Amara Maple
A scathing new report, commissioned by the Retired Public Employees’ Association of California (RPEA), has cast a critical spotlight on CalPERS, the nation’s largest public pension fund with assets valued at $630 billion. The investigation concludes that CalPERS is paying its executives "top-tier compensation for bottom-tier performance" and is mired in chronic underperformance, ranking near the lowest echelon of public pension funds across the United States. The report, a historic crowdfunded effort, asserts that with proper fiduciary discipline and transparent reporting, the fund’s assets could plausibly exceed $1 trillion today, rather than languishing in its current state.
Underperformance and Exorbitant Executive Salaries Unveiled
The core findings of the report paint a troubling picture of mismanagement and misaligned incentives within the California Public Employees’ Retirement System. According to the analysis, CalPERS’ return on investment places it in the bottom 15 percent of all 230 U.S. public pension funds. This abysmal performance stands in stark contrast to the remuneration package received by its leadership. The report details that four CalPERS executives earn more than $1 million annually, another four exceed $900,000, and a further 26 receive between $500,000 and $900,000. These figures position CalPERS executives among the highest-paid government officials in California, dwarfing the Governor’s annual salary of $245,929. The report argues that such excessive compensation for demonstrably poor results would be unthinkable in the private sector, where performance directly dictates tenure and pay.
The financial health of CalPERS is crucial for over 2 million California public employees, retirees, and their families. Its massive scale means that any significant underperformance or misallocation of funds has widespread implications for the state’s fiscal stability and the retirement security of a substantial portion of its workforce. The report’s contention that the fund could have reached $1 trillion underscores the profound opportunity cost of its current operational model.
The Illusion of Transparency: "Performative Transparency" Challenged
CalPERS has long maintained that it is the "most transparent pension in America," a claim vehemently challenged by the new report. The investigation labels CalPERS’ approach as "performative transparency," arguing that the fund has a history of resisting public records requests and actively lobbying against expanded disclosure requirements. This alleged opacity is particularly acute concerning critical investment documents, including private equity contracts, detailed fee schedules, and valuation data, which the report states are aggressively withheld.
In an interview, Marcie Frost, CEO of CalPERS, was quoted stating that the fund "is not sharing the limited partnership agreements…private markets are private for a reason." This stance, as highlighted in the report, epitomizes the challenge faced by those seeking accountability. The report further asserts that CalPERS has "massively misrepresented" total investment fees, particularly for its private equity holdings, suggesting these costs may be two to three times higher than publicly disclosed. This echoes similar findings in other states. Edward Siedle, the report’s author, recounted his experience in Minnesota where, following his investigation, the state’s pension fund increased its disclosed fees by 400 percent, and then another 400 percent the following year, after initially claiming it was "impracticable to determine" the fees. Such discrepancies raise serious questions about the accuracy of CalPERS’ financial reporting and its commitment to genuine transparency.
Governance Failures and Politically Shaped Boards
A significant portion of the report focuses on structural weaknesses within CalPERS’ governance. It describes the CalPERS board as "politically shaped, underqualified, and structurally unable to oversee a $556 billion portfolio dominated by opaque private-market assets." A critical observation is that board members are not mandated to possess any financial or investment expertise. This lack of specialized knowledge leaves the board heavily reliant on recommendations from pension staff and external Wall Street advisors, relationships frequently fraught with potential conflicts of interest.
The report specifically mentions CEO Marcie Frost, noting her educational background of a high school diploma and a past controversy surrounding her qualifications. While individual qualifications are not the sole measure of leadership, the report juxtaposes this with CalPERS’ position as the world’s largest public pension, questioning whether this represents effective leadership, especially given the fund’s poor performance. Siedle, drawing from his extensive experience across the country, generalized this issue, stating that public pension board members are often regarded on Wall Street as "the dumbest investors in the room," making them susceptible to products "specifically designed for these unregulated dumbest investors in the room market." This creates an environment where boards may have "no idea where their money is being invested, what the performance is, what the fees are, what the costs are."
Furthermore, the report delves into the politicization of investment decisions. Siedle, author of the book "Who Stole My Pension?", argues that public pensions often make decisions not based on investment merit, but on political factors. Both political parties, he contends, benefit from the prevailing lack of transparency and leverage public pension assets to further their political agendas. This creates a system where the most lucrative investment contracts are subject to political sway, potentially enriching specific entities at the expense of beneficiaries.
The Regulatory Vacuum and the Call for an Independent Inspector General
Perhaps one of the most striking revelations of the report is the profound regulatory gap surrounding CalPERS. It highlights the "remarkable" fact that no federal nor state regulator, nor law enforcement agency, actively monitors CalPERS. This absence of oversight creates a fertile ground for complex investment structures and opaque fee arrangements to proliferate without adequate scrutiny or enforcement. The report bluntly concludes: "This is not a technical failure; it is a governance failure — plain and simple. Until there is accountability, the massive losses will continue, paid for by the very people the system was created to protect."
To address these systemic issues, the report’s primary recommendation is the establishment of an Independent Inspector General (IG) for CalPERS. This IG would be empowered to investigate misconduct, enforce transparency, review benchmarks and valuations, and protect beneficiaries from conflicts of interest. The RPEA has actively proposed such an independent body, only to see it "shot down," indicating a significant resistance to external oversight from within the political establishment. This resistance, coupled with leaked 2024 records revealing a coordinated, aggressive, preemptive, secretive effort among pension officials and unions in California, Minnesota, New York, Ohio, and Rhode Island to block independent forensic audits, suggests a broader systemic issue across public pension systems.
The Whistleblower and the "Pension Fight Club"
The investigative report was authored by Edward Siedle, a highly respected whistleblower lawyer and owner of Benchmark Financial Services. Siedle is a former Securities and Exchange Commission (SEC) enforcement official with a distinguished track record in corporate crime circles. He is renowned for securing two of the largest whistleblower awards to date: $50 million in 2018 for information leading to JPMorgan Chase paying the government $267 million to settle conflict-of-interest charges, and a $30 million CFTC whistleblower award for his contribution to the same settlement.
This comprehensive investigation into CalPERS is not Siedle’s first foray into public pension scrutiny. The report is part of a larger, crowdfunded initiative chronicled in the upcoming 90-minute documentary, "Pension Fight Club." The film follows Siedle’s journey since 2013, as he conducted forensic investigations across various U.S. states, progressively tackling larger funds. His initial investigation in Rhode Island involved an $8 billion state pension fund, followed by North Carolina’s $100 billion fund, and then Minnesota and Ohio, culminating in this deep dive into CalPERS, the largest at $600 billion. This chronological approach underscores a consistent pattern of issues identified across diverse public pension systems.
Siedle’s work highlights a radical shift in transparency over the past 25-30 years, coinciding with the introduction of "alternative investments" like private equity, private credit, and real estate into public pensions. He notes that three decades ago, obtaining operative investment documents from any public pension was routine; today, it is virtually impossible, as the alternative investment industry "refused to be transparent." He states, "No public pension in America will make these documents available. You can ask. And I have. You can sue. And I have. But you will not get these documents." This fundamental lack of access means that even with sophisticated financial models, it is often unclear where funds like CalPERS are truly investing their money, the actual risks involved, and the full extent of fees paid.
Public vs. Private Pensions: A Tale of Two Regulatory Frameworks
The report and Siedle’s insights draw a crucial distinction between public and private pension funds, illuminating a critical regulatory disparity. The roughly $6.5 trillion held in public pension funds across the U.S. operates under an entirely different framework than the approximately $14 trillion managed by private pension funds. Private pensions are governed by the comprehensive federal Employee Retirement Income Security Act of 1974 (ERISA), which imposes stringent fiduciary standards and disclosure requirements.
In contrast, public pension funds – state, city, and county pensions – are explicitly exempt from ERISA. They are instead subject to a "patchwork quilt of state statutes" that, according to Siedle, often fail to provide clear answers or keep pace with the evolving complexities of the money management industry. This regulatory vacuum is particularly problematic when public pensions invest heavily in opaque alternative assets. Siedle pointed out that if one wanted to know, for example, whether a pension fund in Shelby County, Tennessee, could invest in a hedge fund that invests in other hedge funds, "there is no answer in law." This legal ambiguity, combined with the lack of expertise on many public pension boards, creates an environment ripe for the issues detailed in the CalPERS report.
Broader Implications and the Path Forward
The findings regarding CalPERS are not merely an indictment of one institution but serve as a stark warning about systemic vulnerabilities within the broader public pension landscape. The issues of underperformance, excessive compensation, lack of transparency, governance failures, and political influence resonate across many state and local pension systems that lack comprehensive federal oversight.
The continuous underreporting of fees, the opaque nature of private market investments, and the resistance to independent audits collectively pose a significant threat to the retirement security of millions of public employees nationwide. The report’s conclusion—that CalPERS is "incapable of reforming itself" due to entrenched interests benefiting from the status quo—underscores the urgent need for external intervention. Without an empowered independent oversight body and a renewed commitment to genuine transparency, the "massive losses" borne by beneficiaries are likely to persist, further eroding public trust and potentially straining state budgets tasked with backstopping these critical funds. The call for an Independent Inspector General is a critical step towards re-establishing accountability and safeguarding the financial future of public servants.
Joko Widodo
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