CalPERS to Seek Legislation to Set Salaries for Top Investment Professionals.

Business Editors

SACRAMENTO, Calif.--(BUSINESS WIRE)--May 1, 2003

The California Public Employees' Retirement System's (CalPERS) President Sean Harrigan announced today he will be asking that the pension fund's Board seek state legislation to give CalPERS authority to set salaries for its investment managers and its chief actuary.

The proposal will be presented to the CalPERS Board at its May 14th meeting and follows the resolution last week of a court ruling in Westly vs. CalPERS that state public pension systems' constitutionally-derived powers do not include personnel related actions. In the case of CalPERS, the ruling applied to the setting of competitive salaries for approximately 30 senior investment managers and its chief actuary.

"Our members deserve to have their money managed by qualified professionals," said Harrigan. "The security of our pension investments is being threatened because of a legal ruling that negates our authority to set salaries. 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."

CalPERS further believes that if the ability to set salaries for investment managers is stripped away from the Board's authority, CalPERS beneficiaries, the State, and ultimately California's taxpayers will be adversely impacted.

"California's taxpayers will suffer without this legislation," added Harrigan. "The State cannot today afford the risk of departures by key professional staff responsible for day-to-day management of the fund. If we are unable to retain in-house investment professionals, we will be forced to solely rely on high priced outside investment managers to run this fund. Those costs will ultimately be borne by the taxpayer."

According to a study performed by Cost Effectiveness Measurement (CEM) Inc., CalPERS in-house investment professionals added $12 billion in added value to CalPERS investment portfolio.

There is no immediate detrimental effect to CalPERS by the court resolution. Affected staff have been placed into legally permitted temporary positions for nine months while the legislative solution is being sought.

"We look forward to working with the Legislature, the Controller's Office, and other interested pension systems that may be affected by the court ruling," said Harrigan.

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.

The need for court clarification arose in January 2001, when CalPERS used its constitutional authority to set salaries for investment managers, set board member meeting fees and reimbursement levels beyond existing state law. Last week, the Supreme Court let stand a ruling by the Court of Appeals and the Sacramento Superior Court that said CalPERS constitutional authority does not extend to matters of personnel.

CalPERS is the nation's largest public pension fund with assets totaling more than $130 billion. The System provides retirement and health benefits to 1.3 million State and local public employees and their families. For more information on CalPERS, go to www.calpers.ca.gov.