California is asleep at the wheel of a fiscal trainwreck

Capitol Weekly welcomes Opinions on California public policy or politics. Please read our guidelines for opinion pieces before submitting an Op-Ed. Submissions that do not adhere to our guidelines will not be considered for publication. 

OPINION —While CalPERS quietly shifts over 40% of its massive $556 billion portfolio into speculative, opaque private markets, the Legislature erected a dangerous wall of complacency.

By repeatedly refusing to establish an independent Inspector General (IG) over CalPERS, and by recently killing SB 1319 (the Private Equity Sunshine Act), lawmakers chose Wall Street billionaires over millions of public servants.

Government’s failure to audit CalPERS or support an independent watchdog, resulted in the Retired Public Employees’ Association of California (RPEA) crowdfunding a forensic investigation. Conducted by Benchmark Financial Services, the groundbreaking report delivers a detailed, ironclad solution: California must immediately establish an independent IG with full subpoena power.

The report exposed that the CalPERS Board of Administration is fundamentally unequipped to handle a half-trillion-dollar portfolio. Board members are not required to have any background, credentials, or expertise in finance. To qualify for election, a candidate merely needs to be an active member of a CalPERS-covered public agency.

The public record reveals the board’s embarrassing lack of financial understanding during meetings, making it remarkably easy for staff and private equity managers to sweep complex issues under the rug. This glaring absence of technical expertise creates the perfect breeding ground for mismanagement, corruption, and a culture of growing secrecy.

The report shows CalPERS squandered billions of dollars by choosing high-fee, predatory private equity over transparent public stock indexes. Furthermore, independent consultants meant to guard the fund are heavily conflicted. For instance, CalPERS’ primary investment consultant, Wilshire Advisors, is owned by the private equity ecosystem, with Apollo Global Management holding a massive stake in its parent company.

As public scrutiny intensified, CalPERS has increasingly weaponized the Public Records Act (PRA) to evade transparency. CalPERS routinely uses PRA exemptions to block journalists, retirees, and financial watchdogs from accessing critical data for fee structures and underlying assets.

The consequences of this unpoliced gambling are staggering. Assemblymember Carl DeMaio recently drew national attention to a massive CalPERS financial disaster, blasting the fund for hiding a staggering $3-billion loss stemming from failing Environmental, Social, and Governance (ESG) investments. DeMaio slammed CalPERS leadership for its lack of transparency and mismanagement.

The Legislature could have improved things with SB 1319. Co-authored by Senators Dave Cortese and María Elena Durazo, the bill sailed through the Senate Judiciary Committee with strong bipartisan support. It required public pensions to disclose hidden fees, underlying assets, and performance benchmarking. Yet, the California Legislature quietly killed SB 1319 in the Senate Appropriations Committee.

CalPERS executives aggressively fought the bill. They deployed the hypothetical absurdity that requiring basic transparency would cause Wall Street to abandon California, and place the fund at a competitive disadvantage. This narrative is laughably false. Wall Street is never going to walk away from a half-trillion-dollar pool of public capital simply because retirees want to know what they are paying in fees.

CalPERS’ performance metrics show it stands near the bottom. Fully funded state pension systems provide ironclad security for their workers.Yet California’s public pension system languishes with a low funded status. States like Tennessee, Washington, and South Dakota achieve top national rankings by maintaining strict accountability and avoiding high-fee alternative asset traps.

In the private sector, workers are protected by the Employee Retirement Income Security Act (ERISA), a strict federal framework that mandates total transparency and imposes personal liability on fiduciaries for mismanagement. Public pensions are explicitly exempt from this framework. Sacramento refuses to enact a state-level equivalent prefering the convenience of an unpoliced fund.

Does the Legislature even understand what happens when local governments cannot cover their pension liabilities? Look no further than the catastrophic bankruptcy of the City of Stockton, California, which unraveled due to mounting, unpayable pension obligations. When underperforming investments crash and funding gaps widen, municipal budgets implode, triggering a devastating chain reaction across local communities. Property taxes, sales taxes, and local fees spike to plug massive financial deficits. Funding for public safety, road repairs, libraries, and parks is stripped away to keep up with rising pension debt. Hardworking public servants face devastating benefit cuts, wiping out their financial security.

We need the IG for public pension systems and we need to tell the Legislature choosing Wall Street over Main Street brings severe financial consequences.

Dev Berger is a retired public employee, health policy consultant and published writer who lives in Sacramento.