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Calstrs Meltdown?

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I just got a mailer from CalPERS today, downplaying their losses.

 

The following article sheds a different light on the story:

 

http://www.reason.com/news/show/130843.html

 

 

At its peak value in October 2007, CalPERS and its sister fund, CalSTRS (the state teachers’ pension system), held over $400 billion in assets. Their portfolios have more global influence than the entire economies of most sovereign nations. And during just three months last fall, more than 20 percent of the funds’ combined value evaporated—a horrendous performance for public investments designed to minimize risk and protect retirees. “We have ups and we have downs,” said Pat Macht, CalPERS assistant executive officer, as the fall 2008 massacre unfolded.

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For public employees the question is whether retirement benefits are both contractually guaranteed through collective bargaining agreements and constitutionally guaranteed which makes the taxpayers ultimately laible for paying the benefits even if it means increasing CAs 9.3% tax rate. The NY state constitution prohibts public employee retirement benefits from being reduced after employment commences which makes future taxpayers liable for shortfalls. If there is a similar provision in CA then the taxpayers will have to pick up the tab although state employees may be required to to make a larger contribution. You need to determine if retiree health benefits are similarity protected. Of course CA can always save money by laying off public workers as has been threatened in NJ if state workers dont agree to wage and benefit cuts to close a $2B deficit.

 

Isnt CA proposing that most state offices be closed 2 Fridays every month and that state workers take unpaid time off to cose its $42B deficit?

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Hi Anon,

Here is the background of the author of this sensationalism.

 

I don't know about CalPERS, but calstrs has only made two SRI decisions, to drop tobacco stocks in 2000 (subsequent loss of less than 1%) and to divest from S. Africa. I know how difficult for members to change CalSTRS direction. For this guy to say that unions had a major impact on CalSTRS in their investment decisions is pure puppy ######. Out here in California, educators rarely if ever talk even remotely about pensions or 403b and the unions like it that way (except for mine who is slowly changing). He is certainly long winded and little data to back up his far flung comments.

This author is meerly taking advantage of the financial troubles and trying to blame unions and their members for steering pension funds to SRI, oh please, another view from the partisian and divisive National Interprise Institute, who has a long history of anti union and anti government.

 

BTW, a 20% drop in value is about half of the drop that was hit by the major indices. How many individuals would have preferred a drop of 20% rather than 50, 60 or more in some individual cases reported in the media. I think the pension plans are doing their due diligence and the fact that they are working fine in this terrible financial mess that was created by the private sector is what upsets this author.

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CalSTRS is still engaged in socially responsible investing:

 

http://www.forbes.com/business/forbes/2008/0519/035.html

 

An excerpt from that article:

 

Fund managers at Calstrs predict that its substitute non-Iranian stocks will yield $200 million a year less in returns. This year, from the 20 states enacting legislation, $8 billion in total divestment can be expected with $70 million in transaction costs. Any losses will be borne by taxpayers, who are on the hook for public employee pensions.

 

I have nothing against socially responsible investing, provided the returns are commensurate with the returns earned by investments made without a leftist agenda.

 

When obesity replaces tobacco as the next public health crisis, should CalSTRS divest itself of companies that profit from spreading the "disease" of obesity?

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I have nothing against socially responsible investing, provided the returns are commensurate with the returns earned by investments made without a leftist agenda.

Hi,

I didn't know that SRI was excursively a leftist agenda. I thought the investments that are considered "sinful" came under a conservative agenda.

 

Joe

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And who really cares if they are leftist or rightest as long as its a good idea. I guess installing solar panels is considered a social responsible investment when we are trying to do our part to reduce our dependency on foreign oil from some countries that want to do us harm?

 

 

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Does anyone know if NJ state constitution is like that of NY wherein the deficit will be met by tax? Where can I find this infomration? I am 5 years into NJ education pension ~ 8K into it. If there are changes in the future would I be Grandfathered? What do you guys see happening in a decade with Pension systems for School Districts?

If they were to offer you 403b with matches vs pension, how would you choose (this is a very vague question and would be dependant on many things but are there any states who have done something similiar and what was the % match?)

If there were low cost funds available and the match was descent, I would not complain. Although a NJ teachers pension is VERY valuable over time

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If you want to compare the returns of stocks in China, ######, and India over the past year to the returns of CalSTRS or CalPERS, you can find data on the MSCIBarra web site.

 

http://www.mscibarra.com/products/indices/...performance.jsp

http://www.mscibarra.com/products/indices/...erformance.html

 

BRIC = Brazil, ######, India, China

 

Wow, it looks like naming that country whose name starts with an R and ends in ussia is not acceptable on 403bwise.

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I can't imagine this would ever be permitted, but imagine for a moment that CalSTRS allowed every single member to choose whether they wanted their pension to be funded from "socially responsible" investments only (with possibly lesser returns), or investments made purely on the basis of the returns they generate, without any other agenda. I'll bet there would be very few people who would elect to pursue SRI under such circumstances, especially if they're financially literate enough to understand how high expenses can be a drag on their investments. I think it is ironic to find people on this forum who scream bloody murder about getting screwed via excessive fees inside their 403(b) account, yet who turn a blind eye to something that is arguably as damaging, if not more so, to the health of their pension fund.

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I wonder how people would choose if they were asked the question in a slightly different way.

 

For example, would you prefer to direct your money in such a way that your investments do not benefit directly from child labor, genocide, the blatant destruction and waste of natural resources, selling lethal products with enhanced addictiveness without warnings to consumers, dumping lethal, carcinogenic, or toxic amounts of chemicals directly into the environment, or companies that screw teachers and schools by knowingly selling them bad debts (e.g. Lehman Brothers).

 

I suspect the response to the choice of SRI would depend in part on the delivery. I do know people who insist on investing in as socially responsible a manner as is available in their investment plans.

 

Of course, there is still the question of how SRI funds with different SRI strategies perform relative to other funds in their categories. Do they outperform, under perform, or perform in-line with other funds?

 

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As many of you know CalSTRS has "Easy Choice" portfolio's, basically target date portfolio's that allow you to choose your risk profile. Would any of you be interested in a Socially Responsible Easy Choice portfolio?

 

ScottyD

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1) I have no idea what is meant by "socially responsible."

 

2) I don't want CalSTRS to invest according "socially responsible" principles. I want CalSTRS to invest in profitable companies. Period.

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The NY state constitution prohibts public employee retirement benefits from being reduced after employment commences which makes future taxpayers liable for shortfalls. If there is a similar provision in CA then the taxpayers will have to pick up the tab although state employees may be required to to make a larger contribution.

 

Yes, CA has a similar provision.

 

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"1) I have no idea what is meant by "socially responsible."

 

2) I don't want CalSTRS to invest according "socially responsible" principles."

 

Nice.

 

Anyway, for other people who are interested in trying to change the world for the better, you can take action now.

 

Consider, for instance, if you hold a Vanguard index fund. Vanguard can (and does) participate in proxy voting. It can also put forward resolutions and pressure executives to act in more socially responsible ways.

 

For example, I have seen numerous complaints against AXA Equitable's sales tactics. AXA Equitable is a subsidiary of AXA Financial Inc., which is part of the global AXA Group. AXA ordinary share trades under the symbol AXA on the Paris stock exchange. In addition, AXA Equitable and AllianceBernstein, L.P. are affiliated companies.

 

So, if you dislike AXA's practices, the way it lobbies the government, and the funds it offers, in addition to lobbying your local school district, you could seek to have the funds (including index funds) that you hold that have AXA or Alliance Bernstein shares pressure the executives to change their policies.

 

I know that I am an idealist and change will rarely occurs overnight. Never-the-less, I can find no reason to complain about how a company treats/treated you when it costs you money but give no regard to these same practices from the exact same companies when you are the one profiting from them.

 

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CalSTRS is still engaged in socially responsible investing:

 

http://www.forbes.com/business/forbes/2008/0519/035.html

 

An excerpt from that article:

 

 

Fund managers at Calstrs predict that its substitute non-Iranian stocks will yield $200 million a year less in returns. This year, from the 20 states enacting legislation, $8 billion in total divestment can be expected with $70 million in transaction costs. Any losses will be borne by taxpayers, who are on the hook for public employee pensions.

 

I have nothing against socially responsible investing, provided the returns are commensurate with the returns earned by investments made without a leftist agenda.

 

When obesity replaces tobacco as the next public health crisis, should CalSTRS divest itself of companies that profit from spreading the "disease" of obesity?

 

AC,

 

It's only a matter of time before obesity becomes another SRI qualification. But let's not stop there. How about divestment of companies that don't have (or meet) affirmative action goals and timetables? Companies that are not "green" enough in energy consumption? How about companies that are not "family friendly" enough? Companies that have resisted being strongarmed by Jesse Jackson and his extortionists?

 

There are all kinds of policies that can be construed to be "socially responsible," but that does not mean that pension funds should avoid investing in companies that have not reached a sufficient state of social enlightenment.

 

 

 

"1) I have no idea what is meant by "socially responsible."

2) I don't want CalSTRS to invest according "socially responsible" principles."

 

Nice.

 

Anyway, for other people who are interested in trying to change the world for the better, you can take action now.

 

 

God help us and save us from those who want to "change the world for the better." We have lots of those folks in Congress, and I just cringe when they want to "make things better."

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