A tentative CalPERS proposal would limit the board president and committee chairs to four consecutive one-year terms, a policy that could end the long-running presidency of Rob Feckner in 2017.
Feckner was elected to an 11th one-year term as president last January. The degree to which he is a figurehead or wields power, soft or hard, is not clear. But he has presided over times good and bad at the nation’s largest state public pension system.
The California Public Employees Retirement System was briefly 101 percent funded in 2007. Then a deep recession and a stock market crash resulted in a breathtaking $100 billion CalPERS investment loss, dropping the funding level to 61 percent in 2009.
The CalPERS investment portfolio, $260 billion in 2007, was valued at $290.4 billion last week, a modest recovery despite a major bull stock market since 2009. The current estimated funding level is 73 percent, down from 77 percent as the market sags.
CalPERS pension costs were mentioned as a factor in three city bankruptcies: Vallejo in 2008 and Stockton and San Bernardino in 2012. Since the recession CalPERS has been phasing in a total employer rate increase of roughly 50 percent.
A new plan to reduce the risk of investment losses is expected to raise employer rates over two decades, a gradual change to ease budget strain on local governments. Gov. Brown wanted a five-year rate increase to more quickly bolster the pension fund.
Last week, there was no sign of a course correction, or discontent with the current leadership, as the CalPERS governance committee discussed a proposal to limit the terms of board presidents and committee chairs.
“This should not be taken as any reflection on the great work being done by our current president or our current committee chairs,” said Bill Slaton, the governance committee chairman.
Several board members suggested that the committee take up the issue, Slaton said, noting that CalPERS expects “similar type conversations” for the boards of companies in which it has invested.
“A better way to phrase it is rotation of president and committee chairs, rather than using the term ‘term limits,’” said Slaton. “We are not really talking about term limits, more so the ability to rotate and have other people have a chance to experience this.”
Slaton said the current CalPERS policy is silent on the presidency, but does say consideration should be given to “the periodic rotation of committee and subcommittee chairs.”
Henry Jones, the board vice president, said he supports rotation because it would give each board member a chance to grow: “I have been chair of two committees, and each one I have learned so much more than just as a committee member.”
Straw votes of the committee showed support for a limit of four consecutive terms in the top board posts and for a succession that has the vice president and vice chair next in line for the top post.
There also was apparent support for counting terms already served, if for example rotation begins in 2017, and for allowing a board member termed out after four years in a top post to return, but only after at least two years out of the office.
Slaton and the CalPERS general counsel, Matthew Jacobs, are expected to use the guidance of the discussion to develop a formal rotation proposal to bring to the committee in February for a vote.
The only reservation about a rotation policy expressed at the meeting last week, which was attended by several board members not on the committee, came from board member J.J. Jelincic.
He said he likes the “idea of rotation,” but its cost should be noted: a loss of the expertise developed during years of service, as happened when voters imposed term limits on the Legislature in 1990.
CalPERS has what some call a 13-member “stakeholder” board, advocated by those who think the retirement system is best served if most of the board members receive its pensions.
Six are elected by active and retired state and local government workers. Two are appointed by the governor, and one by the Legislature. Four are state office holders: the treasurer, controller, Human Resources director, and a designee of the Personnel Board.
Reformers argue that stakeholder boards are an outdated model that should be replaced by independent financial experts, who can oversee complicated new strategies and have no conflict of interest that might favor risky investments to lower contributions.
“In the past, the lack of independence and financial sophistication on public retirement boards has contributed to unaffordable pension benefit increases,” Gov. Brown said in a 12-point pension reform plan issued in October 2011.
The governor probably referred to a CalPERS-sponsored bill (SB 400 in 1999) that gave state workers and the Highway Patrol a large retroactive pension increase. The generous Highway Patrol formula was widely adopted by local police and firefighters.
“As a starting point, my plan will add two independent, public members with financial expertise to the CalPERS board,” Brown said, and also replace the Personnel Board designee with the governor’s Finance director.
“And while my plan starts with changes to the CalPERS board, government entities that control other public retirement boards should make similar changes to those boards to achieve greater independence and greater sophistication.”
The pension reform Brown pushed through the Legislature the following year (AB 340 in 2012) did not change the CalPERS board, which some think would require voter approval of a state constitutional amendment.
A bill containing Brown’s proposal (AB 1163 in 2013) was introduced by Assemblyman Marc Levine, D-San Rafael. A watered-down version signed by Brown requires CalPERS board members to receive 24 hours of education every two years.
One of Feckner’s most public roles was as the stern face of reform when CalPERS had a pay-to-play scandal.
In 2009, CalPERS’ own internal probe (a query to private equity firms about whether they paid fees to “placement agents” to get CalPERS investments) eventually led to bribery-related charges against two former CalPERS board members.
Alfred Villalobos, who collected $50 million in fees, died last January, an apparent suicide a month before his trial. Fred Buenrostro, a board member who became CalPERS chief executive officer, pleaded guilty in July last year and still awaits sentencing.
“He is a 64-year-old man who is ready to tell all,” Buenrostro’s attorney, William Portanova, told reporters after the guilty plea.