CalPERS

The benefits expansion bill, SB 400, passed with unanimous backing by California State Assembly Democrats and was signed into law by Governor Gray Davis. CalPERS then produced a video promoting the legislation with Chairman Crist promising greater benefits "without imposing any additional cost on the taxpayers" and the California State Employees Association president praising it as "the biggest thing since sliced bread".

The next year the dot-com bubble burst, and CalPERS did not grow, instead losing value in the stock market downturn of 2002. In 2001–2002, CalPERS provided technical assistance for the Sarbanes-Oxley Act because it had sustained financial losses from the Enron and WorldCom bankruptcies. After the Great Recession, in 2009 CalPERS investments lost 24%, dropping $67 billion in value. Chairman Crist retired from the board and it was later revealed he had accepted more than $800,000 from a firm to ensure hundreds of millions of investment from CalPERS.

In November 2005, CalPERS expanded its headquarters with the 560,000-square-foot (52,000 m2) "Lincoln Plaza East & West" buildings which cost $265 million. The architecture of the buildings, which received praise, was designed by architecture studio Pickard Chilton and includes an entry tower 90 feet (27 m) high in a shape reminiscent of a tree which is made of steel covered with glass. The project was awarded a Gold Leadership in Energy and Environmental Design (LEED) rating.

Governor Jerry Brown

In 2012, Governor Jerry Brown signed legislation that reduced benefits for all new state employees and sought to combat pension spiking. Legislators rejected Governor Brown's proposals to include a 401(k) type defined contribution plan and to require CalPERS Board members to be independent, not themselves pensioners. Governor Brown promoted the reform as the "biggest rollback to public pension benefits in the history of California", but it only resulted in a 1% to 5% reduction in contribution increases. Total savings from the reform are estimated to be $28 to $38 billion.

In the fall of 2014, CalPERS named Ted Eliopoulos as chief investment officer. He won the #2 ranking in the Public Investor 100 for 2016. Blackstone Group LP announced in November 2015 that it would acquire 43 international and domestic real estate funds from CalPERS for $3 billion.

In 2015, Kevin de León, who was the California State Senate majority leader at the time, introduced legislation to require CalPERS and CalSTRS divest from coal and the California Democratic Party passed a resolution in support of fossil fuel divestment. The bill was passed and, effective June 1, 2017, CalPERS was prohibited from maintaining holdings in companies that receive at least half of their revenue from thermal coal.

In 2016, CalPERS fund value reached $295.1 billion. State tax dollar contributions have had to increase to $45 billion, a 3,000% increase from before the 1999 benefits expansion. Promised benefits exceeded funds available by $241.3 billion. Unfunded retiree healthcare costs add an additional $125 billion to California's public retirement debt.

Governor Gavin Newsom

During Gavin Newsom's tenure, activists have increasingly called for CalPERS to more broadly divest from fossil fuels. On February 17, 2022, State Senator Lena Gonzalez introduced legislation that would require CalPERS and CalSTRS divest. The CalPERS board has opposed proposals to divest. The bill passed the state senate on May 25 but was halted in the assembly by Jim Cooper.

With the stock market decline during the 2008 financial crisis, there were large investment income losses. There was a 12 billion dollar investment income loss in 2008 and 55 billion in 2009.

The 124 billion dollars of income in the nine-year period 1999-2007 was reduced by half as a consequence of the combined losses of 67 billion in 2008 and 2009. This totals to 57 billion dollars of investment income during this 11-year period, or about 5.1 billion a year on an investment portfolio of 261 billion in October 2007 and down to 186 billion in October 2008. This is a 2.5% return on investment over the 11-year period.

Income or loss from investments fluctuates from year to year; between 1998–99 and 2007–08, the highest income was $40.7 billion in 2006-07 and the greatest loss was $12.5 billion in 2007–08. As of October 2008, CalPERS had a total of $186.7 billion in assets invested as follows: $104.9 billion (56.2%) in equities, $41.0 billion (21.9%) in fixed income, $20.9 billion (11.2%) in real estate, $16.2 billion (8.7%) in cash equivalents, and $3.7 billion (2.0%) in inflation linked assets.

In 2010 CalPERS revised its strategic asset allocation mix using its Asset Liability Management process. By the end of the fiscal year ended June 30, 2013, CalPERS had a total of $257.9 billion in assets invested as follows: $166.3 billion (64 percent) in equities, $40.2 billion (16 percent) in fixed income, $25.8 billion (10 percent) in real assets, $10.6 billion (4 percent) in cash equivalents, $9.2 billion (4 percent) in inflation-linked assets, $5.2 billion (2 percent) in hedge funds, and $0.5 billion (0.0 percent) in multi-asset class and other.

Shareholder activism

Beginning in the 1980s, and especially in the early 1990s under the pioneering leadership of CEO Dale Hanson, CalPERS has used its influence as one of the largest shareholders in the world to change the way certain things are done in business. It is especially known for its shareholder activism concerning corporate governance, in which it has been described as the most influential pension fund and as "a leader among activist institutions".

Among other examples of its shareholder activism, CalPERS has:

Lobbied the board of General Motors (GM) "to take a more active role in monitoring the company, which may have been a factor in the GM board's ousting chairman Robert Stempel in 1992.

Demanded in 1999 that U.S. companies in its portfolio disclose their Year 2000 problem readiness.

Starting in 2000, "screen[ed] all its investments in emerging markets for compliance with a number of human rights, environmental and labor standards".

As of 2002, called on companies which operate in offshore havens to repatriate to the United States.

With other pension funds, on September 16, 2003, called upon Richard Grasso to resign from the NYSE because of an exorbitant pay package; he resigned the next day.

In 2003, sued the NYSE and seven specialist firms over allegations that the firms' floor workers engage in practices which hurt investors. The firms "settled with the Securities and Exchange Commission in 2005 and paid more than $240 million in fines without admitting or denying guilt". The part of CalPERS' lawsuit aimed at the NYSE itself was later thrown out of court, and in 2008 the U.S. Supreme Court declined to reinstate that part of the lawsuit.

Called for reform in executive compensation, especially golden parachutes, in 2004.

In 2004, with other parties, opposed Michael Eisner as chairman of the board and CEO of The Walt Disney Company; Eisner was removed as chairman of the board and in 2005 resigned as CEO.

In 2006, banned investment of its funds in nine companies that do business in Sudan until the government of that country halts ongoing genocide; however, that decision was described as "a largely symbolic gesture" because CalPERS "did not own a stake in any of the nine".

From September 2006 through July, participated as lead plaintiff in a successful class-action lawsuit against UnitedHealth Group for options backdating. CalPERS had held "6.6 million shares of UnitedHealth stock valued at $360 million". In August 2009, a federal judge in Minnesota ordered UnitedHealth to pay $895 million to settle the lawsuit; furthermore, former UnitedHealth CEO William W. McGuire would pay $30 million and relinquish options to buy 3.68 million UnitedHealth shares; another former executive would pay $500,000.

With other institutional investors, requested in 2007 that the government "set national, mandatory standards to cut greenhouse gas emissions".

At Apple in 2013, CalPERS voted for a management proposal to implement majority voting for director elections and other proposals designed to enhance shareowner rights. This was a result of more than two years of engagement with Apple to change its voting standard for board candidates from a plurality model to a majority standard. Following successful CalPERS-sponsored shareowner resolutions supporting majority voting, in February 2013 Apple sponsored Proposal 2, which would amend Apple's charter to provide for majority voting for directors. The proposal would also establish a par value for Apple stock and eliminate Apple's ability to issue preferred shares without shareholder approval. CalPERS strongly supported Apple's position that preferred stock should not be issued without shareowner approval. While the 2013 vote was canceled on a technicality, majority voting was officially adopted in 2014.

At Nabors Industries in 2013 CalPERS sponsored a proposal to amend the company's by-laws to require shareowner approval of severance benefits that exceed 2.99 times the sum of an executive's base salary and bonus. CalPERS also voted for a proposal asking the board to elect an independent chair and for a proposal allowing shareowners to nominate candidates for election to the board.

CalPERS is among the signatories of the "Principles for a Responsible Civilian Firearms Industry," which seeks to engage firearms manufacturers, dealers, and retailers in promoting gun safety.

CalPERS has received some criticism for its shareholder activism:

As of 2002, there was a concern that CalPERS' activism had distracted from "its effectiveness as a corporate watchdog and its ability to provide for the 1.3 million public employees whose pensions it guarantees".

Despite the efforts of CalPERS and others, the chief counsel of TIAA-CREF was quoted in 2003 as saying that there has been "no countrywide improvement in corporate governance".

CalPERS votes against some companies' directors "whose sins are exceedingly small," such as "attendance gaps or minor conflicts".

Businesses describe CalPERS as having a "pro-labor agenda", especially because of the dominance of Democrats on CalPERS' board.

Some argue that CalPERS' actions unduly interfere with business and encourage the belief that California is "anti-business".

The Focus List and the "CalPERS effect"

Beginning in 1987, CalPERS placed certain companies, with which it had "concerns about stock and financial underperformance and corporate governance practices" on a "Focus List". The list was also referred to as a "name and shame" list. Beginning in 2010, CalPERS stopped publicly naming companies on the list and instead began dealing with such companies privately. In 2012, CalPERS initiated a program to monetize the Focus List. Each year, after the Board approves staff recommendations for Focus List companies, CalPERS increases investments in those companies. New Focus List companies are added to the portfolio each year, and the portfolio is rebalanced so that holdings remain equally weighted. The purpose of monetizing the Focus List is to replicate the Wilshire studies—using actual funds to demonstrate and measure the "CalPERS Effect". Monetizing the Focus List also allows CalPERS to realize a return on the increased value that typically occurs following an engagement. In 2014, a study by Wilshire Associates showed the companies engaged by CalPERS significantly outperformed the Russell 1000.

Analysis of performance of companies on the Focus List

In 1994, Nesbitt published a study that found that companies on the Focus List trailed the S&P 500 prior to being put on the list, but outperformed the S&P 500 after being put on the list, and named this phenomenon the "CalPERS effect". The term has been used in the newsmedia. Whether a "CalPERS effect" actually exists has been studied in a number of subsequent papers, including:

Michael P. Smith (1996) determined that shareholder wealth increased for companies that adopted changes proposed by CalPERS or made changes that resulting in reaching a settlement with CalPERS; however, shareholder wealth decreased for companies that resisted CalPERS' proposals.

Wahal (1996) analyzed the efficacy of pension-fund activism for CalPERS and eight other funds such as TIAA-CREF. Of the firms targeted by the nine funds, "only firms targeted by Calpers experience[d] a positive stock price reaction".

Crutchley et al. (1998) discovered that CalPERS' "less visible activism" in 1995-1997 corresponded with less returns on stocks than in 1992-1994 when CalPERS' activism was more aggressive.

Two studies published by CalPERS staff (i.e., Anson et al.) in 2003-2004 found that stocks on the CalPERS Focus List experience "positive excess stock returns of about 12% over the three months following release of the list" and "an average one-year cumulative excess return of 59.4 per cent".

English et al. (2004) concluded that CalPERS targeting produces a statistically significant improvement in short-term returns but not necessarily in long-term returns (depending on the specific methods used to calculate long-term returns).

Nelson (2006) claimed that his study addressed problems in the methodologies of previous studies (e.g., by controlling for the "contaminating events" of The Wall Street Journal articles appearing just before or just after the dates that CalPERS released Focus List information). He found "no evidence to support the persistence of a 'CalPERS effect'" after 1993.

Barber (2006) asserted that in his analyses "CalPERS activism yields small, but reliably positive, market reactions" in the short term. In contrast, although the long-term returns of companies "are uniformly positive and economically large" after being placed on the CalPERS Focus List, due to market volatility he could not conclude that the long-term returns were unusual. Barber's paper won a 2006 prize for best study in the area of socially responsible investing from the Haas School of Business.

Junkin and Toth (2008), in an update of Nesbitt's 1994 study, found that the "CalPERS effect" was still present in that "the average targeted company produced excess returns of 15.7% above their respective benchmark return on a cumulative basis," but that the effect had decreased over time.

Notable investments

The agency both lost and gained from investments in Enron (which went bankrupt in 2001) and its affiliated companies. Its losses included common stock worth $40 million; "stock in a different portfolio, some bonds and a separate investment in New Power Co." worth $100 million; and $4 million from the liquidation of Enron's JEDI II project (i.e., CalPERS had paid $175 million for its stake but received only $171 million in return). However, as CalPERS had earned $132.5 million from the sale of its stake in Enron's JEDI I project to Enron's Chewco project, its total Enron losses were only about $11 million. Although CalPERS "was alerted by its advisers in December 2000 about the serious and potentially embarrassing conflicts inherent in one of a web of private partnerships set up by Enron's chief financial officer, Andrew S. Fastow", it later denied that it could have taken actions to prevent Enron's downfall. Nevertheless, as a result of the Enron experience, in 2002 the CalPERS board did resolve to improve accounting and auditing standards among companies in which it invests.

In June 2000, CalPERS announced that it would invest $500 million in biotech as part of its California Biotechnology Program. Ultimately, $235 million went to California-base venture capital firms specializing in the biotech sector.

In 2002, the Republican Party questioned CalPERS' investing $100 million in a firm that was co-founded by a Democratic supporter. CalPERS denied any political influence in its investment decision.

In 2002, it was revealed that CalPERS had invested $700 million in venture capital funds of billionaire Ronald Burkle who had donated "$1.9 million to Democratic candidates and causes". Phil Angelides denied that CalPERS made its decision because of the donations.

As of 2002, CalPERS had invested $3.5 billion in "underserved areas of California".

In 2002, CalPERS evaluated emerging markets for "evidence of political stability, humane labor laws, a fair and functional legal system and financial transparency"; on the basis of the evaluation, CalPERS placed the Philippines on "probation" for investment. In 2004, a consultant's recommendation to remove the Philippines from the "approved" list "contributed to a 3.3% drop... in the $55-billion Manila stock market". By 2006, CalPERS had given higher ratings to the Philippines, for which its President Gloria Macapagal Arroyo personally expressed appreciation.

CalPERS has been criticized for being foolish to invest in collateralized debt obligations (CDOs) before the July 2007 mortgage meltdown and for not publicly addressing the issue.

In June 2008, after Los Angeles-area property developer LandSource filed for bankruptcy protection, CalPERS was criticized for having invested $947 million in LandSource in 2007; a CalPERS spokesperson described the investment as "small" relative to CalPERS' total assets.

As of 2021, CalPERS has invested about $30 billion in fossil fuels, which has been criticized by environmentalists.

Studies commissioned by CalPERS on its economic impacts

CalPERS commissioned three studies that were released in 2007-2008 about the economic impacts of the following:

CalPERS retirement benefits payments. Prepared by California State University, Sacramento, and released in April 2007, this study found that the direct payments of $7.7 billion in 2006 led to a total impact (including "the ripple effect of business and government revenues as spending from... benefit checks works its way through the economy") of $11.8 billion.

CalPERS investments. Prepared by California State University, Sacramento, and released in September 2007, this study found that the direct investments of $8.3 billion in 2006 led to a total impact of $15.1 billion.

CalPERS health care benefits payments. Prepared by Lincoln Crow Benefits Research Group and released in April 2008, this study found that the direct payments of $4.2 billion in 2006 led to a total impact of $7.6 billion.

Key findings of the CalPERS Economic Impacts in California Report for the fiscal year ending June 30, 2012, included:

CalPERS benefits (retirees spending their pensions) returned $10.85 in economic activity to California for each taxpayer dollar (public funds) contributed to the system.

The total economic revenue generated by CalPERS benefits was more than $30.4 billion.

CalPERS benefits created 113,664 jobs throughout California.

Investments in California accounted for $20.7 billion, or approximately 8.9 percent, of the CalPERS portfolio.

The CalPERS investment portfolio, which included public and private equities, real estate, fixed income, and infrastructure, supported 1.5 million jobs.

CalPERS touted the studies as demonstrating the value of the agency with news releases such as "CalPERS and CalSTRS Pensions Power Up State and Local Economies". The studies and their use by CalPERS were criticized as follows:

A reporter summarized the opinion of the lead author of the first study as "his study was never intended as any sort of implied commentary on the wisdom of CalPERS' policies".

If the money that CalPERS paid in benefits were returned to taxpayers, the money would be spent and would therefore still cause "ripple effects".

The economic impact "might be the same if a private investment firm managed the fund's portfolio".

Employee recognition program

Among other "offerings to ensure [its] workers are happy as well as healthy," CalPERS has an onsite Montessori method child care facility, conducts employee surveys every two years, offers a training and wellness program, and administers a nationally known employee recognition program. The employee recognition program has several components:

An informal day-to-day employee-to-employee program with a "You are the Rock" theme. The program includes a river rock that is passed around to employees who are "rock solid," rock-shaped notes with appreciative sentiments written on them, and rock-themed e-cards.

The quarterly ACE (Achieving Communication Excellence) award, consisting of a lapel pin and an informal celebration.

A formal annual recognition called APEX (Achieving Performance Excellence), with a crystal trophy, a cash award, and a luncheon.

Managers are "encouraged to thank workers more often" and "are graded for the amount of ongoing feedback they gave employees".

Two CalPERS employees received 2000 National Association for Employee Recognition (NAER) Recognition Champion Awards for the employee recognition program. In addition, CalPERS itself won a 2002 Best Practices award from NAER. The employee recognition program was reported to contribute to high employee satisfaction and a low employee turnover rate at CalPERS.

The California State Teachers' Retirement System (CalSTRS)

CalPERS has reciprocity agreements with many of these California public retirement systems that allow retirees with service credit and contributions in two systems to receive payments from both systems.

Some people prefer defined contribution plans to CalPERS' defined benefit plan. For example:

In 1996, Howard Kaloogian sponsored a bill in the State Assembly to allow state employees to choose between CalPERS' defined benefit plan and a defined contribution plan; the bill failed in a State Senate committee.

In early 2005, Governor Arnold Schwarzenegger proposed a ballot initiative to require new public employees to join a 401(k)-like plan, but dropped the proposal after opposition to a provision in the initiative to "reduce benefits for widows of officers and firefighters killed in the line of duty".

In November 2008, the voters of the city of Pacific Grove passed an advisory measure to leave CalPERS in favor of a defined contribution plan.

Among other arguments, CalPERS claims that defined contribution plans cost more to manage than defined benefit plans and fail to provide adequate funds to retirees.

Criticisms

CalPERS has received criticism for the number of retirees (26,000 in 2018) who collect over $100,000 a year in pension. That group of people, while less than 4 percent of the total number of retirees receiving benefits from CalPERS, collect 17 percent of the total yearly pension payouts.