By Ed Mendel
The CalPERS chief actuary says pension costs are “unsustainable,” and the giant public employee pension system plans to meet with stakeholders to discuss the issue.
So, are the critics right: Do overly generous pensions threaten to eat up too much of state and local government budgets?
An historic stock market crash wiped out a quarter of the CalPERS investment fund last fiscal year. Some experts are forecasting limited investment earnings in the years ahead, making it difficult to replace the losses.
Continue reading CalPERS actuary says pensions costs unsustainable.
I wonder if the CalPERS actuary has ever read my story Dillon Read & Co. Inc. and the Aristocracy of Prison Profits. Here is what I wrote in Chapter 16, Financial Coup d’ Etat, about CalPERs in 1997:
“We were blessed with an advisory board of very capable and committed pension fund leaders. In April 1997, we had an advisory board meeting at Safeguard Scientifics where the board chair led a venture capital effort. I gave a presentation on the extraordinary waste in the federal budget. As an example, we demonstrated why we estimated that the prior year’s federal investment in the Philadelphia, Pennsylvania area had a negative return on investment. It was, however, possible to finance places with private equity and then reengineer the government investment to a positive return and, as a result, generate significant capital gains. Hence, it was possible to use U.S. pension funds to increase retirees’ retirement security significantly by investing in American communities, small business and farms — all in a manner that would reduce debt and improve skills and job creation. This was important as one of the chief financial concerns in America at that time was ensuring that our retirement plans performed financially to a standard that would meet the needs of beneficiaries and retirees. It was also critical to reduce debt and create new jobs as we continued to move manufacturing and other employment abroad. If not, we would be using our workforce’s retirement savings to finance moving their jobs and their children’s jobs abroad.”
“The response from the pension fund investors was quite positive until the President of the CalPERs pension fund — the largest in the country — said, “You don’t understand. It’s too late. They have given up on the country. They are moving all the money out in the fall (of 1997). They are moving it to Asia.” He did not say who “they” were but did indicate that it was urgent that I see Nick Brady — as if our data that indicated that there was hope for the country might make a difference. I thought at the time that he meant that the pension funds and other institutional investors would be shifting a much higher portion of their investment portfolios to emerging markets. I was naive. He was referring to something much more significant.”
“The federal fiscal year starts on October 1st of each year. Typically the appropriation committees in the House and Senate vote out their recommendations during the summer. When they return from vacation after Labor Day, the various committees reconcile and a final bill is passed in September. Reconciling all the various issues is a bit like pushing a pig through a snake. Finalizing the budget each fall can make for a tense time. When the new bill goes into effect, new policies start to emerge as the money to back them starts to flow. October 1st is always a time of new shifts and beginnings. In October 1997, the federal fiscal year started. It was the beginning of at least $4 trillion going missing from federal government agency accounts between October 1997 and September 2001. The lion’s share of the missing money disappeared from the Department of Defense accounts. HUD also had significant amounts missing. According to HUD OIG reports, HUD had “undocumentable adjustments” of $17 billion in fiscal year 1998, and $59 billion in 1999.”
Continue reading Financial Coup d’ Etat
This, of course, raises an important question. If, in fact, the leadership of CalPERs understood in 1997 that the United States was scheduled for significant disinvestment, including of government resources, why did they pour their beneficiaries retirement savings into US mortgage and financial companies?
Seems to me that the CalPER losses in the stock market may have been something other than an honest mistake.
Is the solution to cut back on benefits for beneficiaries? I would recommend beneficiaries first independently investigate where their money has gone and why.