COVID-19 or the CalPERS Board - Which is Worse?

EASTSIDER-As far back as 2009, with the indictment of CalPERS’ Fred Buenrostro and Alfred Villalobos, Private Equity and the delegation of authority to staff without proper oversight, resulted in jail sentences as well as rocking the giant pension fund to its core.

Are we looking at a repeat using the guise of COVID-19 as a shield? 

Last year, after a bruising Board election, hallmarked by conspiracy between a number of Board members and CalPERS Staff, I wrote the following

“. . .ever since Ann Stausboll retired and we were saddled with (the challenged on many fronts) Marcie Frost as the new CEO, the CalPERS Board majority has bent over backwards to champion every hair brained scheme that Marcie Frost, her Svengali General Counsel Matt Jacobs, and their ever changing key staff dream up, playing around with our investments. Usually to our detriment. 

Since then, faced with relatively low return on investments, the institution, has adopted a siege mentality, with the key executive staff manipulating a compliant Board to hide the real inner workings of CalPERS. As well as its problems and failures.  

The current election, for Retiree Board member, has exposed these fault lines in an unseemly manner, and raises questions as to whether the CalPERS Board members are simply toadies to the staff, instead of doing their fiduciary duty to the beneficiaries and taxpayers who fund the institution.”  

Delegated Authority and the Boards Abrogation of their Duty 

Prior to that very nasty election, which would have been illegal had it been run by any of the Unions whose members are CalPERS beneficiaries, I detailed exactly how the key CalPERS Staff run the joint with almost all the Board members actively abrogating their statutory role of fiduciaries to you and I, the members. 

That article had the spiffy headline of “More Mischief at CalPERS: A Staff Takeover of the Board.” 

The key to this accomplishment was and is a document called Governance Policy: 

There is a 26-page document buried in the thousands of pages of governance information about CalPERS called simply Governance Policy. Check out the link, because if you try to find this turkey without help, good luck.  

Anyhow, lets key in on one of my favorite sections called “Open and Accountable to Stakeholders.” Here’s the actual text:  

“The Board and executives are appropriately open in the way key decisions are made and public ally disclosed. Governance rules are clear and disclosed. The Board has access to appropriate expertise and data free from undue influence. The Board and executives are both accountable to stakeholders for their performance.”  

Sounds innocuous, doesn’t it? Sort of like meaningless pablum. Wrong! First of all, the Board is the employer, not the staff. They are not “both” accountable. Also, the implication of the section is that not only are the key executives at the same level as the Elected Board, they will be the practical deciders as to “appropriate expertise and data free from undue influence.” And I bet the Board never even felt the knife as they voted for the 26-page document without ever reading it.  

In another section, the Board agrees to “refrain from communications with staff” outside of a Board or Committee meeting but says nothing about the staff contacting Board members. 

Finally, there’s another section where the Board gives it all away. The title is “Delegations to Executives and Board Reporting Relationships,” which sounds innocuous. Until you read Section A: 

“The Board will have one direct report: the Chief Executive Officer. The Chief Executive Officer is responsible for the overall administration of all units, departments and functions within CalPERS. The Board and the Chief Executive Officer share responsibility for hiring, evaluating, and if necessary, terminating the Chief Investment Officer.” 

This is the section that made it easy to take over the Board. All General Counsel Jacobs had to do is to coopt the clueless CEO Marcie Frost, and he gets to run the Board with her as his puppet. Further, by implication all staff except for the CIO can be controlled by the CEO without the Board having a clue.  

That article was about two years ago, long before the 2019 Election which was an embarrassment to adult human beings, via the hit pieces, active staff slime, and participation by elected officials who are on the Board. 

Eureka! The Truth Emerges 

Even before the upcoming April Board meeting, I was trying to figure out why and how the overwhelming Board majority had given up any pretense of real oversight. The politicians, you can understand. That accounts for seven Members. They obviously want to get re-elected using the political support of the Unions. Fair enough. 

But the six labor seats are filled by elections involving various groups covered by the CalPERS pension system. So, what’s their deal?

Under the regulations, CalPERS reimburses the agencies of working Board members for time spent on CalPERS. According to the Policy (Agenda Item 7b-00): 

“Executive Summary 

The Board of Administration’s Policy for the Approval of Reimbursement to State, School and Public Agency Employers of Elected Board Members requires the recommended percentage up to 100 percent of the elected Board Member’s time that will be required of the Board Member to fulfill his or her duties for approval by the Finance & Administration Committee.” 

Evidently to simplify the filling out of these forms, CalPERS has helpfully provided a “Request for Employer Reimbursement Form,” which comes with a predefined assumption of 105 hours per month as a base, with add-ons for being Chair/Vice Chair of a Committee, and an assumed 46 hours/month additional for being Board President (Agenda Item 7b-01). 

Using Mediator math, 40 hrs/wk x 4.3 weeks/month would give us 172 hours a month, of which 105 hours are assumed to be on CalPERS business. Which is a substantial majority of the employees’ monthly time which would be normally spent with the employer. 

Under this formula, in 2018-19, then Board Chair Rob Feckner had his employer reimbursed to the tune of over $99,000, with varying amounts for others down to $46,000 for Board Member David Miller. 

Virtually guaranteeing passage, Staff put in the stern admonition that: 

“If recommendations are not approved, there is a risk that elected Board Member’s employers may not be reimbursed for the amount equal to the salary and benefits paid to the elected Board Member in fulfilling his or her responsibilities to CalPERS in accordance with the Policy for Approval of Reimbursement to State, School and Public Agency Employers of Elected Board Members.”  

Also, just to make sure this goes through without comment, there is a spiffy Attachment 2 giving the Fiscal Year Baseline Hours Required for CalPERS Board Duties. 

The theory behind the reimbursement program, of course, is sound enough. Make sure that the Board members have all the time they need to diligently go through every item on the CalPERS Board Agenda so that they can be prepared to exercise their oversight function at Board meetings and ensure that we the beneficiaries are well represented. 

The practice, of course, is quite different. Just go look at the video recording of any meeting and look for any questioning of staff by Board members on anything. Good luck finding any fiduciary oversight. More like a bunch of crash test dummies. 

The not so subtle subtext of all the preset “check here” forms is that “staff is here to help you,” and outside of a couple of troublemakers, the Board positively glows with praise at any scheme the CalPERS staff proposes. 

Not good. 

The Takeaway - Delegation or Abdication? 

The message is staff is there to help you with all the nasty details; just sign and we’ll take care of everything. The affected Board members know exactly how much time they have away from their workplace with pay, to protect us beneficiaries by their due diligence and careful attention to fiduciary responsibilities. 

With CalPERS already going for fewer Board meetings each year, and less days for each meeting, the COVID-19 crisis provides perfect cover for more staff control and perfunctory attention on the part of Board members. 

Yet this is exactly the time we need big time oversight. Our lives, both personal and financial, are in chaos thanks to a virus. Long term investing in this market is hard to predict, and errors have consequences. 

Consider. Just a week ago, Bloomberg reported that “Calpers Missed a $1 Billion Payday by Scrapping Market Hedge.”   

“Bloomberg) -- Three years ago, America’s largest pension fund made an unusual investment. It bought so-called tail-risk protection, a kind of insurance against financial catastrophe. In a market meltdown like the one sparked by the coronavirus, the strategy promised a massive payout -- more than $1 billion. 

If only the California Public Employees Retirement System had stuck with the plan. Instead, Calpers, as the fund is known, removed one of its two hedges against a bear market just weeks before the viral outbreak sent stocks reeling, according to people familiar with its decision. 

The timing couldn’t have been worse. The fund had incurred hundreds of millions of dollars in premium-like costs for those investments. Then it missed out on a bonanza when disaster finally struck. 

Softening the blow, Calpers held on to the second hedge long enough to make several hundred million dollars, one of the people said. 

Ben Meng, chief investment officer of Calpers, said the fund terminated the hedges because they were costly and other risk-management tools are more effective, cheaper and better suited to an asset manager of its size.” 


“Calpers had been warned about the perils of shifting strategy. At an August 2019 meeting of its investment committee, Andrew Junkin, then one of the pension plan’s consultants at Wilshire Associates, reviewed the $200 million of tail-risk investments. 

‘Remember what those are there for,’ Junkin told Calpers executives and board members, according to a transcript. ‘in normal markets, or in markets that are slightly up or slightly down, or even massively up, those strategies aren’t going to do well. But there could be a day when the market is down significantly, and we come in and we report that the risk-mitigation strategies are up 1,000%.’” 

The article is well worth the read. And oh, so timely. It is proof that the Board puts beneficiaries at risk when they fail to exercise prudent oversight, and they can’t say that they don’t have the time to do it. 

Read This and Weep 

Finally, there is an ominous note in one of the Investment Committee documents pertaining to (further) delegation by the Board to Staff, in major areas: 

“Staff recommends the following changes: 

Removal of mere formalisms such as the archaic “whereas” and “resolved” preambles and associated recital verbiage providing no added substance within the context of this Resolution; 

Substitution of “Approve” for “Conduct” in clause (3) as the more appropriate characterization of the Committee’s role in the strategic asset allocation process;      

Deletion of clause (5) (“approve and oversee asset class strategic plans and portfolio construction guidelines”) as too granular for committee oversight purposes; 

Deletion of the explanation of the liquidity-management concept in clause (8) as both too granular and an outlier – we do not provide explanations of other concepts/terms;      

Deletion of clause (10) (oversee selection process and performance of external managers and non-board consultants) as this is the role of management, which must be held accountable; 

Deletion of clause (13) (oversee investment office risk assessment and control environment) – same reason; 

Miscellaneous style, usage, and grammar fixes. 

Any revisions to the Delegation Resolution that the Committee wishes to make will be incorporated and brought back for consideration and approval at a subsequent meeting.” 

I have highlighted the new proposed changes, which are set to be voted on a Consent Calendar! Holy moly, batman. This is not delegation -- it is abdication of major functions of the Board. Just read the Bloomberg article, and check out “deletion of clause (13)”. 

This is serious. This is sick. This is being done right out in public, in our face, and in such a way that the suckers won’t even know what’s happening until the next incredible blunder by CalPERS investment staff. 



(Tony Butka is an Eastside community activist, who has served on a neighborhood council, has a background in government and is a contributor to CityWatch.) Edited for CityWatch by Linda Abrams.