Should the makeup of the governing boards of the two big state pension funds, CalPERS and CalSTRS, be changed?

The issue edged into the spotlight last week, pushed from the shadows by rising government pension costs and a CalPERS corruption scandal.

It’s not the major overhaul advocated by some, where the traditional stakeholder board of management and labor representatives is replaced by a board majority chosen for their expertise in finance and investments.

That kind of change happened in San Diego, one of the first public pension meltdowns, and in San Jose, where Mayor Chuck Reed successfully pushed pension reform ballot measures last fall.

But a Senate Republican list of pension reforms given Gov. Brown in budget talks, reported by the Sacramento Bee late last week, contains this brief notation, where “admin” apparently indicates a proposal or agreement by the Brown administration:

o Governing board conflict of interest and greater transparency (Admin: Add 2 public members to each retirement board. For CalPERS, switch SPB representative to DOF)”

The abbreviations for the California Public Employees Retirement System switch refer to the five-member State Personnel Board, which handles civil service issues, and the administration’s Department of Finance.

One of the eight points in the pension reform plan Brown issued during his campaign calls for “independent oversight” of the pension funds and monitoring by the Department of Finance.

Another point calls for heightened board “standards and accountability” and specialized training for board members. The main qualification for the unpaid CalPERS board is who they represent, not what they know about pensions and investments.

At a meeting of the California State Teachers Retirement System Board last week, a committee decided to review the policy of taking no position on board composition. The issue will be explored with a staff report and perhaps a panel discussion.

The review was suggested by CalSTRS board member Carolyn Widener, who said board composition may be an emerging issue. She mentioned a proposal in Colorado and a remark about the CalPERS scandal from a public administration expert.

“There’s no institution in the state that requires a stronger board than CalPERS,” Robert Fellmeth of the University of San Diego told Los Angeles Times columnist Michael Hiltzik. “But it has just the opposite.”

Fellmeth recommends that members be appointed by the governor, with the approval of the Legislature.

“We got out ahead of a lot of the discussion on things like placement agents,” Widener said, “and it just seems like composition of the board is going to be a big discussion next year or the year after.”

Placement agents are at the center of the CalPERS scandal. A former CalPERS board member, Alfred Villalobos, received more than $50 million in placement agent fees for helping private equity firms obtain CalPERS investments.

The state attorney general last year filed a bribery-related civil lawsuit against Villalobos and another former CalPERS board member, Fred Buenrostro, who later became the CalPERS chief executive.

A special review by a Washington, D.C., law firm this month said a staff recommendation in 2007 that placement agent fees be disclosed was bottled up in a CalPERS board committee chaired by a former Villalobos employee, Kurato Shimada.

The CalSTRS board approved a placement agent fee disclosure at about the same time. The special review commissioned by CalPERS said approval of the blocked fee disclosure might have prevented the scandal.

CalPERS has adopted a dozen reforms since the scandal surfaced, many recommended by the special review. CalPERS also backed a bill requiring placement agents to register as lobbyists and banning fees based on investment amounts.

State Controller John Chiang, who sits on both pension boards, is sponsoring legislation, SB 439, recommended by the special review that would lower the gift limit for board menbers and staff from $420 to $50.

The controller is sponsoring another bill recommended by the review, AB 873, requiring a two-year “cooling off” period before a board or staff member could go to work for placement agents or employers with pension-fund contracts or investments.

Critics say the gift limit could force staff members, who get minimal state living expenses while traveling, to dip into their own pocket at business events. Some fear the two-year job restriction may hamper staff recruitment.

CalPERS board member J.J. Jelincic, a CalPERS investment officer and former union leader, told a national publication many CalPERS investment staff members are looking for new jobs, upset by proposed ethics rules and a tainted CalPERS reputation.

“People are getting extremely tired of being beat up all the time,” Jelincic said in an interview with Pensions & Investments published last week. “Morale is way down.”

The special review said the top CalPERS private equity officer, Leon Shahinian, who at $500,000 a year was one of the highest paid state workers, repeatedly complained to the board president that Buenrostro was urging investments for Villalobos clients.

But Shahinian later “lost his way,” said the review, and accepted a Villalobos private jet trip and hotel room in New York to attend an event honoring private equity billionaire Leon Black, who gave Villalobos more than $40 million in fees.

Shahinian later recommended that CalPERS become a partner in Black’s Apollo fund, but did not tell the board about the new York trip. He was suspended last year before leaving CalPERS.

The board member who once worked for Villalobos, Shimada, abruptly resigned last August after winning re-election in January. The vacancy triggered a special election likely to cost CalPERS well over $1 million.

Turnout has been declining in CalPERS board elections, dropping to 15.7 percent of 1.2 million eligible voters in Shimada’s re-election.

The vacant board seat is one of six elected by CalPERS members, two at large representing all members and one each representing retirees and state, local government and non-teaching school members.

Three of the 13 CalPERS board members are appointed. The governor appoints an elected local government official and a life insurance official. The Legislature appoints a board member representing the public.

The other four CalPERS board members are officeholders: state controller, state treasurer, personnel administration director, and a personnel board designee.

Among the eight candidates for the vacant seat, Donna Snodgrass has the support of police, firefighter and retiree groups. Michael Bilbrey has the support of two of the deep-pocket public employee unions, SEIU and AFSCME.

The two big unions have battled each other in the past. Jelincic won last year with the support of the American Federation of State, County and Municipal Employees. His opponent, Cathy Hackett, was supported by the Service Employees International Union.

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Posted 28 Mar 11