Pension Officials Warn Business Leaders : Budget: Board members of CalPERS tell executives that they face economic reprisals if they continue to support plan to use retirement funds to reduce deficit.
Six officers of the huge California Public Employees’ Retirement System, which invests billions in corporate stocks, bonds and real estate, have warned corporate officials that they face “economic sanctions” if they do not back away from a fight to cut retirement benefits for public employees.
The warning was contained in a letter that was said to be causing widespread concern Tuesday among business leaders because of the muscle that CalPERS can wield with its $62.4-billion investment portfolio and about 900,000 active and retired members. It is the nation’s largest public pension system.
Gov. Pete Wilson, after emerging from a meeting on the pension issue with Senate Democrats, said the authors of the CalPERS letter “have been guilty of outright extortion.”
Franz Wisner, a Wilson spokesman, said: “The letter is an indication of what is wrong with PERS, it shows how politicized it has become. . . . Here you have a supposedly nonpolitical group that is making threats with taxpayers’ money.”
Wilson is pressing for legislation that would replace the 13-member board with a nine-member board, five of whom would be appointed by the governor.
Wilson wants to take $1.6 billion in CalPERS investment earnings and use the money to help reduce the state’s $14.3-billion deficit and provide funds for schools, cities and counties.
CalPERS officials said this represents a raid on critical funds because the money that Wilson has targeted is used to supplement benefits for retirees to help them keep pace with the cost of living. They say that only if Wilson agreed to find an alternative way to fund members’ losses would CalPERS be willing to share its resources with the state.
The letter dated June 4 and released Tuesday by Wilson’s office is directed at business members of the California Taxpayers Assn., a research and lobbying group, for a study that provided ammunition to Wilson in his effort to reduce retirement benefits. The group considers the retirement benefits to be excessive and sees reductions as an alternative to raising taxes.
Cal-Tax officials have said that the organization has already lost one of its 900 members, Occidental Petroleum Corp., because of the sanctions threat and that many others are nervous. An Occidental spokesman confirmed Tuesday that the oil company pulled out of Cal-Tax three days after the letter was sent, but refused to comment on the reasons.
Signed by six public employee members of the retirement system’s board of directors and sent to 63 top corporate executives, the letter attacks the corporations for their Cal-Tax memberships.
It refers to a critical Cal-Tax study of the state’s pension system that was completed in March as “a scurrilous attack” and compared the business group to “a pit bull dog, trained to attack public employees.”
The letter said that a large number of CalPERS members are so angry with the taxpayers group “that they are considering organizing economic sanctions against corporations supporting Cal-Tax.” The letter did not specify the actions the CalPERS directors might take if the corporations do not come around, or what is meant by economic sanctions. However, they could include pulling pension investments out of the firms or issuing calls for a member boycott.
“As fiduciaries charged with protecting the pensions of our active and retired members, we must share with you our concern that the profitability of your corporation could be negatively impacted by any protracted economic sanction as to reduce the marketability of your corporate equity and debt,” the letter said.
It concluded by urging the corporate officials to promptly investigate what the pension board members call a “serious public relations problem” and share “with us your plans for dealing with the potential harmful economic sanctions and your continued sponsorship of the Cal-Tax organization.”
Those words are being read widely as a clear-cut threat to corporations--and represent an escalation in the continuing effort by big pension funds such as CalPERS to get involved in corporate decisions. Using its huge blocks of stock in corporations as leverage, CalPERS has joined other major pension funds in attacking excessive corporate salaries and benefits, lack of public accountability by corporations and other issues in a campaign for “shareholders rights.”
The board’s only constitutionally elected members, state Treasurer Kathleen Brown and Controller Gray Davis, did not sign the letter.
Davis said he was asked to sign the letter, but declined because he felt it was “an inappropriate communication.”
Both Davis and Brown, while putting distance between themselves and the letter, said they were strongly opposed to the move by Wilson to take over CalPERS.
Asked about specific action being contemplated, one signer of the letter, Charles Valdes, a lawyer and former president of the California State Employees Assn., said:
“For example: A major bank is before us here and they can’t get capital from savings and loans, insurance companies. The well has dried up. And they want us to fund them with a loan so they can provide the developers with money to build single-family homes, something we’d like to do because affordable single-family homes is something our members would certainly be very much interested in.
“Well, one has to wonder . . . why should we be doing business with a group that is also funding another group that is trying to destroy our retirement system? . . . Why would I cast my vote for a corporation that funds a group that is attacking our system?”
