union pensions

In October, I wrote about the problems caused by signficant investment losses in CalPERS, the California Public Employees Retirement System. At that point CalPERS had lost 20% of its value in 4 months and was going to state and local tax-payers to demand that they make up the hole in their investments.

Well, they screwed up, and they are back asking for more money. Not only did they lose invested money, but they were actually leveraged up, so they did particularly badly. From the WSJ:

Calpers in recent weeks said it expects to report paper losses of 103% on its housing investments in the fiscal year ended June 30. That's because Calpers invested not only its own money, but billions of dollars of borrowed money that must be repaid even if the investment fails. In some deals, as much as 80% of the money invested by Calpers was borrowed.

Now, obviously, it is terrible thwhen at any investor loses their shirts. But it seems that this is just blatant risk mismanagement, shifting assets to higher-risk investment vehicles:

But Calpers has targeted less money in bonds, and about double the allocation to private-equity investments and real-estate deals, than the average public pension fund, according to Calpers documents and an industry survey. ...

Since the average rate applies to Calpers's entire housing portfolio, some individual deals used as much as 80% borrowed money, Mr. McCook recalls. That level is more aggressive than many pension funds or land developers would use, industry consultants and developers say.

So how do they fill the gap? The tax-payer:

Calpers is now warning California's cities, towns and schools that they may have to cough up more money to cover the retirement and other benefits the fund provides for 1.6 million state workers. Some towns are already cutting municipal services, and at least one is partly blaming the Calpers fees.

Let's get this straight. The pension managers mismanage their money by engaging in more risky investments, the investments go under, and now the people of California have to foot the bill so that public employees don't have to suffer?

What about the rest of us? Why do public employees deserve to get bailed out, but not the rest of the pension holders?

Stopping this has got to be a political winner. If I were a California activist, I would be pushing a ballot measure that would require a referendum to approve any additional taxes to fill gaps in CalPERS.

The AFL-CIO is spending "an estimated $200 million on the 2008 elections".   It's not just them, either.  Others are going in heavily, as well.   But why are Unions spending so much money on this cycle?   This is why...

[I]t turns out — as disclosed in unions' mandatory annual financial reports to the Labor Department — that the Sheet Metal workers' union pension plan is underfunded and so risks the future pensions promised to its members. Many other union pension plans are in similar straits.  The histories of several union pension funds demonstrate why they are in poor financial condition:

•  In 2008 the significant liabilities of the Sheet Metal workers pension plan required it to negotiate combinations of increased contributions and decreased benefits.

•  The Teamsters implemented only modest reforms of their pension plans, too late to forestall automatic penalties.

•  The Plumbers and Pipefitters Union lost millions to former trustees, who made investments favoring family members that yielded low returns.

•  A bookkeeper of the Laborers' pension fund embezzled hundreds of thousands of dollars in contributions.

Unions are in trouble.  If Democrats can't bail them out in upcoming years, Labor Unions will join the ranks of S&L's, WorldCom, Enron and Bear Stearns.  Rather than risk greater transparency, exposure and collapse, Labor Unions are betting a lot of money on 2008.  

If they win, they'll get the playing field tilted their way.  If they lose...the consequence should be rapid accounting transparency, reform and more attention paid to the problem of public employee unions who can spend and lobby to create and maintain their monopoly.

UPDATE

You need to read the comment by reader bconc. 

The Labor Unions are doing to workers what Enron did to investors.  And they're hoping the Democrats will bail them out.

Here's a lesson that you will hear again and again. Union leaders take care of themselves before their workers. From today's WSJ:

Public records based on the SEIU's own filings show that the SEIU National Industry Pension plan – which covers some 101,000 workers – was only 75% funded in 2006. Put another way, the plan had only three-fourths of the money it needs to meet its retirement obligations. And the national chapter is only the start. Some 13 local SEIU pension plans in 2006 were less than 80% funded; several didn't reach 65%.

The bosses, on the other hand, have over-capitalized pensions:

On the other hand, SEIU leaders are highly attentive to their own pension funding. A separate fund run by the national union, this one covering the benefits of SEIU officers, was 103% funded in 2006. The top SEIU guns are set for their golden years.

You might need more than 100% if, say, the stock market were to suffer for a couple of years.

Andy Stern, however, has figured out a way to cook the books based on a formula that is not even in effect:

The SEIU is now disputing some of these figures, claiming the information it publicly filed is wrong. It now claims its national plan was 92% funded in 2006, and as of January 1, 2008, was 96% funded. Here's the catch: The union says these new numbers are based on calculations required under a 2006 pension reform that hasn't yet taken effect. It didn't release its new math either, though we're eager to see it.

In general, union pensions are a sleeper issue. It is part of the story behind Card Check. It is an untold story in the UAW-GM agreement. And it is always the same story: union bosses paying them and their buddies off and shafting their workers.