Today down in sunny Mission Bay along SF’s less scenic waterfront (and only a few steps from my gym), Sen. Leland Yee announced his plan for pension reform. Currently UC’s pension plan is governed solely by the UC Regents, with no input from workers. WTF?
So, Sen. Yee plans to require joint governance with other higher ed. pension plans. Given that UC’s pension has dramatically underperformed, perhaps not a bad idea. Check out the press release over the flip…
UC Conflicts of Interest Prompt Call for Pension Governance Reform
Senator Yee introduces legislation to give workers equal vote on pensions
SAN FRANCISCO – As a result of recent revelations regarding conflicts of interest on the University of California (UC) pension plan and the fact that the once top-performing plan is now significantly underperforming its peers, Senator Leland Yee (D-San Francisco/San Mateo) has introduced legislation (SCR 52) calling for joint governance of the UC employee’s pension plan.
“The UC Retirement Plan is the only state public pension plan that does not give a voice to the workers,” said Yee. “As a result, we have seen complete mismanagement of their retirement plans and serious questions regarding financial conflicts of interest. Now 200,000 UC workers are unfairly being asked to foot the bill.”
Both California State University and community college workers have pension plans with joint governance, with both employee and employer representation on their boards. At UC, the Regents currently have unilateral control over all pension decisions.
“Having jointly governed pension plans improves pension security by preventing conflicts of interest and providing better oversight of pension investments and benefits changes – all of which is greatly needed at UC,” said Lakesha Harrison, President, AFSCME Local 3299. “We believe that the time for band-aid solutions is over. UC workers want full access to information and an equal say on decisions about our pension. We demand joint governance of our pension.”
Under joint governance, what happens with any fund surplus is agreed upon by the employee and employer trustees. UC would not be able to propose items such as supplemental benefits for executives, as it has done in the past, unless trustees elected by workers and retirees agreed.
It was recently reported that two members of an investment advisory committee for the UC appear to have previously undisclosed connections to firms who won contracts to invest pieces of the university’s $43.4 billion pension plan.
According to the San Francisco Chronicle, one such member, John Hotchkis, retains a 1.1 percent interest in his former firm Hotchkis & Wiley Capital Management, which was chosen in July 2004 to manage more than $430 million in UC equity funds. In addition, in 2005 a firm headed by Hotchkis’s daughter was chosen to manage $311 million in non-US equity funds. Another member of the investment committee, David Fisher, is the chair of the board of Capital Guardian Trust Co., a company chosen to manage $377 million in fund assets.
UC claims that these connections do not constitute a conflict and has a proposal to relax, rather than tighten, existing governance policies on conflict of interest.
Last week, the East Bay Express newspaper extensively detailed how a number of recent changes at the pension fund have cost the university billions of dollars. Once one of the top performing pension plans in the country, it now ranks among the nation’s worst performers. Although the fund is still over 100 percent funded, for the first time in seventeen years, employees are being asked to pay money into the pension fund, between 5 to 8 percent of their paychecks.
For the past several years, the Regents have increasingly contracted with a number of high-priced pension consultants and money management firms, rather than stick to the decades-long and highly successful practice of using professional university financial staff to trade stocks themselves.
“Workers at UC are already extremely underpaid and now the Regents are expecting them to sacrifice an additional 8 percent of their salaries as a result of this poor management,” said Yee. “That is simply unconscionable.”
The Regents have made many of these decisions behind closed doors, although lawsuits have since required minutes of these meetings to be publicly released. In the secret meetings, regents discussed how they could minimize the impact of disclosing fund figures as not to coincide with the 2002 election. In fact, when the regents were told the figures would not be made public until after the election, regent Norman Pattiz said, “That’s good” and a regent consultant Bruce Lehmann said, “Thank God the doors are closed.”
A report provided by the University shows that under the management of UC staff, the retirement fund earned an average of 15.6 percent per year during the 1990s, compared to only 13.5 percent for comparable multibillion dollar portfolios. Since UC has contracted out many fund management duties to outside consultants, 86 percent of large US investment trusts outperformed the UC pension fund, according to a report by State Street, UC’s custodial bank. During the 1990s, the fund spent approximately $5.5 million a year to buy and sell bonds and almost nothing to trade stocks. In comparison, last year alone the university paid more than $22 million in commissions and paid private fund managers $32 million to trade stocks that were previously handled by existing UC staff.
“Had the UC Retirement Plan even performed as well as half of the comparable funds in the past five years, it would have an addition $3.3 billion,” said Yee. “Recent decisions have led to billions in lost profits, millions in unnecessary fees, and thousands of employees stuck with the invoice. We need new governance and oversight of these dollars and workers deserve an equal vote on their pensions.”
“The Regents have a choice: change to joint governance of the retirement plan or we will go to the ballot and ask the voters to make this change for them,” said Yee.
In addition to SCR 52, Senator Yee has authored SB 190, which among a number of reforms, requires advisory groups similar to the investment advisory committee to meet in public. In addition, SB 190 will require all executive compensation packages to be voted on in an open session of a subcommittee and the full board. The bill will also require full disclosure of the compensation package with accompanying rationale and public comment on the specific action item.
