California takes on CalPERS - Causing CalPERS to Respond to California

One of the most prominent public displays of the once secretive world of pay-to-play in recent history surrounded the California Public Employees' Retirement System (affectionately referred to as “CalPERS”). As many will recall, CalPERS’ board of directors was subjected to significant scrutiny as a result of investigations in New York that demonstrated an all-too comfortable secret relationship between placement agents, investment firms, and public retirement systems. In California, CalPERS came to learn that several placement firms led by a former board member had received millions of dollars in service fees for helping certain investment firms land contracts to manage their f unds.

As sure as night follows day, public political scandal inevitably begets additional legislation; even if the genesis of the scandal was already illegal before coming to light. One of the easiest ways to accomplish a desired move towards transparency is to identify some new form of private interaction with government and label it “lobbying”. California’s response to the CalPERS scandal is no exception. Earlier this year, the California General Assembly enacted Assembly Bill 1743 designed to make placement agents for public retirement systems register as lobbyists and comply with all attendant restrictions, registration and disclosure requirements.

To show it was serious, Assembly Bill 1743 imposes additional criminal sanctions upon California’s existing regulatory scheme for lobbyist disclosure.

The legislation enjoyed considerable support from the California State Teachers' Retirement System (CalSTRS), other municipal public employees unions and good government groups. The legislation passed through both state legislative bodies this past August before being signed into law by Governor Schwarzenegger on September 30, 2010. As a result the bill is set to take effect on January 1, 2011.

Perhaps a day late, and surely a dollar short, CalPERS has announced that it will now require contractors to reveal whether they are using placement agents to seek business with the pension fund. CalPERS has further required that those using such agents must disclose payment terms, any “financial or familial” relationship with current or former board members, as well as any gifts or other items of value offered to CalPERS.

Consider the CalPERS barn door officially closed.
 

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