to hit that target, it must make aggressive investments. In other words, it must take risk, which comes with upside potential and downside dangers. The higher the investment target, the greater the exposure in a down market.”

Bond struggles

One of Brown’s would-be replacements in the governor’s mansion, state treasurer John Chiang, has sought to shift expectations around California’s budgetary reliance on bond measures. Bond use has “risen substantially in California, with the state’s reliance on borrowing for infrastructure resulting in 1 of every 2 dollars spent on those projects going to pay interest,” the Chronicle noted, citing figures from the Department of Finance. But although Chiang suggested earlier this month that the state should “rethink” its use of bonds, Chiang has embarked “on a national tour this month aimed at seducing investors with an environmentally friendly investment alternative,” according to the San Jose Mercury News. “Chiang wants to plant a full-fledged green bond market. Individuals and institutions, such as mutual funds and hedge funds, will have the opportunity to invest. The bonds promise to appeal to environmentally minded investors, as well as those looking to diversify portfolios overly dependent on fossil fuels — in case future climate change regulations sprout up.”

But in a sign of the inertia and perverse incentives that critics often associate with entrenched bureaucracies, the bonds have been built to stretch beyond their narrowly tailored confines if given the right kind of tug. “Instead of rules, green bond issuers rely on a set of nonbinding guidelines called the Green Bond Principles, drafted by an international group of issuers and investors,” the Mercury News noted. “The lack of third-party monitoring means issuers can label almost anything a green bond. If the bonds’ popularity outstrips the number of green projects, issuers could have an incentive to label bonds as green, even when they’re not.”

Originally published by CalWatchdog.com

Filed Under: Top Stories Tagged With: CalPERS, Jerry Brown, John Chiang, pensions, Unfunded Liabilities, unions