Tighter Rules Sought for Pension Board

State lawmakers are preparing legislation that would stop private lobbying of the trustees of the country’s largest public retirement system by those seeking investments from the fund.

State Sens. Adam Schiff (D-Burbank) and Tom Hayden (D-Los Angeles) said they are drafting bills to prevent board members of the $128-billion California Public Employees’ System (CALPERS) from meeting privately with anyone who has a deal before the board.

The legislators revealed their plans after a Times series this week detailing outside influences on the 13-member board, which is regularly courted by contractors, money managers and investment firms that do business with the pension fund.

The series revealed that several board members have taken advantage of loopholes in state restrictions on gifts to travel the world at the expense of firms that do business with pension systems. Others have collected campaign contributions from pension fund contractors.

The stories also described instances in which the board made investment decisions against the advice of its professional staff and consultants after outside contact with company officials who stood to make millions from board actions. A 1991 statute prohibited board members from making such contacts, according to its author. But CALPERS attorneys contend that the no-contact rule only applies to competitively bid contracts, not individual investment decisions.

Officials at CALPERS, which provides pensions or benefits to 1 million government workers and retirees, say they have stayed within the law and normal business practices.

As Schiff and Hayden look ahead to legislation and hearings on public pension fund practices, federal investigators are continuing an inquiry into CALPERS and the $80-billion State Teachers’ Retirement System.

This week, the FBI contacted a CALPERS board member for an interview--at least the third present or former board member to be approached by an agent from the bureau’s Sacramento office. In response, the board’s chief executive officer, James E. Burton, faxed a confidential memo to trustees, advising them that they “are under no legal duty to agree to be questioned” by the FBI and would only have such a duty if they “receive a subpoena to testify before a grand jury.” Burton asked board members who decide to speak to the FBI without a pension fund attorney to “let me know what occurred in the conversation. I also urge you to consider and take steps to protect the confidentiality of those CALPERS business issues that are, in fact, confidential.”

On Wednesday, CALPERS spokeswoman Patricia Macht said, “This is nothing more than the CEO, on advice of his general counsel, listing out the board members’ responsibility, their alternatives and their constitutional rights.”

Schiff, who is a former federal prosecutor, said the letter is similar to what private corporations send to employees when they are investigated by outside agencies.

He said it was “new to my experience” in the case of a public entity. “You expect in the preface to a letter like this a preference and a willingness to cooperate,” he said.

Schiff, who chairs the Senate Public Employment and Retirement Committee, noted that Burton and his staff had cooperated fully with a committee hearing last summer that took a critical look at pension fund practices.

After that hearing, the CALPERS board agreed to make most, but not all, of its investment decisions in public and to make transcripts and minutes of its executive sessions available within 12 months. However, the board has been unable to agree on a policy that would require full disclosure of meals, gifts and campaign contributions from those who do business with the board.

Schiff said he will introduce legislation later this month that will affect board conduct in several areas: the reporting of campaign contributions, the openness of its meetings, outside contacts with those seeking board business and the way that six of its members are elected by the system’s beneficiaries. “People need to have confidence in the management of their retirement portfolios,” the lawmaker said. “I want to make sure what we do in the Legislature serves to increase that confidence and ensures there are adequate safeguards out there.”

Hayden, who is working on legislation of his own, said he wants “some kind of prohibition on the role of money in influencing the process. Where a potential bidder for pension funds is also a contributor to an elected official who is also on the board, that should be prohibited.”

He said he would also like “an airtight prohibition on meetings between board members and those trying to win their attention. I think that’s what the law already says, but it should also be made more airtight.”

The law in question, which was authored by former Democratic Assemblyman Dave Elder, imposed no penalties for violating the no-contact rule--an issue that Hayden said he will try to address.