California Top Court Rules CalPERS Money Manager Raises Illegal
>The California Supreme Court ruled that policies of California Public Employees’ Retirement System (CalPERS) exempting staff from civil service pay grades are illegal. The ruling came in Westly v. CalPERS , according to a news release by State Controller Steve Westly.
“The court has denied past illegal practices, which now will drive us towards organizational and legislative changes to ensure that we have the best staffing and rates of return possible for our retirees,” said Westly in the release.
>The case arose t wo years ago, when CalPERS boosted salaries for about 30 investment managers by as much as 11%, setting the salary range at $88,000 to $105,000. Also increased were stipends for the 13-member board, up to $400 from $300 per meeting , according to a Los Angeles Times report.
Soon after the vote, then-state Controller Kathleen Connell said the board did not have the legal authority to raise the pay and sued CalPERS. The lawsuit charged that the pension fund violated California’s Constitution by awarding pay increases that exceeded state limits for civil service employees. Westly took over the case following his election last fall.
>In January, the 3rd District Court of Appeal ruled against CalPERS and now the state Supreme Court has let the ruling stand. The decision also applies to the California State Teachers’ Retirement System (CalSTRS) .
Reaction
>The nation’s largest public pension fund said the ruling could hurt its ability to compete with private investment firms for top money managers. “This is a significant setback for CalPERS. It really cuts at the heart at our ability to attract and retain the caliber of investment staff that we need,” said Brad Pacheco, a CalPERS spokesman.
Pacheco said managers will keep their current salary through the rest of the year while officials evaluate options.
>One option that came from CalPERS President Sean Harrigan was to ask the $130 billion fund’s Board of Directors, which Westly is a member of, to petition the state legislature for authority to set salaries for investment managers and its chief actuary. “Without legislation, widespread departures of our investment staff are likely, disrupting operations and our ability to attract expert investment and actuarial talent needed to generate superior investment returns,” Harrigan said in a news release.
Harrigan said he will also propose seeking separate legislation to address CalPERS board members’ compensation and legislation to reimburse the state and affected public agencies for the hours board members who are employed by those agencies spend on CalPERS business. Both requests will be made at the board’s next meeting scheduled for May 14, 2003.