CalPERS
Encyclopedia
The California Public Employees' Retirement System or CalPERS is an agency in the California executive branch
that "manages pension
and health benefits for more than 1.6 million California
public employees, retirees, and their families". In fiscal year 2007-2008, $10.88 billion was paid in retirement benefits, and in calendar year 2009 it is estimated that over $5.7 billion will be paid in health benefits.
As of December 2008, CalPERS managed the largest public pension fund in the United States with $179.2 billion in assets; however, that represented a 31% decrease from the peak value of its assets of $260.6 billion in October 2007. CalPERS is known for its shareholder activism
; stocks placed on its "Focus List" may perform better than other stocks, which has given rise to the term "CalPERS effect". Outside the U.S., CalPERS has been called "a recognized global leader in the investment industry", and "one of America's most powerful shareholder bodies".
, established in 1931, began a close relationship with SERS that continues to this day.
In 1939, the state Legislature passed a bill that allowed local public agencies (such as cities, counties, and school districts) to participate in SERS. Initially, SERS could invest only in bonds, but in 1953 a new state law allowed SERS to invest in real estate. SERS then built a 670000 square feet (62,245 m²), 16-story building in Sacramento
which opened in 1965; part of the building housed SERS employees, and part of the building was leased to other state agencies.
The "first major new benefit for SERS members," health insurance, began in 1962 with the passage of a law that was later amended to become the "Public Employees' Medical and Hospital Care Act". Because by 1967 SERS was contracting with 585 local public agencies for retirement benefits, its name was changed to the "Public Employees' Retirement System" (PERS). With the passage of a ballot proposition and a state law in 1966-1967, PERS was allowed to invest 25% of its portfolio in stocks; in 1984, Proposition 21 removed the 25% limitation.
State Treasurer Jesse M. Unruh was a PERS Board member in the mid-1980s. He began PERS' emphasis on corporate governance
; in addition, he was instrumental in creating the Council of Institutional Investors, an organization of pension funds and other institutions that opposed "greenmail
and other corporate practices that benefited only management".
In 1986, the headquarters building of PERS, now called "Lincoln Plaza North", was completed in Sacramento at a cost of $81 million. The building, which has 492900 square feet (45,791.9 m²), is known for its six-story-high atrium
and landscaped terraces.
In 1991, Governor Pete Wilson
wished to use PERS funds to help cover a state budget deficit; however, Proposition 162, also known as the "California Pension Protection Act of 1992," gave the PERS board "the sole and exclusive fiduciary responsibility over the assets of" PERS.
To avoid confusion with public employees' retirement systems in other states, the organization's name was changed to "CalPERS" in 1992. By 1996, the CalPERS portfolio was worth $100 billion, and the number of members exceeded 1 million. In 2001-2002, CalPERS provided technical assistance for the Sarbanes-Oxley Act
because it had sustained financial losses from the Enron
and WorldCom
bankruptcies.
In November 2005, CalPERS expanded its headquarters with the 560000 square feet (52,025.7 m²) "Lincoln Plaza East & West" buildings which cost $265 million. The architecture of the buildings, which received praise, includes an entry tower 90 feet (27.4 m) high in a shape reminiscent of a tree which is made of steel covered with glass. The project was awarded a Gold Leadership in Energy and Environmental Design
(LEED) rating.
Notable past Board members have included Caspar Weinberger
(1967–1969), Jesse Unruh (1983–1987), Gray Davis
(1986–1994), Matt Fong
(1995–1998), Kathleen Connell
(1995–2003), Phil Angelides
(1999–2006), Willie Brown
(2000–2005), and Steve Westly
(2003–2006). As of 2011, the current Board members are Rob Feckner (President), George Diehr (Vice President), John Chiang
, Richard Costigan, Dan Dunmoyer, JJ Jelincic, Henry Jones, Bill Lockyer, Priya Sara Mathur, Louis F. Moret, Tony Oliveira, and Ronald Yank.
Between 1999 and 2001, several conflicts among Board members were notable:
In response to such conflicts, the Board took various measures (e.g., it adopted a "document of collegiality" in October 2001).
Other controversies have affected the Board, such as:
The state employees perform under the direction of the chief executive officer
(CEO) of CalPERS. The CEOs have been: Earl W. Chapman (1932–1956); Edward K. Coombs (acting, 1956); William E. Payne (1956–1974); Carl J. Blechinger (1975–1983); Sidney C. McCausland (1984–1986); Kenneth G. Thomason (acting or interim, 1987); Dale M. Hanson (1987–1994); Richard H. Koppes (interim, 1994); James E. Burton (1994–2002); Robert D. Walton (interim, 2002); Fred R. Buenrostro, Jr. (2002–2008); Kenneth W. Marzion (interim, 2008–2009); and Anne Stausboll (2009 - Present).
Besides the CEO, the executive officer
s of CalPERS are: Assistant Executive Officers for Administrative Services, Health Benefits, Information Technology Services, Member and Benefit Services, and Public Affairs; a General Counsel
; a Chief Actuary
; and a Chief Investment Officer. Under the executive officers, state employees work in 19 major branches, divisions, and offices.
Investment Income has fluctuated from gains to losses in the last eleven years, 1999–2009, with four years of losses and seven years of gains. There was investment income gains of $17 billion in 1999, $16 billion in 2000 and five billion dollars in 2003. The stock market declines in 2001 lead to investment income losses of 12 billion in 2001 and 10 billion in 2002. Thus, the five-year period 1999 to 2003 period had a cumulative income of 16 billion dollars, or about three billion a year on a investment portfolio of over $200 billion dollars.
The next four years were a period of investment income stability; a 24 billion investment income in 2004, 22 billion in 2005, 21 billion in 2006, and 41 billion in 2007. This four-year period had a cumulative investment income of 108 billion dollars, or $27 billion a year.
With the stock market decline in 2008, during the financial crisis of 2007-2010, there were large investment income losses. There was a 12 billion dollar investment income loss in 2008 and 55 billion in 2009.
The 124 billion dollars of income in the nine-year period 1999-2007 has been reduced in half by the combined losses of 67 billion in 2008 and 2009. This totals to 57 billion dollars of investment income during this 11-year period, or about 5.1 billion a year on an investment portfolio of 261 billion in October 2007 and down to 186 billion in October 2008. This is a 2.5% return on investment over the 11-year period.
Income or loss from investments fluctuates from year to year; between 1998–99 and 2007–08, the highest income was $40.7 billion in 2006-07 and the greatest loss was $12.5 billion in 2007-08. As of October 2008, CalPERS had a total of $186.7 billion in assets invested as follows: $104.9 billion (56.2%) in equities, $41.0 billion (21.9%) in fixed income, $20.9 billion (11.2%) in real estate, $16.2 billion (8.7%) in cash equivalents, and $3.7 billion (2.0%) in inflation linked assets.
, in which it has been described as the most influential pension fund and as "a leader among activist institutions".
Among other examples of its shareholder activism, CalPERS has:
CalPERS has received some criticism for its shareholder activism:
; Hilb, Rogal & Hobbs Co.
; Invacare
; La-Z-Boy
; and Standard Pacific Homes
.
In 1994, Nesbitt published a study that found that companies on the Focus List trailed the S&P 500
prior to being put on the list, but outperformed the S&P 500 after being put on the list, and named this phenomenon the "CalPERS effect". The term has been used in the newsmedia. Whether a "CalPERS effect" actually exists has been studied in a number of subsequent papers, including but not limited to:
In addition, CalPERS administers the Legislators' Retirement System, Judges' Retirement System, and Judges' Retirement System II.
Besides CalPERS, California has a number of other public retirement systems, including:
CalPERS has reciprocity agreements with many of these California public retirement systems that allow retirees with service credit and contributions in two systems to receive payments from both systems.
Some people prefer defined contribution plans to CalPERS' defined benefit plan. For example:
Among other arguments, CalPERS claims that defined contribution plans cost more to manage than defined benefit plans and fail to provide adequate funds to retirees.
) and two other plans to supplement income after retirement or permanent separation from State employment:
Two major controversies have affected CalPERS' disability retirement and industrial disability retirement program over the years. First, in the mid-1990s and again in the mid-2000s there were concerns about inappropriate industrial disability retirement for public safety personnel, including:
Second, "a 1980 state law that tied public safety officers' disability benefits to the age at which they were hired" caused an age discrimination complaint with the Equal Employment Opportunity Commission
(EEOC) in 1992 which eventually led to a 1995 class action lawsuit against CalPERS and other state and local agencies. In January 2003, CalPERS settled the suit by agreeing to pay $50 million in retroactive benefits and $200 million in future benefits to 1,700 officers; the settlement "was by far the largest in the EEOC's history". Furthermore, CalPERS agreed to not use an age-based formula in the future, which "basically nullifie[d]" the 1980 state law.
, PERS began to deal with HMOs "to create more unified and standardized health care benefit rates". In 1978, the Meyer-Geddes Act was renamed the "Public Employees' Medical and Hospital Care Act".
By the early 1990s, CalPERS received national attention for its attempt at implementing "managed competition," which is the theory that health care costs "can be controlled by forcing health providers to compete with one another under government supervision". As of 1994-1995, CalPERS contracted with 24 health plans for its "over 900,000" members and was able to reduce health insurance premiums by 1% compared with 1993-1994. At the time CalPERS was "called a model for the so-called health alliances" proposed in the 1993 Clinton health care plan.
Rates continued to decline by 5.3% in 1996 and 1.4% in 1997, but rose by 2.7% in 1998 and 5.1% in 1999. CalPERS attracted national attention again in the mid-2000s, this time for health maintenance organization rate increases of 25% in 2004 and 18% in 2005. Meanwhile, the number of participating plans dropped to seven as of 2003, and "more than two dozen cities, counties and school districts" (representing 4% of membership) left CalPERS as of 2004 because of high medical insurance rates.
A 2006 study by the Government Accountability Office
determined that from 1997 through 2002 the average annual growth in CalPERS premiums (6.5%) was lower than that of the Federal Employees Health Benefits Program (FEHBP, 8.5%) and of other surveyed employer-sponsored health benefit programs (7.1%); however, between 2003 and 2006-7, the average annual growth rate in CalPERS premiums (14.2%) was higher than that of FEHBP (7.3%) and of other surveyed employer-sponsored health benefit programs (10.5%). As of 2008, CalPERS eliminated copayment
s for preventive care visits, raised copayments for other types of office visits, and took other measures in an attempt to reduce costs.
CalPERS will provide over $5.7 billion in health benefits "nearly 1.3 million active and retired state and local government public employees and their family members" as of 2009. Therefore, it was the nation’s second largest public purchaser of health benefits, behind the FEHBP which covered "about 8 million federal employees, retirees, and their dependents". Of the enrollees, 61% are state employees and 39% are local government and school employees; 74% are working and 26% are retired.
Enrollees can join three types of plans:
The program is funded by contributions and by proceeds from investments. During an economic downturn in 2002, premiums for the program rose an average of 9% to compensate for investment losses of $99 million. Another premium increase of an average of 33.6% occurred in 2007 due to "a projected $600 million shortfall in the program over the next 50 to 60 years". The causes of the deficit predicted as of 2007 were less investment income than expected, a higher volume of claims than expected, and a lower dropout rate than expected. By 2008, the program had almost 168,000 members who paid annual premiums of more than $310 million and who collectively received $76 million in benefits annually.
CalPERS touted the studies as demonstrating the value of the agency with news releases such as "CalPERS and CalSTRS Pensions Power Up State and Local Economies". The studies and their use by CalPERS were criticized as follows:
child care facility, conducts employee surveys every two years, offers a training and wellness program, and administers a nationally known employee recognition program. The employee recognition program has several components:
Two CalPERS employees received 2000 National Association for Employee Recognition (NAER)
Recognition Champion Awards for the employee recognition program. In addition, CalPERS itself won a 2002 Best Practices award from NAER. The employee recognition program was reported to contribute to high employee satisfaction and a low employee turnover rate at CalPERS.
California executive branch
The California executive branch of the state of California includes many agencies including those listed below.-Governor:Agencies under the direction of a secretary that report directly to the Governor are cabinet-level agencies, to which other agencies are subordinate to:*Governor**Office of the...
that "manages pension
Pension
In general, a pension is an arrangement to provide people with an income when they are no longer earning a regular income from employment. Pensions should not be confused with severance pay; the former is paid in regular installments, while the latter is paid in one lump sum.The terms retirement...
and health benefits for more than 1.6 million California
California
California is a state located on the West Coast of the United States. It is by far the most populous U.S. state, and the third-largest by land area...
public employees, retirees, and their families". In fiscal year 2007-2008, $10.88 billion was paid in retirement benefits, and in calendar year 2009 it is estimated that over $5.7 billion will be paid in health benefits.
As of December 2008, CalPERS managed the largest public pension fund in the United States with $179.2 billion in assets; however, that represented a 31% decrease from the peak value of its assets of $260.6 billion in October 2007. CalPERS is known for its shareholder activism
Activist shareholder
An activist shareholder uses an equity stake in a corporation to put public pressure on its management. The goals of activist shareholders range from financial to non-financial...
; stocks placed on its "Focus List" may perform better than other stocks, which has given rise to the term "CalPERS effect". Outside the U.S., CalPERS has been called "a recognized global leader in the investment industry", and "one of America's most powerful shareholder bodies".
History
Discussion about providing for the retirement of California state employees began in 1921, but only in 1930 did California voters approve an amendment to the State Constitution to allow pensions to be paid to state workers, and only in 1931 was state law passed to establish a state worker retirement plan. In 1932, the "State Employees' Retirement System" (SERS) began operation. The California State Employees AssociationCalifornia State Employees Association
The California State Employees Association , was founded in 1932 in Sacramento, California. Its early achievements include creation of the first retirement system for California state workers , creation of a credit union for state employees, winning collective bargaining rights for state and...
, established in 1931, began a close relationship with SERS that continues to this day.
In 1939, the state Legislature passed a bill that allowed local public agencies (such as cities, counties, and school districts) to participate in SERS. Initially, SERS could invest only in bonds, but in 1953 a new state law allowed SERS to invest in real estate. SERS then built a 670000 square feet (62,245 m²), 16-story building in Sacramento
Sacramento, California
Sacramento is the capital city of the U.S. state of California and the county seat of Sacramento County. It is located at the confluence of the Sacramento River and the American River in the northern portion of California's expansive Central Valley. With a population of 466,488 at the 2010 census,...
which opened in 1965; part of the building housed SERS employees, and part of the building was leased to other state agencies.
The "first major new benefit for SERS members," health insurance, began in 1962 with the passage of a law that was later amended to become the "Public Employees' Medical and Hospital Care Act". Because by 1967 SERS was contracting with 585 local public agencies for retirement benefits, its name was changed to the "Public Employees' Retirement System" (PERS). With the passage of a ballot proposition and a state law in 1966-1967, PERS was allowed to invest 25% of its portfolio in stocks; in 1984, Proposition 21 removed the 25% limitation.
State Treasurer Jesse M. Unruh was a PERS Board member in the mid-1980s. He began PERS' emphasis on corporate governance
Corporate governance
Corporate governance is a number of processes, customs, policies, laws, and institutions which have impact on the way a company is controlled...
; in addition, he was instrumental in creating the Council of Institutional Investors, an organization of pension funds and other institutions that opposed "greenmail
Greenmail
Greenmail or greenmailing is the practice of purchasing enough shares in a firm to threaten a takeover and thereby forcing the target firm to buy those shares back at a premium in order to suspend the takeover....
and other corporate practices that benefited only management".
In 1986, the headquarters building of PERS, now called "Lincoln Plaza North", was completed in Sacramento at a cost of $81 million. The building, which has 492900 square feet (45,791.9 m²), is known for its six-story-high atrium
Atrium (architecture)
In modern architecture, an atrium is a large open space, often several stories high and having a glazed roof and/or large windows, often situated within a larger multistory building and often located immediately beyond the main entrance doors...
and landscaped terraces.
In 1991, Governor Pete Wilson
Pete Wilson
Peter Barton "Pete" Wilson is an American politician from California. Wilson, a Republican, served as the 36th Governor of California , the culmination of more than three decades in the public arena that included eight years as a United States Senator , eleven years as Mayor of San Diego and...
wished to use PERS funds to help cover a state budget deficit; however, Proposition 162, also known as the "California Pension Protection Act of 1992," gave the PERS board "the sole and exclusive fiduciary responsibility over the assets of" PERS.
To avoid confusion with public employees' retirement systems in other states, the organization's name was changed to "CalPERS" in 1992. By 1996, the CalPERS portfolio was worth $100 billion, and the number of members exceeded 1 million. In 2001-2002, CalPERS provided technical assistance for the Sarbanes-Oxley Act
Sarbanes-Oxley Act
The Sarbanes–Oxley Act of 2002 , also known as the 'Public Company Accounting Reform and Investor Protection Act' and 'Corporate and Auditing Accountability and Responsibility Act' and commonly called Sarbanes–Oxley, Sarbox or SOX, is a United States federal law enacted on July 30, 2002, which...
because it had sustained financial losses from the Enron
Enron
Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. Before its bankruptcy on December 2, 2001, Enron employed approximately 22,000 staff and was one of the world's leading electricity, natural gas, communications, and pulp and paper companies, with...
and WorldCom
MCI Inc.
MCI, Inc. is an American telecommunications subsidiary of Verizon Communications that is headquartered in Ashburn, Virginia...
bankruptcies.
In November 2005, CalPERS expanded its headquarters with the 560000 square feet (52,025.7 m²) "Lincoln Plaza East & West" buildings which cost $265 million. The architecture of the buildings, which received praise, includes an entry tower 90 feet (27.4 m) high in a shape reminiscent of a tree which is made of steel covered with glass. The project was awarded a Gold Leadership in Energy and Environmental Design
Leadership in Energy and Environmental Design
Leadership in Energy and Environmental Design consists of a suite of rating systems for the design, construction and operation of high performance green buildings, homes and neighborhoods....
(LEED) rating.
Board of Administration
CalPERS is overseen by a 13-member Board of Administration whose members are elected, appointed, or ex officio:- Six are elected from CalPERS members (two by all CalPERS members, one by active State members, one by active CalPERS school members, one by active CalPERS public agency members, and one by retired members of CalPERS)
- Three are appointed (two by the Governor, one by specified leaders of the Legislature)
- Four are ex officio (California State TreasurerCalifornia State TreasurerThe California State Treasurer is responsible for the state's investment and finance. The post has more narrow responsibilities and authority than the California State Controller...
, California State ControllerCalifornia State ControllerThe State Controller is the Chief Financial Officer of the State of California in the United States. The post has broader responsibilities and authority than the California State Treasurer...
, Director of the Department of Personnel Administration, and designee of the State Personnel Board)
Notable past Board members have included Caspar Weinberger
Caspar Weinberger
Caspar Willard "Cap" Weinberger , was an American politician, vice president and general counsel of Bechtel Corporation, and Secretary of Defense under President Ronald Reagan from January 21, 1981, until November 23, 1987, making him the third longest-serving defense secretary to date, after...
(1967–1969), Jesse Unruh (1983–1987), Gray Davis
Gray Davis
Joseph Graham "Gray" Davis, Jr. is an American Democratic politician who served as California's 37th Governor from 1999 until being recalled in 2003...
(1986–1994), Matt Fong
Matt Fong
Matthew Kipling Fong was a Republican who served as the 30th California State Treasurer and was also the adopted son of Democrat March Fong Eu, the 25th California Secretary of State....
(1995–1998), Kathleen Connell
Kathleen Connell
Kathleen Connell was the California State Controller from 1995 until 2003. When she was Controller, she:* Ran for mayor of Los Angeles in 2001 but came in 6th in the April 10, 2001 primary getting 24,062 votes ....
(1995–2003), Phil Angelides
Phil Angelides
Philip Nicholas "Phil" Angelides is an American politician who was California State Treasurer and the unsuccessful Democratic nominee for Governor of California in the 2006 elections...
(1999–2006), Willie Brown
Willie Brown (politician)
Willie Lewis Brown, Jr. is an American politician of the Democratic Party. He served over 30 years in the California State Assembly, spending 15 years as its Speaker, and afterward served as the 41st mayor of San Francisco, the first African American to do so...
(2000–2005), and Steve Westly
Steve Westly
Steven Paul Westly is an American venture capitalist and politician. He was the State Controller and Chief Financial Officer of California from 2003 to 2007 and was one of the top candidates in the Democratic primary for Governor of California in the 2006 election...
(2003–2006). As of 2011, the current Board members are Rob Feckner (President), George Diehr (Vice President), John Chiang
John Chiang (California politician)
John Chiang is a Democratic politician and has been California State Controller since January 8, 2007. He previously served as Chair of the California Board of Equalization and represented the Fourth District, primarily serving southern Los Angeles County...
, Richard Costigan, Dan Dunmoyer, JJ Jelincic, Henry Jones, Bill Lockyer, Priya Sara Mathur, Louis F. Moret, Tony Oliveira, and Ronald Yank.
Between 1999 and 2001, several conflicts among Board members were notable:
- In 1999, after Board member Phil Angelides (also state treasurer) criticized a statement in a report, Board chairman Charles Valdes said about Angelides "What we have here is a Greek treasurer who doesn't like Turkey, the country; who doesn't like Turks, who is trying to … drive our policy according to those ethnic hatreds". Angelides responded that he was "do[ing] what is best for the state". Valdes later apologized for the remarks.
- Board member Kathleen Connell (also state controller) sued CalPERS in January 2001 to limit its investment managers' pay. Although CalPERS argued that the higher salaries were necessary to compete for qualified investment managers and that CalPERS had the authority under Proposition 162 to issue the higher salaries, it lost the lawsuit, which "helped prompt the fund's chief investment officer to quit".
- Valdes endorsed a lawsuit against the Board's proposal to change its election procedures to require a majority vote (not simply a plurality vote) for Board seats chosen by CalPERS members.
In response to such conflicts, the Board took various measures (e.g., it adopted a "document of collegiality" in October 2001).
Other controversies have affected the Board, such as:
- In 1998, it was discovered that several Board members were "taking expense-paid trips and other gifts from people trying to do business with" CalPERS.
- Articles in 2002-2003 issues of BusinessWeekBusinessWeekBloomberg Businessweek, commonly and formerly known as BusinessWeek, is a weekly business magazine published by Bloomberg L.P. It is currently headquartered in New York City.- History :...
and The Wall Street JournalThe Wall Street JournalThe Wall Street Journal is an American English-language international daily newspaper. It is published in New York City by Dow Jones & Company, a division of News Corporation, along with the Asian and European editions of the Journal....
noted cronyismCronyismCronyism is partiality to long-standing friends, especially by appointing them to positions of authority, regardless of their qualifications. Hence, cronyism is contrary in practice and principle to meritocracy....
and conflicts of interestConflict of interestA conflict of interest occurs when an individual or organization is involved in multiple interests, one of which could possibly corrupt the motivation for an act in the other....
among Board members. - A president of the Board, Sean Harrigan, was removed from his position in December 2004 amid criticism for his activism on matters of corporate governance. He claimed his removal was politically motivated.
State employees
Approximately $332 million is budgeted in 2008-2009 for administrative functions in CalPERS, such as paying the salaries of 2,300 state employees.The state employees perform under the direction of the chief executive officer
Chief executive officer
A chief executive officer , managing director , Executive Director for non-profit organizations, or chief executive is the highest-ranking corporate officer or administrator in charge of total management of an organization...
(CEO) of CalPERS. The CEOs have been: Earl W. Chapman (1932–1956); Edward K. Coombs (acting, 1956); William E. Payne (1956–1974); Carl J. Blechinger (1975–1983); Sidney C. McCausland (1984–1986); Kenneth G. Thomason (acting or interim, 1987); Dale M. Hanson (1987–1994); Richard H. Koppes (interim, 1994); James E. Burton (1994–2002); Robert D. Walton (interim, 2002); Fred R. Buenrostro, Jr. (2002–2008); Kenneth W. Marzion (interim, 2008–2009); and Anne Stausboll (2009 - Present).
Besides the CEO, the executive officer
Executive officer
An executive officer is generally a person responsible for running an organization, although the exact nature of the role varies depending on the organization.-Administrative law:...
s of CalPERS are: Assistant Executive Officers for Administrative Services, Health Benefits, Information Technology Services, Member and Benefit Services, and Public Affairs; a General Counsel
Counsel
A counsel or a counselor gives advice, more particularly in legal matters.-U.K. and Ireland:The legal system in England uses the term counsel as an approximate synonym for a barrister-at-law, and may apply it to mean either a single person who pleads a cause, or collectively, the body of barristers...
; a Chief Actuary
Actuary
An actuary is a business professional who deals with the financial impact of risk and uncertainty. Actuaries provide expert assessments of financial security systems, with a focus on their complexity, their mathematics, and their mechanisms ....
; and a Chief Investment Officer. Under the executive officers, state employees work in 19 major branches, divisions, and offices.
Investment Income Gains and Losses 1999-2009
CalPERS derives its income from investments, from member contributions, and from employer contributions.Investment Income has fluctuated from gains to losses in the last eleven years, 1999–2009, with four years of losses and seven years of gains. There was investment income gains of $17 billion in 1999, $16 billion in 2000 and five billion dollars in 2003. The stock market declines in 2001 lead to investment income losses of 12 billion in 2001 and 10 billion in 2002. Thus, the five-year period 1999 to 2003 period had a cumulative income of 16 billion dollars, or about three billion a year on a investment portfolio of over $200 billion dollars.
The next four years were a period of investment income stability; a 24 billion investment income in 2004, 22 billion in 2005, 21 billion in 2006, and 41 billion in 2007. This four-year period had a cumulative investment income of 108 billion dollars, or $27 billion a year.
With the stock market decline in 2008, during the financial crisis of 2007-2010, there were large investment income losses. There was a 12 billion dollar investment income loss in 2008 and 55 billion in 2009.
The 124 billion dollars of income in the nine-year period 1999-2007 has been reduced in half by the combined losses of 67 billion in 2008 and 2009. This totals to 57 billion dollars of investment income during this 11-year period, or about 5.1 billion a year on an investment portfolio of 261 billion in October 2007 and down to 186 billion in October 2008. This is a 2.5% return on investment over the 11-year period.
Income or loss from investments fluctuates from year to year; between 1998–99 and 2007–08, the highest income was $40.7 billion in 2006-07 and the greatest loss was $12.5 billion in 2007-08. As of October 2008, CalPERS had a total of $186.7 billion in assets invested as follows: $104.9 billion (56.2%) in equities, $41.0 billion (21.9%) in fixed income, $20.9 billion (11.2%) in real estate, $16.2 billion (8.7%) in cash equivalents, and $3.7 billion (2.0%) in inflation linked assets.
Shareholder activism emphasized under Dale Hanson's leadership
Beginning in the 1980s, and especially in the early 1990s under the pioneering leadership of CEO Dale Hanson, CalPERS has used its influence as one of the largest shareholders in the world to change the way certain things are done in business. It is especially known for its shareholder activism concerning corporate governanceCorporate governance
Corporate governance is a number of processes, customs, policies, laws, and institutions which have impact on the way a company is controlled...
, in which it has been described as the most influential pension fund and as "a leader among activist institutions".
Among other examples of its shareholder activism, CalPERS has:
- Lobbied the board of General MotorsGeneral MotorsGeneral Motors Company , commonly known as GM, formerly incorporated as General Motors Corporation, is an American multinational automotive corporation headquartered in Detroit, Michigan and the world's second-largest automaker in 2010...
(GM) "to take a more active role in monitoring the company, which may have been a factor in the GM board's ousting chairman Robert StempelRobert StempelRobert Carl Stempel was a former Chairman and CEO of General Motors . He joined GM in 1958 as a design engineer at Oldsmobile and was key in the development of the front-wheel drive Toronado...
in 1992. - Demanded in 1999 that U.S. companies in its portfolio disclose their Y2KYear 2000 problemThe Year 2000 problem was a problem for both digital and non-digital documentation and data storage situations which resulted from the practice of abbreviating a four-digit year to two digits.In computer programs, the practice of representing the year with two...
readiness. - Starting in 2000, "screen[ed] all its investments in emerging markets for compliance with a number of human rights, environmental and labor standards".
- As of 2002, called on companies which operate in offshore havens to repatriate to the United States.
- With other pension funds, on September 16, 2003, called upon Richard GrassoRichard GrassoRichard A. "Dick" Grasso was chairman and chief executive of the New York Stock Exchange from 1995 to 2003, the culmination of a career that began in 1968 when Grasso was hired by the Exchange as a floor clerk...
to resign from the NYSE because of an exorbitant pay package; he resigned the next day. - In 2003, sued the NYSE and seven specialist firms over allegations that the firms' floor workers engage in practices which hurt investors. The firms "settled with the Securities and Exchange Commission in 2005 and paid more than $240 million in fines without admitting or denying guilt". The part of CalPERS' lawsuit aimed at the NYSE itself was later thrown out of court, and in 2008 the U.S. Supreme CourtSupreme Court of the United StatesThe Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...
declined to reinstate that part of the lawsuit. - Called for reform in executive compensationExecutive compensationExecutive pay is financial compensation received by an officer of a firm, often as a mixture of salary, bonuses, shares of and/or call options on the company stock, etc. Over the past three decades, executive pay has risen dramatically beyond the rising levels of an average worker's wage...
, especially Golden ParachuteGolden parachuteA golden parachute is an agreement between a company and an employee specifying that the employee will receive certain significant benefits if employment is terminated. Sometimes, certain conditions, typically a change in company ownership, must be met, but often the cause of termination is...
s, in 2004. - In 2004, with other parties, opposed Michael EisnerMichael EisnerMichael Dammann Eisner is an American businessman. He was the chief executive officer of The Walt Disney Company from 1984 until 2005.-Early life:...
as chairman of the board and CEO of The Walt Disney CompanyThe Walt Disney CompanyThe Walt Disney Company is the largest media conglomerate in the world in terms of revenue. Founded on October 16, 1923, by Walt and Roy Disney as the Disney Brothers Cartoon Studio, Walt Disney Productions established itself as a leader in the American animation industry before diversifying into...
; Eisner was removed as chairman of the board and in 2005 resigned as CEO. - In 2006, banned investment of its funds in nine companies that do business in SudanSudanSudan , officially the Republic of the Sudan , is a country in North Africa, sometimes considered part of the Middle East politically. It is bordered by Egypt to the north, the Red Sea to the northeast, Eritrea and Ethiopia to the east, South Sudan to the south, the Central African Republic to the...
until the government of that country halts ongoing genocideGenocideGenocide is defined as "the deliberate and systematic destruction, in whole or in part, of an ethnic, racial, religious, or national group", though what constitutes enough of a "part" to qualify as genocide has been subject to much debate by legal scholars...
; however, that decision was described as "a largely symbolic gesture" because CalPERS "did not own a stake in any of the nine". - Since September 2006, participated as lead plaintiff in a successful class-action lawsuit against UnitedHealth GroupUnitedHealth GroupUnitedHealth Group Incorporated is a diversified health and "well-being" company. Headquartered in Minnetonka, Minnesota, UnitedHealth Group offers a spectrum of products and services through two operating businesses: United Healthcare and Optum. Through its family of subsidiaries and divisions,...
for options backdatingOptions backdatingOptions backdating is the practice of issuing options contracts on a later date than that which the options have listed. While options backdating is not, in and of itself, an illegal practice, intentional backdating that coincides with low underlying stock prices and accounting reports that claim...
. CalPERS had held "6.6 million shares of UnitedHealth stock valued at $360 million". In December 2008, a federal judge in Minnesota gave preliminary approval for UnitedHealth to pay $895 million to settle the lawsuit; furthermore, former UnitedHealth CEO William W. McGuireWilliam W. McGuireWilliam "Bill" McGuire, M.D. is an American pulmonologist, lepidopterist, philanthropist, and healthcare executive, best known for his tenure as chairman and chief executive officer of UnitedHealth Group from 1991 until his resignation in 2006....
would pay $30 million and another former executive would pay $500,000. The decision on final approval will be made in March 2009. - With other institutional investors, requested in 2007 that the government "set national, mandatory standards to cut greenhouse gas emissions".
CalPERS has received some criticism for its shareholder activism:
- As of 2002, there was a concern that CalPERS' activism had distracted from "its effectiveness as a corporate watchdog and its ability to provide for the 1.3 million public employees whose pensions it guarantees".
- Despite the efforts of CalPERS and others, the chief counsel of TIAA-CREFTIAA-CREFTeachers Insurance and Annuity Association – College Retirement Equities Fund is a Fortune 100 financial services organization that is the leading retirement provider for people who work in the academic, research, medical and cultural fields...
was quoted in 2003 as saying that there has been "no countrywide improvement in corporate governance". - CalPERS votes against some companies' directors "whose sins are exceedingly small," such as "attendance gaps or minor conflicts".
- Businesses describe CalPERS as having a "pro-labor agenda", especially because of the dominance of DemocratsDemocratic Party (United States)The Democratic Party is one of two major contemporary political parties in the United States, along with the Republican Party. The party's socially liberal and progressive platform is largely considered center-left in the U.S. political spectrum. The party has the lengthiest record of continuous...
on CalPERS' board. - Some argue that CalPERS' actions unduly interfere with business and encourage the belief that California is "anti-business".
The Focus List and the "CalPERS effect"
Since 1987, CalPERS has placed certain companies on a "Focus List" each year. The criteria for the Focus List have changed over time, but it currently includes companies for which CalPERS has "concerns about stock and financial underperformance, and corporate governance practices". CalPERS works with these companies to improve their corporate governance and thereby improve their financial performance. In 2008, the Focus List companies were The Cheesecake FactoryThe Cheesecake Factory
The Cheesecake Factory, Inc. is a restaurant company in the United States. The company operates 165 upscale, casual, full-service dining restaurants: 151 under The Cheesecake Factory mark, 13 under the Grand Lux Cafe mark and one under the RockSugar Pan Asian Kitchen mark...
; Hilb, Rogal & Hobbs Co.
Hilb, Rogal & Hobbs Co.
Hilb, Rogal, & Hobbs Co. is a US insurance firm.-History:The firm was established by Bob Hilb, Alvin Rogal and David Hamilton, former Insurance Management Corporation executives in 1982.In July 2007, Hilb Rogal & Hobbs Co...
; Invacare
Invacare
Invacare Corporation is one of the world's leading manufacturer and distributor of non-acute medical equipments including wheelchairs, mobility scooters, walkers, pressure care and positioning, as well as respiratory products...
; La-Z-Boy
La-Z-Boy
La-Z-Boy Incorporated is a furniture manufacturer based in Monroe, Michigan, USA which makes home furniture, including upholstered recliners, sofas, stationary chairs, and sleeper sofas...
; and Standard Pacific Homes
Standard Pacific Homes
Standard Pacific Homes is the nation's 12th largest homebuilder, based in Irvine, California engaged in the development of single-family and multi-family homes. Standard Pacific has built homes for more than 113,000 families during its 46-year history. The Company constructs homes within a wide...
.
In 1994, Nesbitt published a study that found that companies on the Focus List trailed the S&P 500
S&P 500
The S&P 500 is a free-float capitalization-weighted index published since 1957 of the prices of 500 large-cap common stocks actively traded in the United States. The stocks included in the S&P 500 are those of large publicly held companies that trade on either of the two largest American stock...
prior to being put on the list, but outperformed the S&P 500 after being put on the list, and named this phenomenon the "CalPERS effect". The term has been used in the newsmedia. Whether a "CalPERS effect" actually exists has been studied in a number of subsequent papers, including but not limited to:
- Smith (1996) determined that shareholder wealth increased for companies that adopted changes proposed by CalPERS or made changes that resulting in reaching a settlement with CalPERS; however, shareholder wealth decreased for companies that resisted CalPERS' proposals.
- Wahal (1996) analyzed the efficacy of pension fund activism for CalPERS and eight other funds such as TIAA-CREFTIAA-CREFTeachers Insurance and Annuity Association – College Retirement Equities Fund is a Fortune 100 financial services organization that is the leading retirement provider for people who work in the academic, research, medical and cultural fields...
. Of the firms targeted by the nine funds, "only firms targeted by Calpers experience[d] a positive stock price reaction". - Crutchley et al. (1998) discovered that CalPERS' "less visible activism" in 1995-1997 corresponded with less returns on stocks than in 1992-1994 when CalPERS' activism was more aggressive.
- Two studies published by CalPERS staff (i.e., Anson et al.) in 2003-2004 found that stocks on the CalPERS Focus List experience "positive excess stock returns of about 12% over the three months following release of the list" and "an average one-year cumulative excess return of 59.4 per cent".
- English et al. (2004) concluded that CalPERS targeting produces a statistically significant improvement in short-term returns but not necessarily in long-term returns (depending on the specific methods used to calculate long-term returns).
- Nelson (2006) claimed that his study addressed problems in the methodologies of previous studies (e.g., by controlling for the "contaminating events" of Wall Street Journal articles appearing just before or just after the dates that CalPERS released Focus List information). He found "no evidence to support the persistence of a 'CalPERS effect'" after 1993.
- Barber (2006) asserted that in his analyses "CalPERS activism yields small, but reliably positive, market reactions" in the short term. In contrast, although the long-term returns of companies "are uniformly positive and economically large" after being placed on the CalPERS Focus List, due to market volatility he could not conclude that the long-term returns were unusual. Barber's paper won a 2006 prize for best study in the area of socially responsible investingSocially responsible investingSocially responsible investing , also known as sustainable, socially conscious, or ethical investing, describes an investment strategy which seeks to consider both financial return and social good....
from the Haas School of BusinessHaas School of BusinessThe Walter A. Haas School of Business, also known as the Haas School of Business or simply Haas, is one of 14 schools and colleges at the University of California, Berkeley....
. - Junkin and Toth (2008), in an update of Nesbitt's 1994 study, found that the "CalPERS effect" was still present in that "the average targeted company produced excess returns of 15.7% above their respective benchmark return on a cumulative basis," but that the effect had decreased over time.
Notable investments
- The agency both lost and gained from investments in Enron (which went bankrupt in 2001) and its affiliated companies. Its losses included common stock worth $40 million; "stock in a different portfolio, some bonds and a separate investment in New Power Co." worth $100 million; and $4 million from the liquidation of Enron's JEDI II project (i.e., CalPERS had paid $175 million for its stake but received only $171 million in return). However, as CalPERS had earned $132.5 million from the sale of its stake in Enron's JEDI I project to Enron's ChewcoChewcoChewco Investments L. P., was a limited partnership associated with the Enron scandal, which resulted in the bankruptcy of Enron. It was named after the Star Wars character Chewbacca, because it was created to hide losses from the Joint Energy Development Investment Limited, known by its acronym...
project, its total Enron losses were only about $11 million. Although CalPERS "was alerted by its advisers in December 2000 about the serious and potentially embarrassing conflicts inherent in one of a web of private partnerships set up by Enron's chief financial officer, Andrew S. Fastow", it later denied that it could have taken actions to prevent Enron's downfall. Nevertheless, as a result of the Enron experience, in 2002 the CalPERS board did resolve to improve accounting and auditing standards among companies in which it invests. - In 2002, the Republican Party questioned CalPERS' investing $100 million in a firm that was co-founded by a Democratic supporter. CalPERS denied any political influence in its investment decision.
- In 2002, it was revealed that CalPERS had invested $700 million in venture capital funds of billionaire Ronald BurkleRonald BurkleRonald Wayne Burkle is an American business magnate and investor. A major political fundraiser, he is listed on the Forbes 400, with an estimated net worth of $3.2 billion in 2011.-Life and career:...
who had donated "$1.9 million to Democratic candidates and causes". Phil Angelides denied that CalPERS made its decision because of the donations. - As of 2002, CalPERS had invested $3.5 billion in "underserved areas of California".
- In 2002, CalPERS evaluated emerging markets for "evidence of political stability, humane labor laws, a fair and functional legal system and financial transparency"; on the basis of the evaluation, CalPERS placed the Philippines on "probation" for investment. In 2004, a consultant's recommendation to remove the Philippines from the "approved" list "contributed to a 3.3% drop... in the $55-billion Manila stock market". By 2006, CalPERS had given higher ratings to the Philippines, for which its President Gloria Macapagal-ArroyoGloria Macapagal-ArroyoGloria Macapagal-Arroyo is a Filipino politician who served as the 14th President of the Philippines from 2001 to 2010, as the 12th Vice President of the Philippines from 1998 to 2001, and is currently a member of the House of Representatives representing the 2nd District of Pampanga...
personally expressed appreciation. - CalPERS has been criticized for being foolish to invest in collateralized debt obligationCollateralized debt obligationCollateralized debt obligations are a type of structured asset-backed security with multiple "tranches" that are issued by special purpose entities and collateralized by debt obligations including bonds and loans. Each tranche offers a varying degree of risk and return so as to meet investor demand...
s (CDOs) before the July 2007 mortgage meltdown and for not publicly addressing the issue. - In June 2008, after Los Angeles-area property developer LandSource filed for bankruptcy protection, CalPERS was criticized for having invested $947 million in LandSource in 2007; a CalPERS spokesperson described the investment as "small" relative to CalPERS' total assets.
Member contributions
Workers who are members of CalPERS contribute 5%-10% of their salaries for retirement benefits.Employer contributions
On average, schools and other public agencies contribute 12.7% of payroll for their employees' retirement benefits; however, the rates can decrease if CalPERS' investments perform favorably and can increase if CalPERS' investments lose money. According to CalPERS, "The School Pool contribution rate is affected by the investment return of a given fiscal year in the second year that follows" and "Local public agency contribution rates are affected by the investment return of a given fiscal year in the third fiscal year that follows". CalPERS' earnings and losses are averaged over 15 years to prevent extreme changes in employers' contribution rates. Nevertheless, in 2008 "CalPERS warned that it might ask for more money from the state starting in July 2010 and from local-government employers starting in July 2011" if CalPERS' investments are performing poorly as of June 30, 2009.Benefits provided to members
CalPERS provides benefits to all state government employees and, by contract, to local agency and school employees. CalPERS administers the following categories of benefits to members:- Retirement benefits under defined benefit plans
- Deferred compensationDeferred compensationDeferred compensation is an arrangement in which a portion of an employee's income is paid out at a date after which that income is actually earned. Examples of deferred compensation include pensions, retirement plans, and stock options...
and other supplemental income plans - Disability retirementDisability pensionA disability pension is a form of pension given to those people who are permanently or temporarily unable to work due to a disability. It is distinct from welfare.- North America :...
and industrial disability retirement - Death benefits
- Health benefits
- Long-term careLong-term careLong-term care is a variety of services which help meet both the medical and non-medical need of people with a chronic illness or disability who cannot care for themselves for long periods of time....
benefits - Member Home LoanMortgage loanA mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan...
Program
Retirement benefits under defined benefit plans
As of June 30, 2008, CalPERS paid monthly allowances to 476,252 retirees, survivors, and beneficiaries, 86% of whom lived in California. In the year ending June 30, 2008, $10.88 billion in benefits were paid. The retirement benefits "are calculated using a member's years of service credit, age at retirement, and final compensation (average salary for a defined period of employment)," and the retirement formulas "are determined by the member's employer (State, school, or local public agency); occupation (miscellaneous (general office and others), safety, industrial, or peace officer/firefighter); and the specific provisions in the contract between CalPERS and the employer".In addition, CalPERS administers the Legislators' Retirement System, Judges' Retirement System, and Judges' Retirement System II.
Besides CalPERS, California has a number of other public retirement systems, including:
- At least 22 counties (Alameda, Contra CostaContra Costa County Employees' Retirement AssociationContra Costa County Employees' Retirement Association is a retirement association for Contra Costa County, California workers.It provides Defined benefit plans to the county and other local agencies...
, Fresno, Imperial, Kern, Los Angeles, Marin, Mendocino, Merced, Orange, Sacramento, San Bernardino, San Diego, San Francisco [also a city], San Joaquin, San Luis Obispo, San Mateo, Santa Barbara, Sonoma, Stanislaus, Tulare, and Ventura) - At least 6 cities (Concord, Fresno, Los Angeles, San Diego, San Francisco [also a county], and San Jose)
- The University of CaliforniaUniversity of CaliforniaThe University of California is a public university system in the U.S. state of California. Under the California Master Plan for Higher Education, the University of California is a part of the state's three-tier public higher education system, which also includes the California State University...
- The California State Teachers' Retirement System (CalSTRS)CalSTRSThe California State Teachers' Retirement System provides retirement, disability and survivor benefits for California's 852,316 prekindergarten through community college educators and their families...
CalPERS has reciprocity agreements with many of these California public retirement systems that allow retirees with service credit and contributions in two systems to receive payments from both systems.
Some people prefer defined contribution plans to CalPERS' defined benefit plan. For example:
- In 1996, Howard KaloogianHoward KaloogianHoward J. Kaloogian is an American politician and a former member of the California State Assembly. A Republican, he failed in 2004 to be elected to the United States Senate and in 2006 to be elected to the House.-Biography:...
sponsored a bill in the State Assembly to allow state employees to choose between CalPERS' defined benefit plan and a defined contribution plan; the bill failed in a State Senate committee. - In early 2005, Governor Arnold SchwarzeneggerArnold SchwarzeneggerArnold Alois Schwarzenegger is an Austrian-American former professional bodybuilder, actor, businessman, investor, and politician. Schwarzenegger served as the 38th Governor of California from 2003 until 2011....
proposed a ballot initiative to require new public employees to join a 401(k)401(k)A 401 is a type of retirement savings account in the United States, which takes its name from subsection of the Internal Revenue Code . A contributor can begin to withdraw funds after reaching the age of 59 1/2 years...
-like plan, but dropped the proposal after opposition to a provision in the initiative to "reduce benefits for widows of officers and firefighters killed in the line of duty". - In November 2008, the voters of the city of Pacific GrovePacific Grove, CaliforniaPacific Grove is a coastal city in Monterey County, California, USA, with a population of 15,041 as of the 2010 census, down from 15,522 as of the 2000 census...
passed an advisory measure to leave CalPERS in favor of a defined contribution plan.
Among other arguments, CalPERS claims that defined contribution plans cost more to manage than defined benefit plans and fail to provide adequate funds to retirees.
Deferred compensation and other supplemental income plans
CalPERS is responsible for a deferred compensation retirement plan (457 plan457 plan
The 457 plan is a type of non-qualified tax advantaged deferred-compensation retirement plan that is available for governmental and certain non-governmental employers in the United States. The employer provides the plan and the employee defers compensation into it on a pre-tax basis...
) and two other plans to supplement income after retirement or permanent separation from State employment:
- The CalPERS 457 Plan serves 27,141 local public agency employees and had $598 million in assets as of October 2008.
- The Peace Officers' & Firefighters' Defined Contribution Plan, which had 40,994 participants and $297 million in assets as of October 2008, is funded by a State contribution of 2% of base pay.
- A member-funded Supplemental Contributions Program for 727 State employees had $16.5 million in assets as of October 2008.
Disability retirement and industrial disability retirement
CalPERS offers two types of retirement benefits if a worker is disabled. In "industrial disability retirement," the "disability is due to a job-related injury or illness"; in contrast, "disability retirement" implies that the disability was not necessarily caused by employment. The specific benefits vary by employer, by the contract between CalPERS and the employer, and by the employee's occupation.Two major controversies have affected CalPERS' disability retirement and industrial disability retirement program over the years. First, in the mid-1990s and again in the mid-2000s there were concerns about inappropriate industrial disability retirement for public safety personnel, including:
- Some non-disabled persons fraudulently claim industrial disability retirement, such as "a 'disabled' highway patrol officer riding in a rodeo." Unfortunately, "state law forbids Calpers from requiring disabled retirees who are 50 or older to submit to another medical evaluation, even if there is evidence of possible fraud".
- "A series of bills that expanded eligibility for these medical pensions - and made it easier to get them" increased costs for state and local governments.
- The list of "disabilities automatically presumed to be job-related for public-safety workers" has grown to include diseases and conditions that may or may not be caused by employment, such as lower back pain, heart disease, cancer, syphilis, HIV, and mad cow diseaseBovine spongiform encephalopathyBovine spongiform encephalopathy , commonly known as mad-cow disease, is a fatal neurodegenerative disease in cattle that causes a spongy degeneration in the brain and spinal cord. BSE has a long incubation period, about 30 months to 8 years, usually affecting adult cattle at a peak age onset of...
. - Retirees can receive two safety disability retirements for the same condition if they are covered by two separate pension systems.
- Because California law prevents light-duty assignments in the California Highway PatrolCalifornia Highway PatrolThe California Highway Patrol is a law enforcement agency of the U.S. state of California. The CHP has patrol jurisdiction over all California highways and also acts as the state police....
, some officers are "forced to retire against their will."
Second, "a 1980 state law that tied public safety officers' disability benefits to the age at which they were hired" caused an age discrimination complaint with the Equal Employment Opportunity Commission
Equal Employment Opportunity Commission
The U.S. Equal Employment Opportunity Commission is an independent federal law enforcement agency that enforces laws against workplace discrimination. The EEOC investigates discrimination complaints based on an individual's race, color, national origin, religion, sex, age, perceived intelligence,...
(EEOC) in 1992 which eventually led to a 1995 class action lawsuit against CalPERS and other state and local agencies. In January 2003, CalPERS settled the suit by agreeing to pay $50 million in retroactive benefits and $200 million in future benefits to 1,700 officers; the settlement "was by far the largest in the EEOC's history". Furthermore, CalPERS agreed to not use an age-based formula in the future, which "basically nullifie[d]" the 1980 state law.
Death benefits
If a CalPERS member dies before retirement, CalPERS may provide death benefits to certain beneficiaries. The benefits can include one-time payments and monthly payments, but "depend on the member's age, years of service, job classification, employer's contract with CalPERS, eligible beneficiary, date of separation from employment, and whether or not they were eligible to retire at the time of death".Health benefits
In 1961, the Meyer-Geddes Hospital and Medical Health Care Act was passed, which led to SERS' offering health insurance for state employees beginning in 1962. After the Health Maintenance Organization (HMO) Act of 1973Health Maintenance Organization Act of 1973
The Health Maintenance Organization Act of 1973 , also known as the HMO Act of 1973, 42 U.S.C. § 300e, is a law passed by the Congress of the United States that resulted from discussions Paul Ellwood had with what is today the Department of Health and Human Services...
, PERS began to deal with HMOs "to create more unified and standardized health care benefit rates". In 1978, the Meyer-Geddes Act was renamed the "Public Employees' Medical and Hospital Care Act".
By the early 1990s, CalPERS received national attention for its attempt at implementing "managed competition," which is the theory that health care costs "can be controlled by forcing health providers to compete with one another under government supervision". As of 1994-1995, CalPERS contracted with 24 health plans for its "over 900,000" members and was able to reduce health insurance premiums by 1% compared with 1993-1994. At the time CalPERS was "called a model for the so-called health alliances" proposed in the 1993 Clinton health care plan.
Rates continued to decline by 5.3% in 1996 and 1.4% in 1997, but rose by 2.7% in 1998 and 5.1% in 1999. CalPERS attracted national attention again in the mid-2000s, this time for health maintenance organization rate increases of 25% in 2004 and 18% in 2005. Meanwhile, the number of participating plans dropped to seven as of 2003, and "more than two dozen cities, counties and school districts" (representing 4% of membership) left CalPERS as of 2004 because of high medical insurance rates.
A 2006 study by the Government Accountability Office
Government Accountability Office
The Government Accountability Office is the audit, evaluation, and investigative arm of the United States Congress. It is located in the legislative branch of the United States government.-History:...
determined that from 1997 through 2002 the average annual growth in CalPERS premiums (6.5%) was lower than that of the Federal Employees Health Benefits Program (FEHBP, 8.5%) and of other surveyed employer-sponsored health benefit programs (7.1%); however, between 2003 and 2006-7, the average annual growth rate in CalPERS premiums (14.2%) was higher than that of FEHBP (7.3%) and of other surveyed employer-sponsored health benefit programs (10.5%). As of 2008, CalPERS eliminated copayment
Copayment
In the United States, the copayment or copay is a payment defined in the insurance policy and paid by the insured person each time a medical service is accessed. It is technically a form of coinsurance, but is defined differently in health insurance where a coinsurance is a percentage payment after...
s for preventive care visits, raised copayments for other types of office visits, and took other measures in an attempt to reduce costs.
CalPERS will provide over $5.7 billion in health benefits "nearly 1.3 million active and retired state and local government public employees and their family members" as of 2009. Therefore, it was the nation’s second largest public purchaser of health benefits, behind the FEHBP which covered "about 8 million federal employees, retirees, and their dependents". Of the enrollees, 61% are state employees and 39% are local government and school employees; 74% are working and 26% are retired.
Enrollees can join three types of plans:
- 68% are enrolled in health maintenance organizationHealth maintenance organizationA health maintenance organization is an organization that provides managed care for health insurance contracts in the United States as a liaison with health care providers...
plans administered by Blue Shield of CaliforniaBlue Cross and Blue Shield AssociationThe Blue Cross Blue Shield Association is a federation of 39 separate health insurance organizations and companies in the United States. Combined, they directly or indirectly provide health insurance to over 100 million Americans. The history of Blue Cross dates back to 1929, while the history of...
and by Kaiser PermanenteKaiser PermanenteKaiser Permanente is an integrated managed care consortium, based in Oakland, California, United States, founded in 1945 by industrialist Henry J. Kaiser and physician Sidney Garfield...
. - 25% are enrolled in preferred provider organization plans called "PERS Select," "PERSCare," and "PERS Choice" which are administered by Anthem Blue Cross (the California subsidiary of WellPointWellPointWellPoint, Inc. is the largest health plan company in the Blue Cross and Blue Shield Association. It was formed when WellPoint Health Networks, Inc. merged into Anthem, Inc., with the surviving Anthem adopting the name, WellPoint, Inc...
). - 7% are enrolled in "association" plans for the California Correctional Peace Officers AssociationCalifornia Correctional Peace Officers AssociationThe California Correctional Peace Officers Association , founded in 1957 as the California Correctional Officers Association , is the corrections officers' labor union in California. The CCPOA is widely considered one of the most powerful political forces in California politics...
, the California Association of Highway Patrolmen, and the Peace Officers Research Association of California.
Long-term care benefits
California's "Public Employees' Long-Term Care Act," as passed in 1990 and amended in 1996, led to CalPERS' administering a Long-Term Care Program for "all California public employees, retirees, their spouses, parents, parents-in-law, and adult siblings". Described as the "largest self-funded program of its kind", the program provides "nursing home care, residential assisted living, home health care, homemaker services and adult day care".The program is funded by contributions and by proceeds from investments. During an economic downturn in 2002, premiums for the program rose an average of 9% to compensate for investment losses of $99 million. Another premium increase of an average of 33.6% occurred in 2007 due to "a projected $600 million shortfall in the program over the next 50 to 60 years". The causes of the deficit predicted as of 2007 were less investment income than expected, a higher volume of claims than expected, and a lower dropout rate than expected. By 2008, the program had almost 168,000 members who paid annual premiums of more than $310 million and who collectively received $76 million in benefits annually.
Member Home Loan Program
As of December 15, 2010, the CalPERS Board of Administration approved the suspension of the CalPERS Member Home Loan Program. CalPERS is no longer accepting new applications.Studies commissioned by CalPERS on its economic impacts
CalPERS commissioned three studies that were released in 2007-2008 about the economic impacts of the following:- CalPERS retirement benefits payments. Prepared by California State University, SacramentoCalifornia State University, SacramentoCalifornia State University, Sacramento, popularly known as Sacramento State, is a public university located in the city of Sacramento, California. It is part of the California State University system...
, and released in April 2007, this study found that the direct payments of $7.7 billion in 2006 led to a total impact (including "the ripple effect of business and government revenues as spending from... benefit checks works its way through the economy") of $11.8 billion. - CalPERS investments. Prepared by California State University, Sacramento, and released in September 2007, this study found that the direct investments of $8.3 billion in 2006 led to a total impact of $15.1 billion.
- CalPERS health care benefits payments. Prepared by Lincoln Crow Benefits Research Group and released in April 2008, this study found that the direct payments of $4.2 billion in 2006 led to a total impact of $7.6 billion.
CalPERS touted the studies as demonstrating the value of the agency with news releases such as "CalPERS and CalSTRS Pensions Power Up State and Local Economies". The studies and their use by CalPERS were criticized as follows:
- A reporter summarized the opinion of the lead author of the first study as "his study was never intended as any sort of implied commentary on the wisdom of CalPERS' policies".
- If the money that CalPERS paid in benefits were returned to taxpayers, the money would be spent and would therefore still cause "ripple effects".
- The economic impact "might be the same if a private investment firm managed the fund's portfolio".
Employee recognition program
Among other "offerings to ensure [its] workers are happy as well as healthy," CalPERS has an onsite Montessori methodMontessori method
Montessori education is an educational approach developed by Italian physician and educator Maria Montessori. Montessori education is practiced in an estimated 20,000 schools worldwide, serving children from birth to eighteen years old.-Overview:...
child care facility, conducts employee surveys every two years, offers a training and wellness program, and administers a nationally known employee recognition program. The employee recognition program has several components:
- An informal day-to-day employee-to-employee program with a "You are the Rock" theme. The program includes a river rock that is passed around to employees who are "rock solid," rock-shaped notes with appreciative sentiments written on them, and rock-themed e-cardE-cardAn e-card is similar to a postcard or greeting card, with the primary difference being that it is created using digital media instead of paper or other traditional materials. E-cards are made available by publishers usually on various Internet sites, where they can be sent to a recipient, usually...
s. - The quarterly ACE (Achieving Communication Excellence) award, consisting of a lapel pin and an informal celebration.
- A formal annual recognition called APEX (Achieving Performance Excellence), with a crystal trophy, a cash award, and a luncheon.
- Managers are "encouraged to thank workers more often" and "are graded for the amount of ongoing feedback they gave employees".
Two CalPERS employees received 2000 National Association for Employee Recognition (NAER)
Recognition Professionals International
Recognition Professionals International, , is a professional association which represents workers in the field of human resources. RPI works to promote the role of human resources as a profession, and provides networking, education, certification in workplace recognition...
Recognition Champion Awards for the employee recognition program. In addition, CalPERS itself won a 2002 Best Practices award from NAER. The employee recognition program was reported to contribute to high employee satisfaction and a low employee turnover rate at CalPERS.
Sections of California constitution, laws, and regulations related to CalPERS
The legal authority for the activities of CalPERS can be found in the constitution, laws, and regulations of the state of California, including:- California ConstitutionCalifornia ConstitutionThe document that establishes and describes the duties, powers, structure and function of the government of the U.S. state of California. The original constitution, adopted in November 1849 in advance of California attaining U.S. statehood in 1850, was superseded by the current constitution, which...
, Article XVI, Section 17, under which (as amended by Proposition 162) "the retirement board of a public pension or retirement system shall have plenary authority and fiduciary responsibility for investment of moneys and administration of the system". - California Government CodeCalifornia lawCalifornia law consists of several levels, including constitutional, statutory, and regulatory law, as well as case law.-Constitutional law:...
, Title 2, Division 5, Parts 3-8 (i.e., Sections 20000-22970.89). Among other parts, Part 3 covers the administration of the retirement system including membership, contributions, and benefits; and Part 5 covers the Public Employees' Medical and Hospital Care Act on health benefits. - California Code of RegulationsCalifornia Code of RegulationsCalifornia Code of Regulations contains the text of the regulations that have been formally adopted by state agencies. They are reviewed, approved, and made available to the public by the California Office of Administrative Law , and are also filed with the Secretary of State.The CCR consists of...
, Title 2, Division 1, Chapter 2, Sections 550-559.554.
External links
- CalPERS - official website
- CalPERS Shareowner Forum
- CalSTRS
- Great Speeches and Interviews: CalPERS urged to divest from KBR. Sacramento, CaliforniaSacramento, CaliforniaSacramento is the capital city of the U.S. state of California and the county seat of Sacramento County. It is located at the confluence of the Sacramento River and the American River in the northern portion of California's expansive Central Valley. With a population of 466,488 at the 2010 census,...
, June 19, 2008. - Greider, William. The new Colossus. The Nation, February 10, 2005.
- PERSWatch