Rewarding failure – CA retirement system
English poet Alexander Pope penned the famous line: “To err is human, to forgive is divine.” With a nod to Pope and tongue planted firmly in cheek, Da Mook gives you: “To FAIL is government, to reward failure is sublime.”
When the “experts” and “geniuses” in government FAIL, more often than not, they do not suffer the consequences like those in private industry. In fact they are more likely to be rewarded for their incompetence. This article points out yet another instance of this perverse phenomenon – brought to you by the California Retirement system (CalPERS).
As its investment portfolio was losing nearly a quarter of its value, the country’s largest public pension fund doled out six-figure bonuses and substantial raises to its top employees, an analysis by The Associated Press has found.
Board member Tony Olivera said the California Public Employees’ Retirement System tried to reduce the bonuses but was under contractual obligations to pay them.
CalPERS’ plunging value came as stock values tumbled around the world, the state’s economy suffered its worst decline in decades and basic state services faced severe budget cuts.
Virtually all of CalPERS’ investment managers were awarded bonuses of more than $10,000 each, with several earning bonuses of more than $100,000 during the 2008-09 fiscal year. The cash awards were distributed as the fund lost $59 billion.
Steve Deutsch, director of pensions and endowment at Morningstar Inc., said many public pension plans award performance bonuses, and called CalPERS’ performance during 2008-09 “middle of the road.”
“It’s absolutely very widespread, but very low profile in terms of being acknowledged, discussed, or disclosed by the plans,” Deutsch said.
And apparently, the more spectacular the FAIL, the bigger the reward.
Real estate was the hardest-hit investment category in the CalPERS portfolio during the 2008-09 fiscal year, suffering from the same property devaluations felt across the country. That portfolio lost 47.9 percent of its value over the fiscal year. CalPERS awarded the portfolio’s senior investment manager, Ted Eliopoulos, a $93,941 bonus on top of his $333,124 salary, which was 8 percent higher than the previous year.
According to CalPERS’ annual report, the global equity portfolio saw a 26 percent decline in U.S. stocks and a 32.4 percent drop in international stocks during 2008-09. Eric Baggesen, the senior investment officer for global equity, received a 6 percent raise, bumping his salary up from $300,000 to $318,000 in the 2008-09 year. He also received bonuses totaling $254,186 over the two-year period.
These failures have left a sucking chest wound in the CA retirement system. Depending on who you listen to the magnitude of unfunded liabilities in the system range from stunning to catastrophic. It’s clear that unless there is a major overhaul in the system, taxpayers across the country will be pressed to bail out this disaster.