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California pension system playing politics with your money

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The California Public Employees’ Retirement System (CalPERS) is in the news once again. I wish I could report that with a record high bull market that CalPERS was well on its way to becoming solvent. Unfortunately, CalPERS, the largest public pension fund of approximately $345 billion has roughly $138 billion in unfunded state actuarial liabilities. Due to unrealistic actuarial assumptions and poor investments in Environmental, Social, and Governance (ESG) funds; CalPERS is moving closer to collapse than solvency.

In simpler terms, what is going on is that CalPERS is playing politics with retiree and taxpayers’ money. Meaning future, and current retirees will inevitably see a dramatic cut in their pension benefits; which they have been paying into their entire careers. Cuts in local and state government services to redirect funds into CalPERS as well as the inevitable tax increase.

Laundering Money

One of the ways they played politics with our money was the passage of SB 400 in 1999, which gave government employees a retirement security reserved for the wealthy. This meant that many retirees could retire at 55 and in most cases collect more than half their highest salary for life. California Highway Patrol officers could retire at 50 and receive as much as 90% of their peak pay. So basically, they dramatically increased pension benefits without any way of paying for it.

Why do this? Taking taxpayer dollars and using it for your political campaign is illegal. But union contributions are perfectly legal. Government employees are not to blame; it’s their unions. Government employees have no choice, they must be part of the union and pay union dues. Most unions are like most crony capitalistic corporations. They want to limit competition through government actions and want to make money for their shareholders.

So unions work hard at eliminating any outsourcing of services and jobs to private companies. If it must be done, it must be a government union member. Meaning more employees will be needed and hired and thus more union dues paid. Unions also work hard to increase pension and salaries because yet again more money means more money for the union. The union bosses or in the corporate world known as CEOs, take those taxpayer-funded union dues and then turn around and give millions to political campaigns. Thus you have essentially laundered millions of dollars of taxpayer money and made it legal to donate to politicians that promise you billions in taxpayer-funded benefits. This is no different then crony capitalism. Different shareholders, same corruption.

Crony Capitalism & Ideological Investments

Secondly, they play politics by investing in companies that have no promise of a reasonable rate of return. They invested in failing renewable energy companies because it’s more important to invest utilizing ideological metrics than sound fiscal policy. They divested in successful businesses who engage in legal commerce because their products or projects don’t align with their ideological views. They pressured companies to diversify their board of directors to meet their ideological views of diversity, or they will not invest in their companies. This, in essence, is blackmailing businesses to do what CalPERS wants, or they will pull millions if not billions of dollars from these companies.

The consequences of these actions are that many of the most successful and profitable companies with safer and higher rates of return don’t need CalPERS money. They do fine without them. CalPERS, on the other hand, needs to invest their money and thus are limited to less financially stable and untested companies. Companies in desperate need of liquidity will do as CalPERS wants. But in the end, picking companies based on ideology instead of sound fiscal decisions isn’t a sound investment strategy. Thus, lower rates of return and higher risk for loses will continue to create greater insolvency due to these ideological and politically motivated investments. Overall, they could care less because even though they don’t invest their own money in ESGs. Their ideological investing will drive their base to the polls and keep their political coffers full.

But before you think its all about ideology it is not. Crony capitalism plays a part as well. These companies in desperate need of capital don’t do what CalPERS wants, and that’s all. These same companies turn around and donate back to these same political coalitions which gave them all that money. Why just force the hands of these companies when you can force their hand and expect campaign contributions at the same time? Its a win-win for politicians.

My Solution

For those unaware. I’m a candidate for California State Controller in 2018. When I’m elected, I will be an ex officio member of CalPERS. As Controller, I can independently audit government agencies that spend state funds. With this authority, I will work to eliminate CalPERS. Due to the corrupt nature of politics in Sacramento, this will most likely happen through a voter-approved ballot measure. As Controller, my examination and audits will be used to expose the mismanagement and most likely propose the following changes.

First, the State will no longer invest on behalf of current or retired government employees. Responsibility will be handed over to their unions. Unions told us the pension benefit found in SB 400 were not excessive and could be paid for and managed. If that is the case, they should handle the investment portfolio on behalf of their members. I understand that union members are taxpayers, but the entire population of California taxpayers shouldn’t be on the hook for their union’s decision to push for pension benefits like those found in SB 400. The state and local municipalities that participate in CalPERS will contribute a fixed percentage of current employees salaries and the union, not the taxpayer, will be responsible for the consequences of making ideological investments.

Secondly, all future state employees can either decide to have their unions invest in a pension on their behalf or they can decide to invest on their own through an IRA or 401k. Current government employees can also decide to pull out a portion of their funds and invest on their own. With CalPERS heading for a fiscal cliff, we should allow government employees to determine what is best for them.

By doing this, we can fix the problems we are currently experiencing with this pension crisis. Taxpayers are protected, and government agencies will have a set percentage based on wages on what they must contribute to their employees’ retirement. If we take sound fiscally responsible actions, we can not only increase the rate of return on CalPERS investments, but we can protect taxpayers, reduce corruption, and give great stability and certainty to government workers.


Sources – CalPERS Pension Reports & Pension Crisis

CalPERS’ green investments underperform, business group says | The Sacramento Bee

http://www.sacbee.com/news/politics-government/the-state-worker/article188047259.html#emlnl=Breaking_NewsletterThe nation’s largest public pension fund is leaving money on the table by favoring environmental and social causes in its portfolio, a business-backed nonprofit argues in a study it’s releasing Tuesday on the California Public Employees Retirement System.

The report by the American Council for Capital Formation criticizes CalPERS’ sustainable investing strategies, which include engaging with companies to encourage them to address climate change, pressuring companies to diversify their boards of directors and investing in certain funds that nurture companies with those priorities.

How a pension deal went wrong and cost California taxpayers billions – Los Angeles Times

http://www.latimes.com/projects/la-me-pension-crisis-davis-deal/More than 200,000 civil servants became eligible to retire at 55 — and in many cases collect more than half their highest salary for life. California Highway Patrol officers could retire at 50 and receive as much as 90% of their peak pay for as long as they lived.

CalPERS had projected in 1999 that the improved benefits would cause no increase in the state’s annual pension contributions over the next 11 years. In fact, the state had to raise its payments by a total of $18 billion over that period to fill the gap, according to an analysis of CalPERS data.

The pension fund has not been able to catch up, even though financial markets eventually rebounded. That’s because during the lean years, older employees kept retiring and younger ones continued to build up credit toward their own pensions. Pay raises and extended lifespans have magnified the impact of the sweetened benefits.

By far the largest group of state workers — office workers at the Department of Motor Vehicles, the Department of Social Services and dozens of other agencies — contributed between 5% and 11% of their salary in 2015, and the state kicked in an additional 24%. To fund their more costly benefits, Highway Patrol officers contributed 11.5% of pay and the state added 42%.

CalPERS Report – ACCF Corp Gov

The nation’s largest public pension fund, the California Public Employees’ Retirement System (CalPERS), is severely underfunded.  With more than $300 billion in assets, CalPERS future liability exceeds those assets by more than $100 billion. How did things get so bad? A number of factors have contributed to CalPERS’s relatively recent and precipitous decline.

Mr. Roditis a candidate for California State Controller. He is an entrepreneur and owns several companies. He graduated from UCSD with a B.A. in Political Science/International Relations. He's a former City Commissioner with the City of Anaheim, CA. He's a Conservative Constitutional Federalist. Follow him on Twitter @KonRoditis

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4 Comments

4 Comments

  1. T B

    December 8, 2017 at 11:51 am

    I will definitely vote for you!

    Here’s my solution to the public pension crisis:

    https://drive.google.com/file/d/0B90sU3A85q46OE9BZHJFSWEzbGM/view?usp=drivesdk

    Thoughts?

    • Konstantinos Roditis

      December 8, 2017 at 12:42 pm

      Thank you for your support and sending me this article. My initial concern with this proposal is that this would take pensions run by the states and local municipalities and merge it with social security and thus move more power to the federal government. I’m a federalist, and I believe that social security is unconstitutional and the power for the federal government to have social security is not found in the constitution, specifically Article I, Section 8 of its enumerated powers. On the federal side, I would prefer to see a plan that would begin to shrink and eventually eliminate social security and devolve and transition those powers to the states as our constitution prescribes.

      The federal government has never shown signs of fiscal responsibility, and thus I doubt any safeguards put in place will actually work because the federal government will rather spend recklessly and just print more money and raise the national debt. I believe we must eliminate power for the federal government and the state government and move to greater local control. That is one reason why I created Trickle-up-Taxation ( http://noqreport.com/2017/11/07/trickle-taxation-plan-bring-local-control-california/ ). I believe moving forward a plan similar but maybe not identical to Prop B that was passed in San Diego is needed for all future government employees ( https://www.sandiego.gov/sites/default/files/legacy/city-clerk/elections/city/pdf/retirementcharteramendment.pdf ).

      Cuts in defined benefits will happen as the courts have ruled that defined benefits can be adjusted, but it must be a reasonable benefit. The issue with this is it is not defined what is reasonable. All pensions are different and have different contribution rates and defined benefits, as well as, various jurisdictions with different laws governing them. So with your plan, some pensions might be defined as reasonable to take maximum social security payout and other it might not be. It is entirely subjective, and it will depend on the judge ultimately, as almost every pension will fight this in court. They want to keep their defined pension benefits.

      Ultimately, I believe that all new employees should move to a 401k system. I think this is the best solution. Move pension investment from the politicians’ hands to the unions, and they can invest it themselves or better yet hire the right people to do this. Most of the people on CalPERS have not investment or financial experience. Make changes to defined pension benefits with a maximum payout per year. As State Controller I will study this and look for the best solution, not the best political solution and move to fix the problem and thus best protect the taxpayers and the government employees which have done nothing wrong.

      If you would like to help support my campaign, please consider contributing today. https://secure.anedot.com/roditis/donate

      • T B

        December 8, 2017 at 12:53 pm

        Thank you for your quick and thoughtful response, a lot of what you say makes sense. I understand my approach would only be considered after an apocalyptic correction in the stock market, thereby rendering all public pensions around the world insolvent. Not sure how accurate it is, but I have read many expert’s opinion that once a fund dips below 50%, it will never recover to full funding status.

        • Konstantinos Roditis

          December 8, 2017 at 1:02 pm

          Many factors including payouts, number of retirees to current employees, number of future employees (increasing or decreasing), the age of retirement, the rate of return, etc. play into when the point of no return happens if changes are not made. But I wouldn’t be surprised if 50% isn’t a reasonable rough average of future collapse of a pension system.

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Foreign Affairs

We must move forward knowing North Korea will not end its nuclear program

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We must move forward knowing North Korea will not end its nuclear program

There is nothing the United States, China, the United Nations, or anyone else can do to coax North Korea into ending its nuclear program. They will keep researching. They will keep testing missiles and nuclear devices. They cannot be pressured. Neither sanctions nor harsh words of any kind will change their minds.

Perhaps Dennis Rodman can do something, but I doubt it.

Addressing the United Nations Security Council today, Secretary of State Rex Tillerson discussed the options for North Korea:

“It can reverse course, give up its unlawful nuclear weapons programs, and join the community of nations, or it can continue to condemn its people to poverty and isolation.”

It seems as if the United States is starting to make it clear to the world that we’ve made every attempt possible to stop their nuclear program without actually invading. What does this mean? If you guessed, “we’re invading,” you may be right. We know the option is on the table. We also suspect the President will not do it without international support. It’s not that he needs approval; recognizing Jerusalem as the capital of Israel demonstrated he doesn’t seek international approval. He does, however, need to avoid an international outcry against American “imperialism” in order to keep us out of other conflicts and to prevent damage to the economy.

Some nations wouldn’t support a military action by the United States unless we were attacked first. A few wouldn’t even support a military response if we did get attacked. Regardless, that’s the contingency plan the President is apparently considering. If he can justify starting a war to prevent them from attacking us first with nuclear weapons, he may take us down that road.

Diplomacy isn’t working:

North Korea vows to ‘march forward’ with nuclear program to protect itself from US

http://www.washingtonexaminer.com/north-korea-vows-to-march-forward-with-nuclear-program-to-protect-itself-from-us/article/2643638“Our possession of nuclear weapons was an individual self-defensive means of defending our sovereignty and right of existence and development from the U.S. nuclear threat,” said Ja Song Nam, the North Korean permanent representative to the United Nations. “If anyone is to blame for it, the U.S. is the one who must be held accountable.”

“[North Korea] will march forward and make great advancement [in its weapons program],” he added.

My Take

I am not endorsing war. I’m also not opposed to it if the need is great enough. There isn’t a simple solution to the North Korean problem. There isn’t even a complex solution, really. All we have are potential actions that we can take to try to stop a regime that hates us from having the capacity to destroy us.

There is another option. What if we just left them alone? They apparently won’t stop provoking us, South Korea, or Japan. What if we just ignore them? Let them do their thing. Isolate them. Shoot down any missiles that are heading towards our airspace or the airspace of our allies. I don’t like that option any better than a military option, but when all the choices are bad, we have to try to determine which ones are less bad than the others.

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Economy

Corker, Rubio flip to Yes votes on tax bill

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Corker Rubio flip to Yes votes on tax bill

Senator Bob Corker, the original lone dissenter to the first variation of the Senate tax bill, and Senator Marco Rubio, the latest dissenter to the upcoming tax bill, have both signaled they will now vote in favor of the bill. It is expected to come up for a vote next week.

There are still three potential holdouts: Arizona’s Jeff Flake, Utah’s Mike Lee and Maine’s Susan Collins. All have indicated they want to read the bill first before deciding. It is expected to be released to the public today.

Rubio, Corker back tax bill as Trump predicts ‘monumental’ reform will pass next week

http://www.foxnews.com/politics/2017/12/15/trump-predicts-monumental-tax-bill-will-pass-next-week-amid-uncertainty-in-senate.htmlThe House and Senate have passed separate tax bills, but they have been working to come up with a final $1.5 trillion GOP tax reform legislation. Final votes are likely in both chambers next week.

As he departed the White House on Friday for a speech at the FBI academy, Trump told reporters he has seen the details of the final version and is confident Republicans will get behind it.

The President’s comments on the bill were short of a commitment to passage. He’s likely waiting to hear from the three GOP Senators on the fence. It will pass easily in the House, but the Senate can only afford two No votes from Republicans in the Senate.

My Take

We need tax cuts and I reserve the right to judge it until it’s fully released, but most indicators so far lead me to believe this will be another populist push by the GOP to get as many wins as possible while upsetting as few people as possible. It’s not the type of tax cut that we really need, but without expansive spending cuts that the GOP has thus far been unwilling to attempt, they can’t cut taxes to the desired level.

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Democrats

Mainstream media is finally talking about Ruben Kihuen because they have no other choice

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Mainstream media is finally talking about Ruben Kihuen because they have no other choice now

Over a week ago, I asked the question, “Why isn’t mainstream media talking about Representative Ruben Kihuen’s sexual misconduct accusations?” Now, it seems like they have to cover him because the House Ethics Committed has launched an investigation into him over sexual harassment allegations.

Unfortunately, the “coverage” of Kihuen, a Democrat, is pretty scant. Politico, which is know for exceptionally long pieces going into every detail of political scandals involving Republicans, dedicated an entire two paragraphs to Kihuen:

Ethics Committee launches investigation into Kihuen

https://www.politico.com/story/2017/12/15/ethics-committee-launches-investigation-into-kihuen-297785The House Ethics Committee launched an investigation into Rep. Ruben Kihuen over allegations of sexual harassment.

The freshman Nevada Democrat is accused of harassing a campaign aide during his 2016 campaign. He denies the allegations and has rejected calls for his resignation.

There’s no need to click through to read the rest of the article because that’s the entire thing.

My Take

I’m not a Republican shill. I’ve actually been pretty betrayed by the GOP for a long time and no longer have affiliation with them. I do, however, believe in fairness in coverage when it comes to the mainstream media. Politico has actually gotten better at this since the election, choosing not to go down the road that so many left-leaning publications have of exposing everything about President Trump and Republicans while glazing over bad news for the Democrats, but this story has been the exception. The appetite for Democratic sex scandals, it seems, has not risen to the point that mainstream media has to cover it more. The only way that can happen is if more people demand it.

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