California Legislature Demands UC Workers Get Voice On Pensions

By passing SCR 52 with broad bipartisan support, the Legislature sent a very clear message to the Board of Regents. The Regents now have a choice: change to joint governance of the retirement plan or we will go to the ballot and ask the voters to make this change for them.

Under shared governance, what happens with any fund surplus is agreed upon by the employee and employer trustees. UC would not be able to propose items such as supplemental benefits for executives, as it has done in the past, unless trustees elected by workers and retirees agree.

It was recently reported that two members of an investment advisory committee for the UC appeared to have previously undisclosed connections to firms that won contracts to invest pieces of the university's $43.4 billion pension plan.

According to the San Francisco Chronicle, one such member, John Hotchkis, retains a 1.1 percent interest in his former firm Hotchkis & Wiley Capital Management, which was chosen in July 2004 to manage more than $430 million in UC equity funds. In addition, in 2005 a firm headed by Hotchkis’s daughter was chosen to manage $311 million in non-US equity funds. Another member of the investment committee, David Fisher, is the chair of the board of Capital Guardian Trust Co., a company chosen to manage $377 million in fund assets

Other newspaper reports, including the East Bay Express have detailed how a number of recent changes at the pension fund have cost the university billions of dollars. In fact, what was once one of the top performing pension plans in the country now ranks among the nation’s worst performers.

For the past several years, the Regents have increasingly contracted with a number of high-priced pension consultants and money management firms, rather than stick to the decades-old and highly successful practice of using professional university financial staff to trade stocks themselves.

The Regents have made many of these decisions behind closed doors, although lawsuits have since required minutes of these meetings to be publicly released. In the secret meetings, regents discussed how they could minimize the impact of disclosing fund figures as not to coincide with the 2002 election. In fact, when the regents were told the figures would not be made public until after the election, regent Norman Pattiz said, “That’s good” and a regent consultant, Bruce Lehmann said, “Thank God the doors are closed.”

A report provided by the University shows that under the management of UC staff, the retirement fund earned an average of 15.6 percent per year during the 1990s, compared to only 13.5 percent for comparable multibillion dollar portfolios. Since UC has contracted out many fund management duties to outside consultants, 86 percent of large US investment trusts outperformed the UC pension fund, according to a report by State Street, UC’s custodial bank. During the 1990s, the fund spent approximately $5.5 million a year to buy and sell bonds and almost nothing to trade stocks. In comparison, last year alone the university paid more than $22 million in commissions and paid private fund managers $32 million to trade stocks that were previously handled by existing UC staff.

Had the UC Retirement Plan even performed as well as half of the comparable funds in the past five years, it would have an addition $3.3 billion. Clearly, we need new governance and oversight of these dollars and workers deserve an equal vote on their pensions.

SCR 52, which does not require the signature of the Governor, received overwhelming support, including AFSCME, California Alliance for Retired Americans, California School Employees Association, Council of UC Faculty Associations, California Labor Federation, UAW Local 2865, California Firefighters Association, American Federation of Teachers, University Professional and Technical Employees, and California Nurses Association.

In addition to SCR 52, this year I authored Senate Bill 190 – the Higher Education Governance Accountability Act, which currently sits on the Governor’s desk awaiting a signature or veto. Among the reforms in SB 190 is a requirement that all executive compensation packages be voted on in an open session of a subcommittee and the full board. The bill also requires full disclosure of the compensation package with accompanying rationale and public comment on the specific action item.

Leland Yee is a member of the California State Senate Democratic Leadership team and the Assistant President pro Tem of the Senate. Senator Yee is also a graduate of the University of California at Berkeley.