Public Pension Plans as Fraudsters?

First New Jersey, now California.

January 19, 2011

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1310499_the_golden_gate_bridgeWell, at least to the New Jersey shore. New Jersey’s presdigitation with public pension plan numbers has already run afoul of Securities and Exchange Commission. Big liabilities. Optimistic investment projections. Minimal payments from the state or state workers. Now it’s California’s turn. According to The New York Times, the SEC is investigating CalPERS, the California Public Employees Retirement System. The biggest pension fund in the U.S., at $200 billion (CDN $200 billion), it lost one-quarter of its assets during the Great Recession … or rather, the Great Recission.

The question is whether California adequately disclosed in the preceding years how risky the pension investments were and how much money it might need to cover any shortfall.

“But it is unclear whether investigators are focusing on those risks or on possible conflicts of interest in steering investments to related parties, the subject of a separate investigation by the attorney general of California.”

On that front, New York State recently settled with former Obama auto czar Steve Rattner, whose firm was accused of paying consultants to land lucrative asset management contracts with public pension funds.

Back to CalPERS. Why would the SEC bother? Well, the health of public pension plans may have some impact on investors who buy tax-preferred municipal bonds – an investment category that doesn’t exist in Canada.

“If federal investigators are able to make a case that California misled investors about the risk in its pension fund, it would send a powerful signal to other public funds, which almost without exception base their financial reporting on average annual investment returns of about 8 percent a year, something hard to defend in today’s markets, no matter what the investment mix.”

California Dreamin’?

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