Dec 7, 2009
Alfred Villalobos, a former board member of CalPERS, the California state workers pension fund, made more than 70 million dollars in seven years acting as a middleman between CalPERS and certain companies in which CalPERS invested.
The Los Angeles Times reported about the huge “fees” Villalobos pocketed in a tone of shock – although, of course, this could not have happened, for years, without the open knowledge and approval of the officials who manage CalPERS.
Behind this obvious case of corruption, there is a more basic problem. Many of the investments that went through Villalobos were highly risky. Such risky investments caused CalPERS to lose 60 billion dollars last year alone. So, why did CalPERS’ managers gamble so much of the state workers’ money, set aside for their retirement, in high-risk bets?
It’s because, on paper, such investments made it look like CalPERS had a lot of surplus money. But when the financial markets went down last year, a big chunk of those billions disappeared into thin air.
Behind these paper figures, however, there is a grim reality. Local governments and the state of California have been underfunding CalPERS for years. As of last summer, for example, CalPERS had only about $2 on hand for every $3 it has to pay monthly to retirees.
CalPERS is not alone. According to the Pension Rights Center, state and local governments in the U.S. fund only about 20% of what they have promised to their retirees.
Local government officials in California still continue to skirt their obligation to fully fund pensions – especially now that they can blame it on the state budget cuts – and state politicians, in turn, use the economic downturn as an excuse. And CalPERS officials go along with it. Last summer, CalPERS asked California municipalities to increase their contributions 1.1% only – much less than what’s needed for full funding.
Instead, to cover for their losses, CalPERS managers are even today resorting to the same kind of high-risk investments that have already cost the fund dearly.
The workers’ money, supposedly set aside for their retirement, is ending up in the pockets of thieves who call themselves entrepreneurs, go-betweens and politicians.