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Controller John Chiang on the Future of California’s Public Pensions





Capital & Main recently looked at a spate of negative headlines about public pension funds, spurred by data that State Controller John Chiang released on his new public data site at

Chiang has served as Controller since 2006, acting as California’s Chief Fiscal Officer. He was recently elected as State Treasurer and will switch to that office next year. In both roles, Chiang sits on the Boards of Administration for the two largest public employee funds, California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS).

Capital & Main followed up with the Controller to ask about the state of pension systems in California and how those systems should be looking to the future.

The data you posted on your By the Numbers site led to many existing critics of pension saying “See? There’s a crisis, it’s getting worse!” Do you believe there’s a crisis in California’s pension funds?

We are challenged, but you always face challenges. You go through some good times, you go through some bad times, and you make the changes that are required. And we have been. The people involved in the process are making difficult decisions to get to where we need to be, which is sustainable, risk-adjusted returns to make sure that we have a strong system in place.

The critics also latched in particular onto the unfunded liabilities that have been increasing over the time period your data covered. They’ve characterized pension systems as systems that will suck ever-larger amounts of taxpayer money until eventually budgets collapse. Do you think that characterization is accurate?

To make this one homogeneous system is not accurate. You have some systems that are strong; you have some systems that are in a more difficult environment. The important part is to recognize that leadership is required across the board, but in some of the systems in a more difficult spot, everyone needs to be at the table coming up with intelligent solutions going forward. America and the world have faced difficult times, and that’s when leadership is especially critical. We have met those challenges, and we will continue to meet those challenges.

What would you tell people who aren’t familiar with the nuts and bolts of California’s pension systems about what needs to be done?

We’re going to have to think for the 21st Century. The world, the investment environment is difficult. It’s now a global economy. Our issues aren’t unlike what’s being faced in China, in Europe or Africa. America’s been blessed in large part because of our hard work, and that hard work will have to continue, and it certainly will have to continue in the investment world. We’ve been fortunate that America’s been the leading economic engine for the past century. Other places are doing well.

And we’re going to have to change the investment arena. We’ve started to do that in CalPERS and in CalSTRS, where we challenge some of the people who are investing our money and had been making fees that no longer can be justified. We can save those dollars…. Number one, there is something called a risk-free return. If you pay lower fees, the money saved is a risk-free return. Secondly, a dollar saved is more than a dollar earned. The old adage from Ben Franklin is cited incorrectly. They say “a dollar saved is a dollar earned.” Well a dollar saved is more than a dollar earned, because you have taxes and other costs. When we save those dollars, those are extra dollars that can be used for investments or education. We’re going to press on those money managers and others, so that we make sure the taxpayers, the retirees get every dollar deserved. We’re just fighting for the people that deserve a sound retirement system, to make sure that we protect California’s hard-working people. We’re serious about doing this correctly.

Do you think that in some of these pension systems the solutions will require reducing retiree benefits or raising the contributions from current workers?

We’ve done some of that, and there will continue to be some of those discussions. The hard-working public servants of California understand the economic challenges, and they deserve a fair retirement system. They’ve never tried to take advantage of the system to the detriment of others.

You mentioned trying to save money within the systems, but what other ideas are you trying to bring to the table on the CalSTRS and CalPERS boards?

I always ask, how do we understand and keep up to date with what’s happening in the world? We have to be ever observant of new opportunities. I push working with [emerging-market] managers and others. You don’t want to stick with old conventions, because then you’re stuck in a rut, you’re stuck with the old ideas. We need to constantly evolve and grow. Reaching out to those emerging managers, we need to understand what’s happening as economies change. I want to be sure that CalPERS and CalSTRS are ready to receive those opportunities.

Do CalPERS and CalSTRS, being some of the largest investors in the country and state, have a special role to play as well in the economy as far as being smart or active investors?

CalPERS and CalSTRS are the two largest public institutional investors in the United States. People have driven the divide between public and private investors. But we’ve had private investors come in for meetings, and they’re talking about things that CalPERS and CalSTRS have led on, like better corporate governance.

For instance, you want corporations to sell good, healthy food. And you care about food safety. We want those companies to perform better, because it will help those companies and their employees do better, it will help the economy, and it will help our returns. Where before people were talking about CalPERS and CalSTRS being involved in outlier practices, those practices are becoming part of the mainstream today. When you’re at the forefront, you’re always going to take the hit, people are going to take shots. But after you prove your ideas correct, people will join on the bandwagon. We’re used to being attacked, but coming through and trying to point to how we do things better. It’s reflective of what we do in America, and how America has gotten to the forefront.

Other good governance principles: I’ve pushed for diversifying America’s corporate boards. I spearheaded that effort early on. America is diverse. People come from all across this globe to come to America. It’s a fantastic opportunity we have. If we can get those ideas in, especially because it’s a global economy.

How do we perform better in South Africa? How do we perform better in Europe? There’s nothing like people who’ve had that personal experience, having lived or worked in those areas.

I just came back from China, where I was last week. And I was in Israel three weeks ago. I’m trying to think of how you create opportunities for the middle class, for small business owners. How do you sell your products all around the globe? How do you share your expertise? So we’re thinking about creating the opportunities that will hopefully address the increasing income divide.

Was there anything about those trips that particularly struck you as an eye-opener about the global economy?

It’s impressive the transformation that’s taking place across the globe. Israel’s agricultural practices and technology developments. China, I hadn’t been there in a decade, and it’s incredible to see the growth. They have some of the same issues we do. They have a booming aging population that they need figure out how to provide health care to at a reasonable price. Sustainability. The safety net. Same issues we’re talking about here. When I talk to a business recruiter in China, they say they’re looking to some American experts in health care and hospital practices. That’s an opportunity for us.

(Dan Braun works with unions, social justice groups and others engaged in creative change campaigns. He lives and drums in Echo Park, Los Angeles.)

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