Why some pension experts believe CalPERs got 'nothing' out of paying Towers Watson $275,000 to define its 'beliefs'
The pension giant responds by saying that 'no specific deliverables' came out of the process
Top Executive: Stephen Winks
Fiduciary Advisor Advocate
My full comments would probably be erased so all I will say is that it is very easy to criticize particularly when you haven’t been involved in overseeing asset pools of this size. One other thing- there are very few people on this planet who have been as dedicated and contributed more to the public pension arena than Emkin. I don’t think this article puts RIABIZ in a good light and I am sorry to say that!
Fidiciary Advisor Advocate,
Notwithstanding the sympathy we all can feel for people managing hundreds of billions — and the understandable need those folks have do express their creative side, unshackled by pesky 'beliefs’, with some freelance investing in an otherwise dishwater-dull job — and nothwithstanding Emkin’s eminence, how does this article not do justice to its subject?
By contrast, please see the investment beliefs held by Towers Watson’s Global Investment Committee.
Fiduciary Advisor Advocate
Well…I am not sure precisely how to respond to your comment. Folks involved in overseeing these asset pools don’t engage in freelance investing nor search for an outlet of their creativity. Policies and procedures exist which sometimes need to be challenged, reinforced and/or modified- sometimes they don’t. This isn’t wily nilly investing- to the contrary!
So I guess I don’t get the point of this article. Is it the fee paid in an effort to better enhance the functionality of the plan? How many bps points is 275K on 300B? Is it that apparently nothing concrete (yet) resulted from the project? Is it the fact that CALPERS (and a number of other public pension plans) have a really bad funding status? Lots of reasons for that not just the investment returns. Is it the decision to invest in PE or RE at a bad time? We could spend hours discussing this.
I had the good fortune of spending a day with about 20 of the most senior people in the public pension arena a couple of months ago. It wasn’t a conference just a get together to talk, learn, listen and share. It was really about the fiduciary duty that we all have when involved in overseeing assets (regardless of size) which are for the benefit of others. Great conversation but what struck me the most was how committed, dedicated, thoughtful and thorough these folks are in trying to do a better job.
So I guess I don’t get the point of an article trying to sensationalize a $275k expenditure. I have great respect for your work Brooke I really do and I enjoy reading RIABIZ (although i will most likely be banned prospectively!).
I honestly appreciate your thoughtful criticism. It’s mostly the ad hominen stuff we delete.
At times there’s a fine line between a news hook and sensationalism. I see the fee as symbolic of a problem that ranges into the hundreds of billions. As much as one could make the case RIABiz is sensationalizing $275,000, a CalPERS skeptic can criticize anyone who dismisses the value of $275,000 as a trifle in respect to the billions in question.
If you read this article and Robert Boslego’s previous article on these 'beliefs’ you would be hard pressed to say that this process did not give off at a least a righteous whiff of kangaroo committee-ism.
I keep hoping somebody will tell me that there is more to the story that CalPERS has declined to relate to us. That these guys are genteel and well-spoken at national events is pleasing to hear but also makes me wonder whether they fly coach or first class.
There are just so many contradictions that still need to be reconciled.
How could the investment beliefs be nothing after they hired Roger Urwin at Towers Watson?
How can intelligent people at CalPERS and their consultants say these beliefs are their going to provide clear direction and philosophy when they don’t even define their risk?
After the beliefs were accepted, there were no portfolio changes announced, which shows they have had no impact.
Two subsequent developments after claiming success adopting investment beliefs:
—CalPERS doubled bonuses to staff (November 2013)
—CalPERS’ board adopted a set of core competencies for Its board members, such as being able to read financial statements (December 2013).
Perhaps claiming success was needed to justify doubling bonuses?
Perhaps requiring board members to understand how to read a financial statement explains why their investment beliefs didn’t amount to anything, if some don’t know the basics about finance?
I think this is an important inquiry because so many Californians are depending on them for their retirement income. And the CalPERS’ spokesman I interviewed said CalPERS is not unique.
Here is reporting about double bonuses:
Here is the link announcing the new requirement for core competencies for CalPERS Board members:
Fiduciary Advisor Advocate
A real shame for RIABIZ. Can you explain why you would co write an article with someone who might have a dog in this fight and not disclose it? Ummmm….seems like convenient or commercially motivated journalism. How did this fellow Robert portray himself when accessing any information? Was he a journalist or someone interested in a business opportunity as his firm’s website stated 'has also developed innovative risk-managed investment strategies.’. How come that wasn’t disclosed? Does he or his firm pay you in advertisement revenue? What exactly is your relationship with him or his firms? That’s disclosure Brooke, and like it or not places like CALPERS have to do that- you don’t…I guess. But you would like to highlight the imperfections of an industry which is forced to publicly disclose everything. See everyone can point fingers with limited information….I thought that was what sports radio shows were for!
Point blank- you are wrong- misinformed, partially informed as am I, surely with RIABIZ’s relationship and Robert whoever.
The following is the list of 11 CalPERS pension beliefs, followed by my thoughts as to some serious shortcomings:
CalPERS Pension Beliefs:
1. A retirement system must meet the needs of members and employers to be successful.
2. Plan design should ensure that lifetime retirement benefits reflect each employee’s years of service, age and earnings and are adequate for full-career employees.
3. Inadequate financial preparation for retirement is a growing national concern; therefore, all employees should have effective means to pursue retirement security.
4. A retirement plan should include a defined benefit component, have professionally managed funds with a long-term horizon, and incorporate pooled investments and pooled risks.
5. Funding policies should be applied in a fair, consistent manner, accommodate investment return fluctuations and support rate stability.
6. Pension benefits are deferred compensation and the responsibility for appropriate funding should be shared between employers and employees.
7.Retirement system decisions must give precedence to the fiduciary duty owed to members but should also consider the interests of other stakeholders.
8. Trustees, administrators and all other fiduciaries are accountable for their actions, and must transparently perform their duties to the highest ethical
9. Sound understanding and deployment of enterprise-wide risk management is essential to the ongoing success of a retirement system.
10. A retirement system should offer innovative and flexible financial education that meets the needs of members and employers.
11. As a leader, CalPERS should advocate for retirement security for America’s workers and for the value of defined benefit plans.
And my thoughts:
On #1 …... how about meeting the reasonable ability of Taxpayers to fund these “needs” of Public Sector employees, and how about the “needs” of the employees not being assumed to greater than those of the Taxpayers expected to pay for 80-90% of total Public Sector pension costs (as is the structure today)?
On #2 … are you saying that lifetime retirement benefits should be adequate for full-career employees WITHOUT the employee supplementing their taxpayer-funded pensions with material personal savings? If so, why is that fair to taxpayers who must save and invest mightily (out of each net paycheck) if they are to have any reasonable retirement ? Why do virtually ALL Public Sector Plans replace 50-90% of final pay for full career workers (and with COLA increases that increase the pension’s value by an additional 25-40%) when even the BEST Private Sector pensions RARELY replace more than 40-50% of final average pay (with NO COLAs and with payouts typically starting 5 years later)?
On #6 …. Yes, the responsibility for appropriate funding should be “shared” between employers (meaning the Taxpayers) and employees, but in what proportions for the Taxpayer and the Employee; 50/50, 60/40, 70/30, 80/20, something else? If appropriate assumptions are used (ala what Moody’s now uses) and the promised pension are fully funded over the workers careers (and not deferred for future generations to pay for), the Taxpayers’ share TODAY is 80-90% of Total Plan costs. Why is that fair to Taxpayers ?
On #7 … I noticed that guidance #7 say that the Retirement system decisions “MUST” give precedence to the fiduciary duty owed to members but should also “CONSIDER” the interests of other stakeholders. Well, with Taxpayer footing 80-90% of Total Plan costs, I think the Taxpayers deserve quite a bit more say than their needs just being “CONSIDERED”.
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