The California Public Employees' Retirement System (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", "one of America's most powerful shareholder bodies", and "the most important public pension fund in the United States".
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 Association, established in 1931, began a close relationship with SERS that continues through 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 670,000-square-foot (62,000 m 2 ), 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 492,900 square feet (45,790 m 2 ), 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 560,000-square-foot (52,000 m 2 ) "Lincoln Plaza East & West" buildings which cost $265 million. The architecture of the buildings, which received praise, includes an entry tower 90 feet (27 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.
Current organization
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 Treasurer, California State Controller, Director of the Department of Personnel Administration, and designee of the State Personnel Board)
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 2008, the current Board members are Rob Feckner (President), George Diehr (Vice President), Marjorie Berte, John Chiang, David Gilb, Henry Jones, Bill Lockyer, Priya Sara Mathur, Louis F. Moret, Tony Oliveira, Anne Sheehan, Kurato Shimada, and Charles P. Valdes.
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 minimizing the Armenian Genocide, 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 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 BusinessWeek and The Wall Street Journal noted cronyism and conflicts of interest 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 (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); and Kenneth W. Marzion (interim, 2008-2009). In December 2008 CalPERS announced that Anne Stausboll, interim Chief Investment Officer, would become CEO as of January 2009.
Besides the CEO, the executive officers 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.
Income
CalPERS derives its income from investments, from member contributions, and from employer contributions.
Investments
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
Beginning in the 1980s, and especially in the early 1990s under CEO Dale Hanson, CalPERS has used its influence as one of the largest sha
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