Lacking clear American leadership, the global trade agenda is floundering. Billy Bob Thornton: Billy Bob Thornton in februari 2012: Algemene informatie: Geboren: 4 augustus 1955: Land: Verenigde Staten: Werk: Jaren actief: 1987 - heden. Why South Africa’s economy is likely to grow more slowly than its potential. The Pension Fund That Ate California. After spending years dogged by unpaid debts, California labor leader Charles Valdes filed for bankruptcy in the 1. At the same time, he held one of the most influential positions in the American financial system: chair of the investment committee for the California Public Employees. Valdes left the board in 2. Alfred Villalobos. Questioned by investigators about his dealings with Villalobos, Valdes invoked the Fifth Amendment 1. Illustrations by Sean Delonas.
California taxpayers help fund Cal. PERS? The answer lies in Cal. PERS. Unlike most government pension funds, Cal. PERS has become an outright lobbyist for higher member benefits, including a huge pension increase that is now consuming California state and local budgets. And it has ventured into . Such dubious practices have piled up a crushing amount of pension debt, which California residents. Private- sector pensions were still rare back then, but California lawmakers had a particular reason for wanting a public- sector pension system: without one, unproductive older workers had an incentive to stay on the job and just . Pensions would encourage those workers to retire. The commission cautioned, however, against setting a retirement age so low that it would . That formula typically provided workers with pensions equal to half or more of their final salaries, noted California. For example, a state worker who retired at 6. If that salary was $5. The pensions were funded by three sources: contributions from employers (that is, state and local governments); contributions from employees (though some governments opted to cover that expense); and money that the pension fund would gain by investing those contributions. With the 1. 92. 9 stock- market crash in mind, California opted for a cautious investment approach, allowing the fund to buy only safe federal Treasury bonds and state municipal bonds. But the state made few other changes to the pension system over its first 3. Then came the late sixties, a time of rapidly growing public- sector union power. In 1. 96. 8, the California state legislature added one of the most expensive of all retirement perks, annual cost- of- living adjustments, to Cal. PERS pensions. Other enhancements followed quickly, including, in 1. Thus, an employee who worked for 4. In 1. 98. 3, public- safety workers got an even better pension formula: 2. A police officer or firefighter who began work at 2. As benefits increased, so did pressure to pay for them by boosting Cal. PERS. The shift started in 1. Proposition 1, a measure, promoted by Cal. PERS, that let it invest up to 2. But by the early eighties, markets were roaring again, and Cal. PERS asked for permission to invest up to 6. Voters rejected that ballot initiative but approved another, Proposition 2. Cal. PERS expand its investments . Cal. PERS board members personally responsible if they didn. The proposition received the enthusiastic backing of government unions and Cal. PERS board president Robert Carlson, former head of the powerful California State Employees Association. After all, the better the investment returns were, the less state and local governments would need to pay into the pension fund. Despite the new investment strategy, the costs of the enlarged pensions weighed heavily on California. In 1. 99. 1, with the nation mired in a recession and the state in a fiscal crisis, the California legislature closed the existing pension system to new workers, for whom it created a second . A 4. 0- year veteran with a final average salary of $5. Social Security benefits. The state. Two more members are statewide elected officials (California. As the newspaper added, critics worried that the board had become so partisan that its . The initiative went still further, lowering the retirement age for all state workers and sweetening the pension formula for police and firefighters even more. Public- safety workers could potentially retire at 5. Cal. PERS wrote the legislation for these changes and then persuaded lawmakers to pass it. In pushing for the change, though, the pension fund downplayed the risks involved. A 1. 7- page brochure about the proposal that Cal- PERS handed to legislators reads like a pitch letter, not a serious fiscal analysis. The state could offer these fantastic benefits to workers at no cost, proclaimed the brochure: . Board president William Crist contended in the press that the bigger benefits would be covered by the pension fund. Labor leader Valdes blasted critics who warned about potential stock- market declines, saying that they were trying to deny workers a piece of the good times. What the board members didn. In essence, the Cal. PERS position was that government workers should carry zero risk, sharing the bounty when the fund. Cal. PERS staff had provided them with scenarios based on different ways the market might perform. In the worst case, a long 1. Cal. PERS neglected to include that worst- case scenario in its legislative brochure. And though the board later claimed that it had offered a full analysis to anyone who asked, key players at the time deny it. Even the state senator who sponsored the law, Deborah Ortiz, says that lawmakers received little of substance from the fund. In its brochure, the fund implied that the retirement pay that rank- and- file service workers got under the 1. The bill, signed by Governor Davis with little fanfare, immediately generated pressure on local governments to match the new benefits for their own employees. In 2. 00. 1, legislators passed a measure allowing municipal workers covered by the Cal. PERS system to bargain for the same benefits that the state workers had just won. Like state legislators, many local officials believed that Cal. PERS surpluses would pay for the benefits. Expensive new benefits spread across the state . The tech- stock bubble deflated in the spring of 2. NASDAQ market and driving down the Dow Jones Industrial Average. The American economy plunged into recession the following year, a slowdown made far worse by the terrorist attacks of September 1. By the close of trading on September 1. Dow stood at 8,9. Cal. PERS has the exclusive power to determine the size of state and local governments. As its investments tanked, it quickly boosted those contributions to compensate. By mid- decade, local officials were frantically telling the California press that the contributions were squeezing out other forms of spending. Glendale, a Los Angeles suburb, watched its annual pension bill rocket from $1. The state budget took a massive hit, too, its pension costs lurching from $6. Even those sums understated the problem. As a backlash grew to the larger bills that it was sending to municipalities and the state, Cal. PERS used a series of fiscal gimmicks to limit the immediate impact on balance sheets. Typically, to protect governments from violent swings in contributions every year, pension funds like Cal. PERS average their investment returns over three years, hoping that good years offset bad years. In 2. 00. 5, Cal. PERS extended the performance average to 1. Then, in 2. 00. 9, Cal. PERS told governments that they could pay off the higher bills from the previous year. The pension fund made a similar move in 2. Both Governor Arnold Schwarzenegger and his successor, Jerry Brown, scorched Cal. PERS for the tricks. Still trying to minimize the impact on current budgets, the fund declined and took a $2. Cal. PERS contended that the state. The real culprit, it claimed, was the stock market. But back when it was promoting the legislation in 1. Cal. PERS had hyped Pollyannaish projections of 8 percent average annual returns, which proved crucial to getting the change through the legislature. Another reason not to buy Cal. PERS. Wilshire Consulting reported last year that Cal. PERS? Recall that back in 1. Proposition 2. 1 gave Cal. PERS. Initially, the shift seemed to bolster the fund. Even more spectacularly, Cal. PERS earned $6. 8 billion during the tech boom of 1. But those rich gains had an unforeseen consequence: they prompted the call for higher benefits that resulted in the lavish new pension deal of 1. Cal. PERS. The fund started expanding its real- estate portfolio during the 1. Then, as its stock investments slid at the turn of the millennium, it chased even higher returns in real estate. Between 2. 00. 4 and 2. By 2. 00. 8, the fund owned 2. California, Florida, and Arizona. There was also an investment of nearly $1 billion in Landsource Communities, which planned to develop some 1. California. By 2. These were the packages of debt, largely subprime mortgages, whose defaults helped trigger the 2. According to a 2. Bloomberg News, Cal. PERS bought these investments, known as . Their paper on Cal- PERS. Cal. PERS. The initiative passed at a time when many companies were closing down their own corporate- directed pension funds and switching to defined- contribution plans, in which the assets are directed by the wishes of individual employees, not concentrated in a single fund. As a consequence, the newly empowered Cal. PERS was left one of the biggest shareholders in America. And over time, the Cal. PERS board started using its newfound power to enforce its own political agenda, often without meeting its fiduciary responsibility to invest the fund. For example, soon after Angelides took his board seats, he persuaded Cal. PERS and Cal. STRS to divest shares in tobacco companies. Depressed at the time, those shares soon began to rise; a 2. Cal. STRS report estimated that the funds missed $1 billion in profits because of the divestiture. Cal. PERS also banned investments in developing countries like India, Thailand, and China because they didn. A 2. 00. 7 Cal. PERS report calculated that its investments in developing markets underperformed an international emerging- markets index by 2. Cost to the fund: $4. Angelides wasn. Union officials and other Cal.
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