CalPERS Criminal Indictment

[livinincali]

Looks like the top officials at CalPRES just got indicted for fraud. Explain to me again why defined benefit pensions are such a great thing for the taxpayer. I wonder how much this is going to cost the taxpayers in the grand scheme of things.

LA Times Story

SACRAMENTO — Three years after a major influence-peddling scandal rocked California and the nation’s largest public pension fund, a federal grand jury indicted two former top officials on fraud, conspiracy and obstruction charges.

The indictment, unsealed Monday in San Francisco, names as defendants Federico Buenrostro Jr. of Sacramento, a former chief executive of the California Public Employees’ Retirement System, and Alfred J.R. Villalobos of Reno, Nev., a former CalPERS board member and one-time deputy Los Angeles mayor.

The charges are the culmination of a far-reaching investigation into the way the agency invested its money and how the former insider, Villalobos, collected tens of millions of dollars from Wall Street firms for steering CalPERS business their way.

Neither man could be reached for comment, but they have consistently denied any wrongdoing in connection with their CalPERS work. Villalobos’ attorney said his client was innocent and would fight the charges.

The agency invests $255 billion of employee and governmental contributions to provide retirement benefits for more than 1.6 million public employees, retirees and their families.

[SK in CV]

Exactly the same thing could have happened in a defined contribution plan, though it’s unlikely that any kind of DC plan would ever have the assets that CalPERS has. This wasn’t a function of the type of plan, if true, it was purely criminal activity.

[NotCranky]

So isn’t illegal to offer a bribe? if true” ,when does someone on Wall Street pay?

While rates went up, some members were no longer able to pay and lost some past contributions. Who got them? Were the rate hikes that made the program dysfunctional for the members, to the point that they had to quit, a part of this crime?

My wife wants to buy long term care, scares the piss out of me.

I know I am pretty ignorant on these topics, so flame away for that, but explain this stuff please.

[CA renter]

[quote=SK in CV]Exactly the same thing could have happened in a defined contribution plan, though it’s unlikely that any kind of DC plan would ever have the assets that CalPERS has. This wasn’t a function of the type of plan, if true, it was purely criminal activity.[/quote]

Yep. From what I understand, it did happen, and I’m so very glad that somebody is finally being held accountable. These bribes and conflicts of interest at CalPERS (and other pension funds) are one of the main reasons these funds have been dabbling in very risky investments that they have no business being in, IMHO. If not for Wall Street, we would not be in the mess we’re in today WRT public pensions.

I would love for them to go back to the “good old days” when they were almost exclusively in very safe bonds and most/all of their investments were handled in house. Yes, that would mean somewhat lower returns and probably lower benefits, but I think that’s the more responsible way to handle DB pension funds.

Wall Street is sucking our economy dry.

[EconProf]

CAR: if they were mostly in bonds, what would their rate of return be? Yes, that would be safer than the risky choices they are now turning to. But by getting only 3 – 5% on these safe investments they would be admitting that their “assumed” rate of 7.75% is phoney. They would be admitting to taxpayers that they are far more underfunded than they claim, and that taxpayers are on the hook for this huge unfunded future liability.

[bearishgurl]

[quote=EconProf]CAR: if they were mostly in bonds, what would their rate of return be? Yes, that would be safer than the risky choices they are now turning to. But by getting only 3 – 5% on these safe investments they would be admitting that their “assumed” rate of 7.75% is phoney. They would be admitting to taxpayers that they are far more underfunded than they claim, and that taxpayers are on the hook for this huge unfunded future liability.[/quote]

I can’t speak for CAR, but she may be intimating here that the (’99 – ’02) CA public pension “enhancements” counted upon the higher, 7.75% return were based upon the funds investing in risky Wall Street “investments.” The “good old days” were before that, when (lower) public pensions were promised or paid out premised upon a much more conservative return based upon the funds investing in “relatively safe” investments. (I belong to a group of public pensioners in the latter-mentioned category).

Had none of the CA public pension plans elected to avail themselves of these risky investments and then simultaneously “promise” pensions based upon more generous formulas (due to the higher projected returns of the “risky” investments), they would not have fallen short of being able to fulfill their (lesser) promised benefits in the first place.

Buenrostro and Villalobos, formerly CALPERS CEO and Board member, respectively, were indicted with accepting bribes from Wall St investment houses in exchange for investing $255 billion in CALPERS employee and employer contributions with same houses and undoubtedly losing a good portion of it. If the charges are proven to have actually happened, these two deserve whatever is coming to them.

I find it a sad commentary that two officers of CALPERS, at least the second of who was voted in by the membership and placed in a position of trust, could grossly and criminally mishandle the funds under their supervision for their own personal gain. Their past actions could seriously jeopardize the pensions that 1.6M present and future CA public retirees and their families are counting on after a decades of faithful hard work.

[CA renter]

[quote=EconProf]CAR: if they were mostly in bonds, what would their rate of return be? Yes, that would be safer than the risky choices they are now turning to. But by getting only 3 – 5% on these safe investments they would be admitting that their “assumed” rate of 7.75% is phoney. They would be admitting to taxpayers that they are far more underfunded than they claim, and that taxpayers are on the hook for this huge unfunded future liability.[/quote]

What BG said.

The introduction of Wall Street scammers and parasites into the public pension fund universe is largely (I would argue almost entirely) behind the problems with our DB public pension systems.

Equity Dividend Yield VS 10 Yr US Bond Constant Maturity Yield:

http://www.ritholtz.com/blog/2012/09/140-years-of-equity-yield-vs-us-bond-yield/

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Additionally, I believe that using more predictable and conservative investment vehicles is better, especially when dealing with defined-benefit pension funds.

[Author]

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