California's perennially underfunded pension system is struggling with an internecine conflict among its governing board members that some observers worry could impact the fund's performance as it goes all-in on
"creative" scam financials and projections that have pushed the fund further into the bubbly equities.
And what's worse, the dispute is escalating just as CalPERS is heading into its busy season: Seemingly never-ending stream of annual shareholder meetings where CalPERS makes always unwelcome activist recommendations to the companies in which it owns shares.
The conflict started when newly elected CalPERS administrative board member Margaret Brown, a SoCal school district administrator who unseated an incumbent CalPERS advisory board member during last fall's election, leaked a video to the press purporting to show that she had been locked out of her office. In the footage, she suggests that the lock-out was the work of board chairwoman Priya Mathur, who has clashed with Brown on a number of issues including allegations that she leaked sensitive information to the press. Mathur insists the lockout wasn't intentional, and was instead a glitch in the board's security system.
But that excuse did little to quiet hostilities. Brown has since leaked a story to a friendly financial blog about her conflict with Mathur, which has only further inflamed the situation.
Here's more from the Sacramento Bee.
CalPERS Board of Administration member Margaret Brown recorded herself failing to open the door, shared the video with a friendly financial blog and allowed it be posted to YouTube under a headline calling the incident an "illegal lockout." "I have a badge and I’m trying to get in my office, and, yeah, it doesn’t work. Very, very nice," she says in the video.
Her assumption that she was being "locked out" and her decision to share the video on social media are signs of escalating tension on the board that handles $350 billion in assets for 1.9 million California public employees and retirees.
Brown declined an interview request from The Sacramento Bee. She wrote in an email, "I was elected as an outsider and defeated an incumbent who had the endorsement of nearly every then-member of the board, including Mathur. So it's not surprising, though disappointing, that some of the people who opposed my candidacy have continued to make me unwelcome, to the point of interfering with my rights and privileges as a board member."
The conflict first came into view of the public when Brown theatrically declared that she feared being arrested at the next board meeting - which swiftly aroused the interest of the press.
Their rift blew into the open at a public meeting where Brown asked whether she would be arrested for showing up at the job California public employees and retirees elected her to do.
The conflict is "extraordinary," said Charles Elson, the director for the Center of Corporate Governance at the University of Delaware. "It’s unusual with a large pension fund where you have seemingly dysfunctional conflict. They’re going to have to resolve it. It’s not good for the fund."
The conflict has also aroused widespread interest since Brown ran as a reformer and upset a longtime incumbent - something that her peers on the board haven't forgiven her for, she alleges.
In some ways, the drama at CalPERS is a hangover from last fall’s election. Brown as an underdog challenger unseated union-backed incumbent Michael Bilbrey.
Brown cast herself as a watchdog for retirees and Bilbrey as an uncritical board member; Bilbrey’s campaign drew attention to four settlements one of Brown’s previous employers paid to resolve workplace retaliation claims that initially named her.
Brown declined an interview request from The Sacramento Bee. She wrote in an email, “I was elected as an outsider and defeated an incumbent who had the endorsement of nearly every then-member of the board, including Priya Mathur. So it's not surprising, though disappointing, that some of the people who opposed my candidacy have continued to make me unwelcome, to the point of interfering with my rights and privileges as a board member.”
Some board members told the Bee that Brown and Mathur's deteriorating relationship wouldn't impact the fund's performance - and added that it would likely be put to rest at the next CalPERS board meeting, where the organization is set to review procedures for how board members are disciplined.
Board member Bill Slaton said the public disagreements were not "irreversible."
"I think that any organization as large and complex as CalPERS is going to have disputes and is going to have from time to time conflict. That is all the more reason for us to put as much effort as possible into resolving disagreements in ways that advance the mission of CalPERS," he said.
New board member David Miller viewed the conflict as a learning curve for Brown and Mathur. He considered Mathur's reprimand to Brown as an "extremely judicious" message not to bring visitors into restricted areas again.
He and other board members said they'd like CalPERS to hold an open discussion on how board members are disciplined.
"The board doesn’t really have clear, systematic tools to deal with those issues," he said.
But regardless of how this dispute is resolved, the pension fund which has been described as "near insolvency" by a former board member will still need to figure out how it can right itself and return to a path of long-term sustainability, before the resources in its fund are drained by overly generous pension benefits which cannot be supported by returns or current contributions. Back in February, former board member Steve Westly made the following admission after the fund voted to increase the amount of contributions made by California's cities by making a "relatively small" ($350 billion) change to its amortization policy.
As things stand now, CalPERS, once more than 100 percent funded, now has scarcely two-thirds of what it would need to fully cover all of the pension promises to current and future retirees. And that assumes it will hit a lofty investment earnings target of 7% per year, which many authorities have criticized as too optimistic.
At some point, the board members will need to band together to make an unpopular decision (cutting benefits) that could risk all of them being thrown out by the public union employees who elect them.
But as long as this squabbling continues, the already remote likelihood of the board embracing radical change continues to shrink.