Sunday, May 21, 2017

Sad and bad news at Calpers: Jelincic to retire and Governor and Treasurer propose a gimmick

Sad and bad news at Calpers:  Jelincic to retire and Governor and Treasurer propose a gimmick

I’ve never met with or talked to Mr. Jelincic, but he’s one of my public pension heroes. Mr. Jelincic has been a director of CalPERS, the nation’s largest pension plan.  He’s a hero because he’s raised the uncomfortable questions about the investment performance, asset allocation, and expenses of the California pension.  Normally, someone can’t be a hero for just doing his job.  However, Mr. Jelincic has been ridiculed and even censured by fellow board members.  While the rest of the board sought congeniality in lieu of solutions and answers, Mr. Jelincic conducted a one-person inquiry.

Mr. Jelincic’s retirement is not the only bad news out of California.  In addressing the looming pension deficit, Governor Brown and Treasurer Chiang have proposed a gimmick instead of a step forward to address the problem.[1] They’ve proposed contributing an extra $6 billion to the pension.  However, they’re using borrowed money instead of taking the hard decision and contributing additional appropriations.  California taxpayers who bear the primary risk of the pension’s deficit are being asked to bear even greater risk by this subterfuge.  CalPERS pension faces challenges because they’ve sought politically expedient solutions.  For a long time they bet that the higher returns of private equity and hedge funds could solve the problem.  It didn’t work.  Now they’re resorting to financial jujitsu.

I’ve written periodically about the problems at CalPERS, which are serious. [2] Performance has lagged, fees have soared, and funding has been inadequate.  In addition, CalPERS has resorted to selective and misleading disclosure to keep the public from getting a clear picture. Those are ingredients for further trouble because no one is taking responsibility or accepting blame.  Mr. Jelincic made enemies because he dared to do the job of a prudent director.  Pension beneficiaries and taxpayers alike are losing their strongest advocate.

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