State Pension Fund Board Fires Director

Amid charges that state Treasurer Jesse M. Unruh had engineered the political takeover of the nation’s largest public pension fund, directors of the $37-billion Public Employees’ Retirement System on Wednesday fired Executive Director Sid McCausland in a surprise action.

McCausland, an independent-minded administrator who had opposed Unruh as well as the Deukmejian Administration on several important issues, was fired, effective immediately, in a 7-6 vote that reflected bitter divisions on the 13-member board.

Each vote on the majority side was cast either by an elected official or an appointee of an elected official. The six losing votes were cast by board members representing state workers.

Lower State Contribution

McCausland, who reportedly was offered a chance to resign two months ago in a private meeting with board members, most recently had bucked the board’s efforts to help balance the state budget by reducing the state’s contribution to the pension fund in the next fiscal year by $404 million.

Just before voting to fire McCausland, the pension board approved the transfer of money--which McCausland called a “raid” on the pension system--in two more 7-6 votes, with the members split precisely the same way as on the firing.

The shifting of funds is backed by Republican Gov. George Deukmejian, whose four appointees on the board were part of the majority voting to fire the pension chief and authorize the transfer.

In 1982, a similar attempt to balance the state budget with pension funds was held to be illegal after a suit was filed by the California State Employees Assn.

After the board action Wednesday, McCausland, who once worked for Unruh as an assistant state treasurer, said, “Jesse Unruh wants Wall Street to know that he controls a $37-billion investment portfolio and if you want to do business in California, you better contribute to his campaign fund, because he only has time to do business with his friends. I have been thwarting his effort for 2 1/2 years.”

Unruh is a one-time Speaker of the state Assembly who gave up his powerful Assembly post in 1970 to run unsuccessfully for governor. Since his election as treasurer in 1974, Unruh has been keeping a low political profile, trying to live down his image as a political boss once widely known as “Big Daddy,” a nickname owed to both his physical girth as well as the power that he wielded in the Legislature. He is running for reelection this year and has amassed a $1.6-million campaign treasury.

An aide said Unruh was traveling on the East Coast and was unavailable for comment. Voting in Unruh’s place was the treasurer’s chief counsel, Tom Aceituno. He declined to comment on reasons why Unruh wanted McCausland out. “I do not wish to discuss publicly the problems that we had with Mr. McCausland,” he said.

Governor’s Appointees Hit

In addition to criticizing Unruh, McCausland also claimed that the governor’s appointees on the board joined in the action against him because they want a more pliant administrator running the pension fund. It is up to the 13-member board to select a replacement.

“The purpose of today’s action was to convince all future applicants for the executive director’s job that the Department of Personnel Administration is in charge of the benefit program and the state treasurer is in charge of the investment program,” the fired executive said.

James Mosman, the director of the Department of Personnel Administration, is one of the Deukmejian appointees who sits on the board. He seconded the motion to fire McCausland but said he was not influenced by either the governor or Deukmejian’s chief of staff, Steven A. Merksamer, to whom he reports on a daily basis.

Mosman, who negotiates state employee contracts for the Deukmejian Administration, said McCausland had made “erroneous representations” to the board, but he declined to be specific. “We just no longer had confidence that he could serve the board,” Mosman said.

Mosman and others argued that the transfer of funds was made possible by the good financial health of the pension system. Under McCausland’s oversight, the system’s investments generated a return of 35.7% in the 12 months ending last March 31, thanks in large part to a surging stock and bond market. There was general agreement Wednesday that the transfer would not jeopardize the solvency of the pension fund and would have no effect on state employee retirement benefits.

Motion Made by Cory

The motion to fire McCausland came from lame-duck state Controller Ken Cory, a one-time Unruh protege who gave no reason for the firing other than that McCausland had “lost the confidence of the board.”

Cory hastily left the board meeting after the vote.

Also casting a vote against McCausland and arguing for his firing was Madale Watson, who serves as an appointee of Senate and Assembly Democratic leaders and who is listed as a paid campaign worker for Unruh on his election filings with the secretary of state’s office.

The votes to transfer money from the pension fund and the one to fire McCausland generated an angry reaction among public employee union representatives.

A number of retired employees urged the board not to act on McCausland, claiming that the action was legally questionable because no formal notice had been given and the issue had not been published on the board meeting agenda.

Charles P. Valdes, an official of the California State Employees Assn. who sits on the pension fund board as a representative of retired state workers, said the firing was inspired by purely “political motivations.”

Valdes said state workers will give serious consideration to going to the voters with a ballot initiative that would add another public employee member to the board, thus giving his side seven members and neutralizing the present majority.

Ed Maghakian, representing the Coalition of Retired Employees, made up of retired California Highway Patrol officers, state firefighters and other state workers, said the votes were so cleanly divided that it raised questions about the ability of the board to act in the members’ interest. He called the firing a “farce.”