Trips, Perks for State Pension Fund Trustees Raise Questions
The custodians of the nation’s largest public pension fund travel the world. To England, Japan and Australia. To Finland, Italy, Poland and France. And across the USA.
But trips by trustees of the California Public Employees Retirement System, which controls $128 billion in assets, are often underwritten by those who do business with the fund, prompting questions about the independence of the board members.
The subsidized travel is just one example of a pattern of financial and personal entanglements with contractors and others in the pension fund industry.
Records and interviews show that some board members have also accepted gifts, solicited campaign contributions and engaged in other activities that create an appearance of conflict of interest.
CALPERS officials say that they are careful to stay within the state conflict-of-interest laws and normal business practice.
However, critics question whether these trustees and executives have been swept up in the world of high finance and high living while forgetting that their only purpose is to oversee the pensions and benefits of 1 million government employees and retirees.
A Times review found that:
* When two board members attended a conference in Eastern Europe this summer, their expenses were paid with fees collected by a business from pension fund money managers, who have a stake in board decisions.
* State Treasurer Matt Fong, a CALPERS board member, organized a tour of Asia for pension officials a year ago. The trip was financed by $350,000 collected from CALPERS contractors as well as other corporate sponsors.
* Many board members and CALPERS executives accept free meals and tickets from private interests. And some play in an annual charity golf tournament--with their individual $500 entry fees picked up by CALPERS real estate consultants.
* One longtime trustee heads the board of a charity that uses his name to solicit funds from those doing business with the state pension system.
* And the board president raised money in the 1994 gubernatorial race for Democratic candidate Kathleen Brown, asking “everyone I know” to contribute, including CALPERS money managers and business partners.
Chief Executive Officer James E. Burton said travel, meals, golf and one-on-one discussions with those doing business with CALPERS are important for staff and board members. “Frankly we have a world-class portfolio here,” Burton said. “We need to avail ourselves of the knowledge that comes from general conversation, from relationship building, [from] the insight into market forces. . . .
“It is hard for me to sit here and say it is absolutely necessary for us to function,” he said. “I’d be lying if I said that. On the other hand, I see nothing that is inappropriate in it. It’s not illegal and I think it serves to the benefit of the system.”
But a few board members believe that the subsidized travel and gratuities from the pension industry are excessive. They have joined outside critics in proposing reforms.
“There is no justification for these trips,” said state Controller Kathleen Connell, who is one of the CALPERS board’s 13 members. “We have [investment] advisors. . . . You don’t need to go out to expensive conferences and trips abroad or around the country.”
Trip to Europe
In September, two CALPERS board members, Dr. Thomas Clark and Robert Carlson, spent a week at a conference in Warsaw and Prague put on by a business called Pensions 2000.
The agenda included receptions at U.S. embassies as well as a walking tour of Prague and visits to Krakow and Auschwitz. There were also stirring speeches by Poland’s former president, Lech Walesa, and the then-prime minister of the Czech Republic, Vaclav Klaus, pleading for investments in their economies.
Among those speaking were a few CALPERS contractors, who paid to attend.
Pensions 2000 President Philip A. Schaefer said fees from such money managers underwrote the conference but they were forbidden from pitching specific investments. He said the fees were less than $50,000 per firm.
Although CALPERS paid the $500 registration fees for Clark and Carlson, records show that Pensions 2000 paid more than $8,000 for their lodging, air fare and meals.
Before the trip, Carlson said that travel helps the board learn about attractive overseas investments. “We’ve been the leader in the U.S. and around the world in operating pension funds,” said Carlson, retired general counsel of Caltrans, who has been on the CALPERS board for 27 years. “It takes a global perspective. . . . We can’t have a klutz on the board who is empty-headed.”
After the trip, Carlson and Clark produced an enthusiastic report urging investments in Poland and the Czech Republic. But the CALPERS staff dismissed the proposal, pointing out that advisors recommended against putting money in either country.
Free Travel and the Law
Loopholes in state conflict-of-interest laws have allowed pension officials to travel the world at the expense of others.
In the last three years, records show, about a third of the 112 foreign and out-of-state trips taken by CALPERS board members were subsidized entirely or in part by private interests, often companies that do business with CALPERS or would like to do so.
State officials are prohibited from accepting gifts valued at more than $290. But travel costs are exempt when officials deliver a speech or when the travel amounts to “a gift to the system,” not to the individual.
Robert M. Stern, co-director of the Center for Governmental Studies in Los Angeles, said the exemptions have been abused by state officials and ought to be reexamined. “People are very creative about getting around things,” he said.
CALPERS chief Burton said he had no problem with accepting free travel from companies such as Pensions 2000. “When we think there’s a legitimate gift to the system,” he said, “we’re not going to waste system assets and pay for it ourselves.”
Board critic Charlie Oates, a retired Torrance police officer and a longtime CALPERS gadfly, argued that it is wrong for the trustees to accept trips and other gifts. “Morally it is improper, and I think it is illegal,” said Oates, who has tracked board travel.
When Connell joined the board in 1995, she said she was astonished at the extent of out-of-state travel at CALPERS--much more than at the State Teachers Retirement System, of which she is also a member. She began voting routinely against all out-of-state trips.
Responding to Connell’s concerns, the board adopted a new travel policy and the trips dropped off, but only briefly. Last year CALPERS trustees took 13 overseas trips and 29 to other states. That is far more than their counterparts at the teachers’ fund, which limits the number of out-of-state trips.
Most of the trips involved board Vice President Charles P. Valdes, Carlson and President William Dale Crist, who calls the shots on board travel. “I send the person who is going to do the best job,” he said. “Some are better at representing the board than others.”
Gifts of Golf
For several years, CALPERS real estate consultants have been paying entry fees for pension fund staff and board members to join them at a golf tournament to benefit the Special Olympics and research on a rare growth disorder.
Because most of the $500 entry fee goes to charity, it is exempt from the state’s $290 gift limit.
CALPERS Chief Executive Officer Burton, who plays in the tournament, said employees must go on their own time and report the estimated value of the green fees and meals--about $150 last year. “The real issue for me is, is this a valid public purpose?” he said. “I think we are helping this community dramatically with that charity.”
But CALPERS critic Oates said: “They get free green fees; they ride in a free cart; they eat free food; and it’s all hosted by people who they do business with. Isn’t that wrong?”
Documents show that some trustees and staff members regularly accept meals and tickets to sporting events and the theater from private interests.
Connell complained that CALPERS contractors were footing the bill for dinners after the board’s monthly meetings. The dinners stopped in 1995, but records show that some trustees continue to accept meals. In December, several were treated to lunch in Sacramento by a consultant.
State rules allow officials to accept gifts under $290, as long as any of $50 or more are reported.
However, a 1993 CALPERS legal opinion argues that trustees may be held to a tougher standard. California common law “contains no dollar ceiling for meals, entertainment, or gifts before a conflict may be found,” the opinion warned.
Robert Fellmeth, who heads the Center for Public Interest Law in San Diego, said: “They should take nothing from nobody. Zero. Zilch. Nothing.”
Ties to Charity
The Robert A. Toigo Foundation sponsors scholarships for women and minorities at prestigious business schools. And when the foundation sends out fund-raising letters, they are signed by CALPERS Vice President Charles P. Valdes.
Valdes is also president of the charity, named for the late founder of the Institute for Fiduciary Education, a for-profit firm that organizes conferences for pension board members. The charity is housed in the company’s Sacramento office--and Toigo’s widow, Sue, who is chairwoman of the company, is also a member of the charity’s board.
In fiscal 1996, records show, the nonprofit took in more than a half million dollars in contributions. Many firms doing business with CALPERS have given up to $10,000 each, according to a donor list.
Valdes contends that he has little to do with the solicitation letter. “I never sign it. I never see it done at all. It is a mass thing,” he said.
He said he is not influenced by contributions made to the charity but acknowledged that some contributors make him aware of their generosity. “I go to meetings, where there are people who remind me they have contributed to the scholarship fund,” he said.
Trade Mission to Asia
When Fong organized a trade mission to the Far East, he invited trustees from CALPERS and six other systems representing more than $234 billion in assets.
To subsidize the January 1997 trip, Fong and his staff worked with the Rose Institute, a nonprofit foundation at Claremont McKenna College. According to institute Director Alan Heslop, seven corporate sponsors each paid $50,000 to finance the trip to Hong Kong, Taipei and Shanghai.
All seven companies do business with either CALPERS or the treasurer’s office, and each sent representatives along, giving them ready access to pension officials.
The institute covered the $22,566 in costs for board President Crist, Vice President Valdes and Chief Investment Officer Sheryl Pressler.
Fong, a Republican who used $5,763 in campaign funds to reimburse the institute, said he is careful not to let money influence his decisions as a public official.
“The bottom line is if Sheryl Pressler as chief investment officer says this [investment] doesn’t pass muster, as far as I’m concerned, it doesn’t pass muster,” he said.
Trustees Raise Political Money
In their runs for elective office, Fong and Connell have raised campaign money from those doing business with CALPERS and the State Teachers Retirement System, where they also serve. The Times has reported that Connell collected more than $350,000 and Fong collected more than $150,000 since January 1994.
CALPERS President Crist has also raised campaign money from the pension industry. As chairman of the political action committee of the California Faculty Assn., he supported a fellow CALPERS board member, state Treasurer Kathleen Brown, in her unsuccessful race for governor in 1994.
Several sources say Crist solicited campaign money for Brown from individuals who do business with CALPERS. And Brown’s campaign records show that she received at least $150,000 in contributions from these contractors.
“I raised a lot of money for Kathleen Brown,” said Crist, a Cal State economics professor. “I might have asked people who do business with CALPERS. I asked everyone I knew. . . . I always tried to be clear I was speaking as the faculty association person.
“I don’t think you should use any sort of pressure other than the sweet reasons I used, which was [that] the university was going to be in trouble if we reelected Pete Wilson,” he said.
Under state laws, officials are not prohibited from asking for campaign contributions from those doing business with their agency.
Stern, who helped draft the state’s conflict-of-interest laws, noted that members of the Coastal Commission and other land use planning boards are required to abstain from decisions if they have solicited campaign contributions of $250 or more during the previous 12 months from applicants. A similar rule, he said, ought to apply to CALPERS and other boards whose actions can have a financial impact on contributors.
Reforms Proposed
Fong and Connell have called for a new board policy that would require anyone seeking a contract or other financial commitment from the board to disclose all gifts, charitable donations and campaign contributions to any pension system board or staff member. They would also be required to disclose payments to elected officials who appoint members to the board: the governor, the Assembly speaker and the Senate president.
But at a November board meeting, neither could muster the support needed for expanded disclosure policies. Fong and Connell have asked fellow board members to reconsider the issue this month.
However, board member Michael Flaherman, who has also been pushing for new rules, said in an interview: “I intend to achieve the same results by inquiring about [potential conflicts] whenever investment managers and contractors come before the board to be hired.”
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CALPERS Board Travel
Members’ travel overseas and to other states
The board of the California Public Employees’ Retirement System travels in pursuit of investment information--trips that critics regard as junkets, but trustees defend as necessary. In contrast, the board members at the State Teachers’ Retirement System leave the state far less often.
Number of trips by board, per year
Public Employees’ Retirement System
State Teachers’ Retirement System
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Top CALPERS board travelers
Three CALPERS board members account for most of the trips outside of California--William D. Crist, president of the board; Charles P. Valdes, chairman of the fund’s investment committee; and Robert F. Carlson, the senior member of the board.
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Other states Foreign Some destinations Charles P. Valdes 40 11 Japan, Hong Kong, Singapore William D. Crist 35 15 Paris, Hong Kong, Australia Robert F. Carlson 16 8 Prague, Warsaw, Paris
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Sources: Public Employees’ Retirement System, State Teachers’ Retirement System and State controller’s office records
