Unions Sue Puerto Rico, Bank Over Mismanagement of Retirement Funds

Two Puerto Rico-based unions representing teachers and state workers on the island have filed suit against the Puerto Rican government and local bank over the mismanagement of their retirement accounts. The American Federation of Teachers (AFT) and the American Federation of State, County and Municipal Employees in Puerto Rico claim that their trust has been betrayed.

Here is an excerpt from report in Caribbean Business:

“By the commonwealth’s own admission, it—along with the Retirement Board of the Government of Puerto Rico, the Puerto Rico Fiscal Agency and Financial Advisory Authority (AAFAF), and their responsible officials—has failed to create and administer Law 106’s promised defined-contribution accounts, and instead has taken hundreds of millions of dollars of employee pension contributions and stashed more than $300 million in government accounts at Banco Popular that earn virtually zero interest,” the release reads.

Puerto Rico’s government, the AFT said, “has been aided and abetted in this violation of statutory and fiduciary duties” by the Financial Oversight and Management Board and Banco Popular. “As a result, thousands of public servants have been deprived of untold millions of dollars in interest and investment income that they should have been earning over the past year.”

Defendants include the commonwealth; its governor; its chief financial officer and secretary of the treasury; the retirement system and its voting members; AAFAF and its executive director; the oversight board; and Banco Popular.

Public Pension Group Sets Investment Guidelines For Firearms Companies

Some of the biggest state retirement systems from states such as California, Florida, Maryland, Oregon, and Connecticut have joined other institutional and private investors in coming up with a guide to the touchy subject of investments in the civilian firearms industry.

Given the massive potential for backlash over investments in gun makers amid growing mass shootings in the United States, the coalitions has arrived at five principles that will be applied to investments in companies that manufacture, sell, and distribute firearms to civilians.

Here is excerpt from a report in PlanAdviser:

According to an announcement from Connecticut State Treasurer Denise L. Nappier, the five principles include:

Principle 1: Manufacturers should support, advance and integrate the development of technology designed to make civilian firearms safer, more secure, and easier to trace.

Principle 2: Manufacturers should adopt and follow responsible business practices that establish and enforce responsible dealer standards and promote training and education programs for owners designed around firearms safety.

Principle 3: Civilian firearms distributors, dealers, and retailers should establish, promote and follow best practices to ensure that no firearm is sold without a completed background check in order to prevent sales to persons prohibited from buying firearms or those too dangerous to possess firearms.

Principle 4: Civilian firearms distributors, dealers, and retailers should educate and train their employees to better recognize and effectively monitor irregularities at the point of sale, to record all firearm sales, to audit firearms inventory on a regular basis, and to proactively assist law enforcement.

Principle 5: Participants in the civilian firearms industry should work collaboratively, communicate, and engage with the signatories of these principles to design, adopt, and disclose measures and metrics demonstrating both best practices and their commitment to promoting these principles.

Illinois TRS Wants $400M Budget Hike

The Illinois Teachers Retirement Systems will ask the state for more money, an additional 10.6% more in state contributions for 2019 fiscal year which starts July 1, even though its investments yielded more than 8.45% this year.

Here is an excerpt from the report filed in Chief Investment Officer:

The $51.7 billion Teachers’ Retirement System wants about $400 million to be added to the budget, which would see total contributions rise to more than $4.8 billion. The pension fund’s executive director, Dick Ingram, said the organization “had a good year.” And it did, returning 8.45%. But, he added, it simply cannot “invest our way out of this problem.”

That problem is the Teachers’ Retirement System’s 40.7% funding ratio. “The unfunded liability is too large and grows every year,” Ingram said. The plan has more than $75 billion in liabilities, the highest of the $130 billion total among the state’s five systems. The other four are the State Universities Retirement System, the State Employees Retirement System, the General Assembly Retirement System, and the Judges Retirement System.

According to Ingram, the principal and interest on the debt accounts for 76% of the state’s annual contribution to the fund. Absent the debt service, the state would only need to pay $1.2 billion the following budget year.

How a Former NY Pension Director Hid His Pay-to-Play Scheme

Back in 2016, an investment director at the New York State Common Retirement Fund was indicted on charges of steering pension money towards certain brokers in exchange for monetary bribes and drugs, among other things.

But how did Navnoor Kang, 37, hide his funneling of millions of dollars in business to two brokers?

A report, released by the New York Comptroller’s Office, reveals how he kept his scheme under wraps.

From the Wall Street Journal:

A move from paper tickets to electronic trade confirmations allowed Mr. Kang to avoid listing the broker who executed the trades, according to the report. Under Mr. Kang’s watch, the pension fund also stopped producing weekly trade reports that identified the brokers involved.

Unlike his predecessor or his counterpart who managed the pension fund’s stock investments, Mr. Kang traded himself rather than direct his staff to do so, according to the report. This meant that no one approved his transactions.

Mr. Kang would instruct his brokers to send the electronic confirmations to his subordinates—creating “the false impression that most of these transactions were conducted by the investment staff and then approved by him,” the report said.

“Kang’s manipulation of the electronic trade process had ripple effects that he capitalized on to further conceal his alleged criminal activity,” the comptroller’s office wrote in the report.

Additionally, the report points the finger at top headhunting firm Korn Ferry for finding Kang in the first place. Ferry and pension fund officials both ignored several red flags from his previous employer.

Kang had been previously fired from Guggenheim for unclear reasons; but when Korn Ferry followed his references, they didn’t uncover anything too fishy.

From the Journal:

In December, a pension employee wrote to colleagues noting Korn Ferry officials said they reviewed Mr. Kang’s references and contacted his former employer. One of Mr. Kang’s references, according to the report, was Deborah Kelley, a saleswoman eventually indicted by federal prosecutors for bribing Mr. Kang. Ms. Kelley has pleaded not guilty and her lawyer didn’t respond to a request for comment.

In July 2015, Mr. Kang and the pension’s chief investment officer traveled to California and met with Guggenheim executives, among others, according to the report. The Guggenheim executives greeted Mr. Kang warmly, and a top executive with the firm told the CIO that his firm “may have been too harsh” to Mr. Kang, who had “made a mistake,” the report said.

But the executive wouldn’t expand on what Mr. Kang did wrong and, when confronted by the CIO, Mr. Kang said he had rebuffed the advances of another employee and had lost his job for failing to report a dinner, according to the report. Guggenheim used that infraction, he told the CIO, to “get rid of him.”

The Common Retirement Fund will be changing several policies in the wake of the scandal, including re-instating the weekly and monthly trade reports that list the brokers involved in each transaction. These reports are reviewed by higher-ups, and would have certainly prevented this scandal had Kang not circumvented them.

View the full report here.

 

Photo by Martin Raab via Flickr CC License

It’s All In The Fine Print: Will Your Fiduciary Insurance Cover You When You Need It?

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Carol Buckmann is an attorney who has practiced in the employee benefits field for over 30 years. This post was originally published at Pensions & Benefits Law.

Will that insurer your company has been paying premiums to for all of these years stand behind you if you are sued for ERISA violations?  Have you just been relying on a broker to give you the coverage you need?

I previously wrote about a decision in which CIGNA’s insurer was permitted to deny coverage for fiduciary breach due to a fraud exclusion in its policy.   We have since had another decision from an appeals court in Louisiana in which fiduciaries being sued by the U.S. Department of Labor were denied coverage under each of three separate policies they thought would provide them with legal defense costs and cover any awards assessed against them.  Again, the reason was buried in the policy fine print, which even the brokers didn’t seem to understand, if the facts set out in the decision are any indication.

The facts boil down to the following:  Plaintiffs had three policies: a D&O policy, fiduciary liability insurance and excess fiduciary coverage.  They were sued by the DOL following a formal investigation for selling stock to an ESOP at an inflated price, but the court ruled that the policies didn’t cover the plaintiffs for the following reasons:

  • The policies didn’t cover actions taken before the effective date.
  • The D&O policy didn’t cover ERISA claims at all.
  • Plaintiffs failed to give notice of the claims during the policy period, where the claim was specifically defined as including an investigation by the Department of Labor or the Pension Benefit Guaranty Corporation.
  • The excess coverage didn’t kick in until the policy limits in the basic policies had been reached (which was not possible given the court’s other rulings.)

The plaintiffs were also told that they couldn’t amend their complaint to include the brokers who they claimed were supposed to be providing them with specific coverage, but failed to do so.

No one wants to wade through the details of these policies, but those who fail to have them reviewed by legal counsel may be in for rude surprises later on.  We regularly speak with very competent  employee benefits professionals who confuse the required ERISA bonding coverage (which provides recovery to the plan, not the fiduciaries) with fiduciary liability insurance, or who think D&O policies cover their ERISA plan committee actions (many such policies either don’t cover ERISA claims at all, or don’t cover lower level committee members).  We frequently are told that a plan sponsor maintains fiduciary liability insurance, only to be sent the ERISA bond when we ask to see a copy of the policy.  In many of those cases, we have to deliver the bad news that the fiduciaries have no personal coverage at all.

Clearly, the time to review coverage and obtain any required endorsements is not when the accusations of fiduciary breach are raised.  Just a few among the points to be considered in a thorough review of coverage are the following:

  • Your broker is not a lawyer.  Don’t rely on her to interpret legal clauses in your policy. Get a qualified independent review.
  • Don’t assume that employer indemnification obligations are a substitute for coverage or will cover any gaps in coverage.  There will be legal constraints (for example, under state corporate law) on the company’s ability to provide full indemnification and the commitment may become worthless in the event of bankruptcy or other financial distress.
  • Understand the exclusions in your policy and find out whether endorsements are available to eliminate some of them.
  • Consider whether your policy limits should be increased.  Courts seem to be awarding ever increasing damages in fiduciary breach cases.
  • Understand and follow the notice requirements in your policies.

 

Photo by Juli via Flickr CC License

All Teachers Deserve Adequate Retirement Benefits. It’s Harder Than You Think To Get Them

Chad Aldeman is an associate partner at Bellwether Education Partners and a former policy advisor at the U.S. Department of Education. This post was originally published on TeacherPensions.org.

How many teachers should be eligible for adequate retirement benefits?

My answer is all of them: For every year they work, teachers should accumulate benefits toward a secure retirement.

A reasonable person might say only those who stay for at least three or five years. That would require teachers to show some amount of commitment to the profession, and it would reward teachers for getting through the most challenging early years.

But that’s not the way current teacher retirement systems are designed. Most states require teachers to stay 20, 25, or even 30 years before they qualify for adequate retirement benefits. (The Urban Institute’s Rich Johnson and I calculated these “break-even” points across the country. Find info on your particular state here.)

In other words, today’s teacher pension systems only provide adequate benefits to teachers with extreme longevity. You don’t have to take my word for it. The California State Teachers’ Retirement System (CalSTRS) hired Nari Rhee and William B. Fornia to study whether California teachers were better off under the existing pension system or alternative retirement plans.

The chart below comes directly from their paper. It shows how benefits accumulate for newly hired, 25-year-old females under the current pension system (blue line), a defined contribution plan (red line), a defined contribution plan with no employer contributions (dotted blue line), and a cash balance plan (dotted green line). There are legitimate questions about whether these are perfectly fair comparisons—Rhee and Fornia ignore the large debts accumulated under traditional pension plans—but even in this analysis, it’s clear that the pension system is the most back-loaded benefit structure. Some teachers do better under this arrangement, but most don’t. Depending on the comparison, this group of teachers must stay two or three decades before the pension system offers a better deal.

Rhee and Fornia make a valid point that not all teachers enter the profession at age 25, and their paper also includes the graph below showing the actual distribution of California teachers by the age at which they began teaching. The most common entry ages are 23 and 24, just after candidates complete college (California requires most new teachers to go through a Master’s program before earning a license). The median entry age for current teachers is 29 (meaning half of all teachers enter at age 29 or younger), and the average is 33.

Rhee and Fornia’s point here is that people who begin teaching at older ages have shorter break-even points, and that teachers with shorter break-even points are more likely to benefit. This has a kernel of truth but obscures some key points.

First, it is true pension plans are better for workers who begin their careers at later ages. Pensions are based on a worker’s salary when she leaves the profession, and they don’t adjust for inflation during the interim. If a 35-year-old leaves teaching this year, she may qualify for a pension, but it will be based on her current salary right now. By the time she finally becomes eligible to begin drawing her pension, say in the year 2046, every $1 in pension wealth will be worth far less than it is today. Teachers who go straight from teaching into retirement don’t have this problem.

Consequently, it’s also true that teachers who begin their careers at later ages are comparatively better off than teachers who began at younger ages. They don’t have to wait as long, so the break-even points fall from 31 years for a 25-year-old entrant to just 7 years for a 45-year-old entrant.

But their argument starts to suffer when compared to teacher mobility patterns. Like other states, California sees much higher turnover in early-career teachers than mid- or late-career teachers. The result is that, even for a 45-year-old teacher with a relatively short break-even period of 7 years, only about half will actually reach that point.

The table below pulls together these two data points for teachers of various ages. The middle row illustrates how long the teacher would be required to stay until her pension would finally be worth more than a cash balance plan (Rhee and Fornia calculate slightly shorter break-even points for their defined contribution plans). The last column uses the state’s turnover assumptions to estimate how many California teachers will remain long enough to break even. Remember, the median teacher in California began teaching at age 29. The table below suggests this typical teacher would have had a break-even point of more than 25 years, and the state assumes that only 40.6 percent of this group of teachers will make it that far. Across the entire workforce, the majority of California teachers would be better off in a cash balance plan than the state’s current pension plan.

Age at which the teacher begins teaching How many years does it take for the teacher to break even on her pension plan? What percentage of teachers like her will break even?

25

31

34.6

30

25

40.6

35

19

43.7

40

13

46.6

45

7

54.2

California is a bit of an outlier here compared to other states—it’s a big state and seems to have lower teacher turnover than other states—but it’s still worth asking if this system is working well enough for all teachers. Rhee and Fornia’s main point seems to be that, once you exclude short- and medium-term workers,  the remaining teachers tend to do pretty well under the current system. But that excludes lots of people!

I personally don’t think that’s the right way to look at things. I think it’s worth fighting for retirement systems that treat ALL teachers fairly and equitably. After all, teachers might not know how long they’ll stay in the profession. They might not like teaching as much as they thought, or life might take them on another path. And once we account for this uncertainty, the break-even points become less about raw numbers (do I have to stay 19 or 22 years?) and more about probability (what’s my realistic chance of teaching in this state for 31 years?). Looked at from that perspective, it becomes harder and harder to support pension systems with such extreme back-loading.

Photo by cybrarian77 via Flickr CC License

CalSTRS Appoints New Director Of Corporate Governance

Kirsty Jenkinson will be director of corporate governance for the California State Teachers Retirement System starting in January 2019. She replaces Anne Sheehan who retired in March 2018.

More information on Ms. Jenkinson can be found in this report from BusinessWire:

Ms. Jenkinson comes to CalSTRS from Wespath Benefits and Investments in Illinois, where she has led Wespath’s sustainable investment strategies team since 2014. She also directs Wespath’s environmental, social, governance (ESG) integration, corporate engagement, portfolio screening and proxy voting activities.

“Ms. Jenkinson brings great value to CalSTRS via her stellar experience and rich global perspective,” said CalSTRS Chief Executive Officer Jack Ehnes. “CalSTRS commitment to long-term sustainability for California’s educators is bolstered by having Kirsty onboard.”

At CalSTRS, Ms. Jenkinson will lead an ESG portfolio of more than $4.1 billion. “Kirsty is the ideal person to lead CalSTRS’ ESG investment policies into the future,” said CalSTRS Chief Investment Officer Christopher J. Ailman. “It is a high-performing team forged by her predecessor, Anne Sheehan, and I’m confident Kirsty is poised to lead our ESG efforts as we grow, adapt and change to meet the investment challenges ahead.” “It has been an honor to work with Wespath, and I feel privileged to lead the dynamic team at CalSTRS, one of the world’s most respected leaders in ESG investing and corporate governance,” said Ms. Jenkinson.

The Pension vs. 401k Debate Harms Teachers

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This post originally appeared on TeacherPensions.org.

Each year, around 150,000 new teachers are hired to work in American public schools. Those teachers might not pay much attention to their retirement except to note that they’re enrolled in their state’s pension plan. A “pension plan” sounds good, safe, and secure, much better than “risky” 401k plans typically offered in the private sector.

This is a dangerous and flawed misperception. Of the 150,000 new teachers, slightly more than half won’t stick around long enough to qualify for the pension they were promised. They’ll get their own contributions back, but in most states, they won’t earn any interest on those contributions, and they won’t be eligible for any of the sizable contributions their employers made on their behalf.

These teachers are worse off than if they had been in a 401k plan. The federal government has laws governing private-sector retirement plans to ensure that workers start earning retirement benefits early in their careers, but those laws do not cover state and local governments. Teachers are left exposed to the whims of state legislators, and during tight budget times, states cut benefits for new teachers. Today, nearly every state makes teachers wait longer to qualify for their pension than private-sector workers wait for employer benefits from 401k plans. Four states require seven- or eight-year waiting periods (called “vesting” requirements) and 15 states, including populous ones like Illinois, Maryland, New Jersey, and New York, withhold all employer contributions for teachers until 10 years of service. In these states, teachers could work up to nine years without any form of employer-provided retirement savings. This would be illegal in the private sector.

Teachers are often told they’re trading lower salaries while they work for higher job security and more generous benefits. But that trade only works well for teachers who actually stick around until retirement. Most don’t. Most teachers get the worst of both worlds—they earn lower salaries while they work and they forfeit thousands of dollars in lost retirement savings when they leave. Check out our report, Hidden Penalties, to see how many teachers are affected in your state and how much they’re losing.

 

Photo by gfpeck via Flickr CC License

OTPP Building New Careers?

Leo Kolivakis is a blogger, trader and independent senior pension and investment analyst. This post was originally published at Pension Pulse.

Rishika Sadam of Reuters reports, Apollo Global-led investor group to buy CareerBuilder:

A group of investors led by U.S. private equity firm Apollo Global Management LLC (APO) and Ontario Teachers’ Pension Plan Board will buy a majority stake in job portal CareerBuilder, the companies said on Monday.

CareerBuilder LLC is owned by Tribune Media Co (TRCO), TV station operator Tegna Inc (TGNA) and newspaper group McClatchy Co (MNI). These current owners will all retain a minority stake, Apollo said.

Apollo did not disclose financial details of the deal.

Reuters reported last month that Apollo was negotiating a deal that would value CareerBuilder at more than $500 million, including debt.

OTPP put out a press release, Apollo Global Management-affiliated Funds and Ontario Teachers’ Agree to Acquire a Controlling Interest in CareerBuilder:

Certain affiliates of investment funds managed by affiliates of Apollo Global Management, LLC (together with its consolidated subsidiaries, “Apollo”) (NYSE: APO), the Ontario Teachers’ Pension Plan Board (“Ontario Teachers'”) and CareerBuilder, LLC (“CareerBuilder”) announced today that they have entered into a definitive agreement, pursuant to which an investor group led by Apollo along with Ontario Teachers’ will acquire a majority of the outstanding equity interests in CareerBuilder. CareerBuilder’s current owners, TEGNA Inc. (“Tegna”), Tribune National Marketing Company, LLC (“Tribune”) and McClatchy Interactive West (“McClatchy”) will retain a minority interest.

“CareerBuilder is a global leader in human capital solutions, and we are excited to work with the Company in the next phase of its growth and development,” said David Sambur, Senior Partner at Apollo. “Matt Ferguson and his team have done an exceptional job capitalizing on CareerBuilder’s iconic brand to create an integrated solutions software-as-a-service (SaaS) platform, and we look forward to working with the team to support the Company’s continued growth and innovation.”

Matt Ferguson, CEO of CareerBuilder, added, “This is an exciting next chapter for CareerBuilder. We are very proud of the work we did during our partnership with Tegna, Tribune and McClatchy, and we look forward to collaborating with Apollo and Ontario Teachers’ to continue the successful transformation of our business.”

The transaction includes committed financing from Credit Suisse, Barclays, Deutsche Bank, Citigroup Global Markets and Goldman Sachs & Co. LLC; all are also acting as financial advisors to Apollo, along with LionTree Advisors and PJT Partners. Morgan Stanley & Co. is acting as financial advisor to CareerBuilder. Akin Gump Strauss Hauer & Feld LLP and Paul, Weiss, Rifkind, Wharton & Garrison LLP are acting as legal advisors to Apollo. Wachtell, Lipton, Rosen & Katz LLP is acting as legal advisor to the sellers.

The proposed transaction is expected to close in the third quarter of 2017, subject to regulatory approvals and customary closing conditions. Apollo’s investment is being made by the Apollo-managed Special Situations I fund.

About CareerBuilder

CareerBuilder is a global, end-to-end human capital solutions company focused on helping employers find, hire and manage great talent. Combining advertising, software and services, CareerBuilder leads the industry in recruiting solutions, employment screening and human capital management. It also operates top job sites around the world. CareerBuilder and its subsidiaries operate in the United States, Europe, South America, Canada and Asia. For more information, visit www.careerbuilder.com.

About Apollo

Apollo is a leading global alternative investment manager with offices in New York, Los Angeles, Houston, Chicago, St. Louis, Bethesda, Toronto, London, Frankfurt, Madrid, Luxembourg, Mumbai, Delhi, Singapore, Hong Kong and Shanghai. Apollo had assets under management of approximately $197 billion as of March 31, 2017 in private equity, credit and real estate funds invested across a core group of nine industries where Apollo has considerable knowledge and resources. For more information about Apollo, please visit www.agm.com.

About Ontario Teachers’

The Ontario Teachers’ Pension Plan (Ontario Teachers’) is Canada’s largest single-profession pension plan, with C$175.6 billion in net assets at December 31, 2016.  It holds a diverse global portfolio of assets, approximately 80% of which is managed in-house, and has earned an average annualized rate of return of 10.1% since the plan’s founding in 1990. Ontario Teachers’ is an independent organization headquartered in Toronto. Its Asia-Pacific region office is located in Hong Kong and its Europe, Middle East & Africa region office is in London. The defined-benefit plan, which is fully funded, invests and administers the pensions of the province of Ontario’s 318,000 active and retired teachers. For more information, visit otpp.com and follow us on Twitter @OtppInfo.

In other related news, Cision PR Newswire reports, CareerBuilder Teams Up with Google to Help Connect More Americans with Jobs:

CareerBuilder’s evolution into an end-to-end human capital solutions company began with operating leading job boards around the world – something it has done for more than two decades. Today, CareerBuilder is excited to announce a powerful collaboration that will bring even more visibility to its clients’ job listings and help job seekers find those opportunities faster.

CareerBuilder is joining forces with Google to help power a new feature in Search that aggregates millions of jobs from job boards, career sites, social networks and other sources. CareerBuilder is fully integrated with Google to feed content to them, and will include all of its jobs from its job sites and talent networks in this new feature.

“CareerBuilder has been working closely with Google on this from the very beginning when Google was first reaching out to content providers,” said Matt Ferguson, CEO of CareerBuilder. “We saw a big opportunity to increase exposure for our clients’ jobs and today we stand as one of Google’s biggest suppliers of jobs content. Google has enormous reach and excellent search capabilities, so why not leverage these strengths for the benefit of our clients?”

Over the last 20-plus years, CareerBuilder’s model has always been to serve up jobs wherever job seekers are on the Internet, and today CareerBuilder’s job search engine is on more than 1,000 sites. CareerBuilder is embracing this new feature as another distribution channel for its clients that will capture even more potential candidates.

CareerBuilder has been working with Google on different initiatives and is exploring ways in which the two companies can further collaborate.

“CareerBuilder has always had an open ecosystem because it speeds innovation and produces better outcomes,” Ferguson said. “Our product portfolio has expanded so significantly – now covering everything from recruiting and employment screening to managing current employees. We think there is a great opportunity to work with Google as we grow our business.”

Google has been a traffic source for CareerBuilder for several years. Six months ago, CareerBuilder announced plans to use the Google Cloud Jobs API to power searches on its job site. CareerBuilder is pairing its deep knowledge in recruitment with Google’s expertise in machine learning to provide faster, more relevant results for workers looking for jobs on CareerBuilder.com. See the announcement here.

I don’t have much to add on this deal. I’m pretty sure the folks at Apollo know how to unlock the value in CareerBuilder. Moreover, if the company is working with Google to improve its products and services, that is a huge vote of confidence in my book.

Of course, if you ask me, Microsoft’s acquisition of LinkedIn will change the job search industry in ways we don’t even know yet, and this represents a major threat to traditional job search companies.

How traditional job search companies respond to this emerging threat remains to be seen. Will Google try to compete head on with Microsoft and potentially acquire CareerBuilder in the future? It certainly wouldn’t surprise me given the two companies are working closely together.

Maverick CalPERS Board Member Won’t Run Again

Reporter Ed Mendel covered the California Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Calpensions.com

CalPERS board member J.J. Jelincic, known for being reprimanded by fellow board members and asking frequent and detailed questions about agenda items, was expected to seek a third four-year term but decided not to run.

A collective sigh of relief from the board majority of the California Public Employees Retirement System may be premature.

A late entry last week in the race for the open seat, Michael Flaherman, a former board member, criticized the CalPERS board for watering down private equity fee reform legislation and has supported Jelincic in his latest board battle, calling it “procedurally atrocious.”

Among the three other candidates for the open seat is the current chairman of the CalPERS finance committee, Richard Costigan, who wants to switch from one-year appointments to an elected four-year term.

Costigan has been annually chosen by the State Personnel Board to fill its seat on the CalPERS board for seven years in a row. His appointment by former Gov. Arnold Schwarzenegger to a 10-year term on the Personnel board expires this year.

The other candidates are David Miller, a state Department of Toxic Substances Control scientist, and Felton Williams, a retired Long Beach Community College dean of business and social sciences.

The major public employee unions have not yet publicly endorsed a candidate. Flaherman said he has the endorsement of two large retiree groups, the Retired Public Employees Association and the California State Retirees.

Jelincic has been at odds with the CalPERS establishment since winning a race for an open board seat in 2009. It was a rare, if not unprecedented, case of a CalPERS employee becoming one of the 13 members of the powerful CalPERS board.

With the backing of the two retiree groups and a $74,812 contribution from the American Federation of State, County and Municipal Employees, the 25-year CalPERS investment officer defeated a candidate backed by the Service Employees International Union.

In his first year on the board, Jelincic was reprimanded by the CalPERS board for sexual harassment of co-workers, with words and suggestive looks. He was stripped of some committee posts and ordered to take sensitivity training.

Jelincic remained on his CalPERS job until being placed on leave with pay early in 2011. Three opinions from the state attorney general said he should not participate in board meetings on personnel, particularly about top management under which he may serve later.

The CalPERS board reprimanded Jelincic again for telling Pensions and Investments in 2014 that the newly promoted chief investment officer, Ted Eliopoulos, “doesn’t have the temperament or the management skills” needed for the job.

Jelincic told the publication he worked under Eliopoulos from 2007 until being placed on leave. Eliopoulos and another CalPERS officer reportedly had warned Jelinicic in 2009 about complaints of sexual harassment.

Two years ago, Jelincic seemed to trigger a committee discusion of “board member behavior” after filing Public Records Act requests to get weekly reports from new federal lobbyists, as specified in the contract, rather than monthly reports approved by the board.

A more serious clash surfaced at a CalPERS board meeting in Monterey last January. Board member Bill Slaton accused Jelincic of leaking confidential information from a closed-door session and urged him to resign.

The confrontation was first reported by Yves Smith on her website, Naked Capitalism. Flaherman said the article was accompanied by his video of the meeting, taken after Jelincic told him a key part might be omitted in the CalPERS video.

The CalPERS board disciplined Jelincic by requiring him to attend special training on open-government laws, the Sacramento Bee reported last month. Jelincic denies that he leaked the information, which remains formally unidentified because it’s confidential.

Jelincic said last week the latest disciplinary action isn’t the reason he decided not to run for re-election — adding if anything, it would motivate him to remain. But he will soon be 69 years old, Jelincic said, and he pointed to the frustration expressed on his website.

“I originally ran for the CalPERS Board because I thought the Board was not doing its job and was too often being manipulated by staff,” Jelincic said on his website. “After eight years on the Board, I can tell you it was even worse than I realized.”

He helped improve the situation, Jelincic wrote, but in doing so “angered some senior management and fellow Board members who are invested in the status quo. It is clear to me that this Board has abdicated its responsibilities to challenge, monitor and supervise the staff.”

Jelincic said the staff controls information given to the board, which routinely rubber stamps staff recommendations. He apparently referred to a closed-door action last September, not revealed until November, that shifted investments to less risky but lower-yielding investments.

“The Board recently changed asset allocations. Why? Secret! What factors were considered? Secret! What costs were evaluated? Secret! Was the impact on beneficiaries and employers considered? Secret!” he said on his website.

As an alternative, Jelincic has suggested CalPERS could look at covering four years of costs with bonds and other nearly risk-free investments, while putting much of the portfolio (valued at $323.3 billion last week) into riskier but potentially higher-yielding investments.

Flaherman also has ideas for change. He was a Bay Area Rapid Transit planner when elected to two four-year terms on the CalPERS board ending in 2002, followed by a decade of work for a private equity firm before becoming a visiting scholar at UC Berkeley.

Last year Flaherman said he got help from Jelincic in persuading state Treasurer John Chiang to seek legislation requiring more disclosure of private equity fees. He said AB 2833 was weakened by CalPERS, which reportedly feared some firms might reject investments.

If Flaherman is elected to the CalPERS board, he might be an advocate of change much like Jelincic. But he would not have the burden of being suddenly promoted from subordinate to superior, while continuing to wear both hats within the bureaucracy.

“We’d like to have a collegial board again, a board that works together,” Rob Feckner, CalPERS board president, told the Bee last month. “Mr. Jelincic can have great value if he puts his efforts in a positive manner.”

Jelincic is scheduled to leave the board in January. Active and retired CalPERS members are eligible to vote in the election for his open seat. Voter turnout often is very low, about 16 percent of 1.3 million eligible voters when Jelincic won in 2009.

In another election for a similar board seat, board member Michael Bilbrey is running for re-election with some union support.

The other candidates are Wisam (Sam) Altowaiji, retired Redondo Beach city engineer; Margaret Brown, Garden Grove Unified School District business services director, and Bruce Jennings, retired Senate Rules Committee principal consultant.