Pension Board Reform in California

While on the subject of pension boards in California, it's worth mentioning a new California bill, Bill 1584, signed into law on October 18. It is an amendment to the County Employees Retirement Law of 1937 (Section 22212.5 of the Education Code, Sections 20098 and 31528 of the Government Code, with the addition of Sections 7508.5, 7513.8, 7513.85, 7513.9, and 7513.95 to the Government Code), which prohibits a member or employee of a retirement board from becoming an endorser, surety, or obligor on, or from having any personal interest in the making of an investment for the board, or in the gains or profits that accrue from those investments, except as specified. That law also prohibits a member or employee of a retirement board or board of investments from selling or providing any investment product that would be considered an asset of the retirement fund to a retirement system established under that law.

The new bill deletes the absurd qualification that the person have served in that position for less than 5 years. The bill adds a postemployment restriction, which already applies to state pension funds, and requires retirement boards to develop and implement a policy requiring the disclosure of payments to placement agents. Then any placement agent who violates this policy may not solicit new investments from the system for 5 years after the violation was committed. And each placement agent has to disclose to the board all campaign contributions made by the placement agent to any elected member of the board, and all gifts given to any member of the board, during the prior 24-month period, and to disclose any subsequent campaign contribution or gift made during the time the placement agent is receiving compensation in connection with a retirement system investment.

The state comptroller was quoted by Capitol Weekly as having said, “The lack of transparency and ethical standards governing influence peddlers was an invitation for corruption. AB 1584 ensures that public pension funds do not become pay-to-play ATMs for the unscrupulous.”

This is a response to the problems that have arisen in New York state and elsewhere (see blog post from this May).

In Los Angeles, the result of this new law has meant the resignation of some pension board members, according to a recent article in the Los Angeles Times. Although he is a film producer, one board member who resigned acts as a consultant to an investment firm that invests some of his board's pension funds. A second member of the L.A. board left due to the new state law, two other board members resigned in May after receiving inquiry letters from the Securities and Exchange Commission (one, the board's chair, is a past president of the California Public Employees’ Retirement System), and another resigned after violating a city campaign finance law.

For another approach to pension board ethics reform, affecting some municipal pension funds, see the Illinois Municipal League's summary of Illiinois' 2009 Pension Ethics Reform Law, which includes disclosure, conflict, and ethics training provisions.

Robert Wechsler
Director of Research-Retired, City Ethics

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