Pension Board Reform in California
While on the subject of pension boards in California, it's worth
mentioning a new California bill, <a href="http://www.leginfo.ca.gov/pub/09-10/bill/asm/ab_1551-1600/ab_1584_bill_…; target="”_blank”">Bill
1584</a>, 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.<br>
<br>
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.<br>
<br>
The state comptroller was <a href="http://www.capitolweekly.net/article.php?xid=y9wyyqb4dil9kh" target="”_blank”">quoted
by Capitol Weekly</a> 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.”<br>
<br>
This is a response to the problems that have arisen in New York state
and elsewhere (see <a href="http://www.cityethics.org/node/748" target="”_blank”">blog
post</a> from this May).<br>
<br>
In Los Angeles, the result of this new law has meant the resignation of
some pension board members, according to a recent <a href="http://www.latimes.com/news/custom/topofthetimes/national/la-me-pension…; target="”_blank”">article
in the Los Angeles <i>Times</i></a>. 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.<br>
<br>
For another approach to pension board ethics reform, affecting some
municipal pension funds, see the Illinois Municipal League's <a href="http://pension.iml.org/files/pages/2447/Issue%20Brief%20-%20HB364.pdf&q…; target="”_blank”">summary</a>
of Illiinois' <a href="http://www.ilga.gov/legislation/publicacts/96/PDF/096-0006.pdf" target="”_blank”">2009
Pension Ethics Reform Law</a>, which includes disclosure, conflict, and
ethics training provisions.<br>
<br>
Robert Wechsler<br>
Director of Research-Retired, City Ethics<br>
<br>
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