Pension Reform?

Did sparks fly at yesterday's CalPERS pension forum? Maybe one or two. But worse, the focus on facts which was highlighted by the moderator could have used better lighting - and some key summary charts instead of just big talking heads onscreen. Still, the formidable "California Retirement Dialogue Resource Material" book which was available at the forum appears to contain many facts, and would require in-depth study to discern the conclusions and implications for taxpayers and for CalPERS members and employers.

Four thoughtfully selected panels provided the meat of the agenda. More than a few of the day's panelists had participated in the Post-Employment Benefits Commission (PEBC, which is apparently the same as the Post-Retirement Pension Commission). The first panel moderator was Amy Brown, the editor of The Public Retirement Journal. Mr. Oliveira, a CalPERS Board Member, talked about pension reform, sustainability (but just the financial kind), volatility, local control, transparency, and the need for legislation to provide the tools for sensible change. A panelist who must remain nameless because I didn't note it referred us to the National Institute on Retirement Security and one or 2 of their recent Research Reports.

Other informative and thought-provoking remarks were heard from Richard Stensrud, CEO of Sacramento County's Retirement System, Norman Stein of the National Pension Rights Center, and Harvey Robinson of RPEA. Prof. Stein listed key pension principles, such as universal, secure and adequate, that all pension programs should follow, while Mr. Robinson mentioned the need for economic and actuarial realism, and the need to integrate collective bargaining with individual choice.

As noted in the Bee's headline (which was surprisingly hard to find online), we got a little excitement after lunch to keep us awake. Not surprising, when you consider that the organizers had put David Crane (of the California Commission for Economic Development and Arnold's special assistant to get a 2nd tier) in with 2 union guys, who were less fact-oriented than one could have wished. Why are manly men so sentimental? Moderator Robert Walton, a retiree from CalPERS and former member of the PEBC, may have been the one who mentioned that only 25% of benefits come from actual contributions, and 75% are returns on investments. Gary Pokorny, Walnut Creek's city manager, seemed very sensible. He may have been the first to sound the recurring theme of the afternoon, that 'tis better to change oneself than to change by initiatives passed by disgruntled and economically terrorized voters with "pension envy."

Wrapping up with a nuts-and-bolts sort of panel, we heard from David Felderstein, retired from the State Senate Public Retirement and Social Security Committee staff, Scott Adams, a pension analyst with AFSCME, Ann Craig of Placer County, and one or 2 others. Although I don't exactly agree that police work is a young person's job, I didn't realize that public safety staff typically don't get social security. I also realized that retiring and then annuiting is a way for people to work part-time, which state managers resist strenuously when you ask them for it. Another interesting factoid is that a substantial minority of CalPERS pensioners have moved out of California.

We heard more echoes of the themes of local control (one size doesn't fit all), and of choosing to reform to preempt initiatives for more stringent changes. And the perennial question of political will - how much discipline do we have to contribute now for a future rainy-day market crisis?

There's no denying the fact that systemic forces are creating pressure for change.

But there was no discussion of the larger economic picture, and trends like oil depletion and climate change that could upset the whole GDP-$$ structure of the monetary system. So I can't begin to answer the question posed by Mr. Hamm of the CAHP, "What's normal? What's the 'normal' market that we'll return to after this financial crisis is over?"

Autopsy of the Financial Crisis

Today C-SPAN2 broadcast one of the ongoing hearings of the Financial Crisis Inquiry Commission, chaired by Phil Angelides. One of today's witnesses, Mary Schapiro, Chair of the Securities & Exchange Commission, testified that voluntary regulation is a bad idea under almost all circumstances. Presumably this applies to all kinds of government regulations. Schapiro stressed the importance of financial accounting practices that are truly consistent with reality.

She also mentioned that pension funds are required by law to purchase only securities and other investments that have been rated AAA.

Perhaps CalPERS, and other California pension and ordinary investment funds, should consider forming their own rating agency, since the existing agencies (notably Moody's, Standard & Poor's, and Fitch) offered uniformly warped advice, leading many investors to make decisions they thought were sound but turned out to be the kind of investment you usually make in Las Vegas.

Later on, Illinois's Attorney General, Lisa Madigan, described a problem faced by many states, where federal preemption prevented states from regulating these sorts of problems. And Texas' State Securities Commissioner Denise Voigt Crawford reiterated this plaint, describing it as a turf battle that leaves citizens poorly protected from financial predators. Apparently, they fear that proposed 'reform' legislation will deprive states of the right and power to protect their constituents.

Crawford, who is also the President of the North American Securities Administrators Association, went on to express concerns about regulatory capture of securities oversight agencies by businesses such as investment banks.

I suspect that those who want to make government so small you can drown it in the bathtub have overlooked the fact that when business is not equally modest, such regulatory capture will be the rule rather than the exception. But then that's just business as usual.