RPT-Calpers fee probe stokes concerns of local officials

(Repeats story that orginally ran on Thursday evening)

By Jim Christie

SAN FRANCISCO Oct 15 (Reuters) - Calpers' disclosure that a firm led by a former board member reaped $50 million in fees for placing private equity investments at the largest U.S. public pension fund is adding to worries among local California governments using it to manage retirement benefits.

Some local officials said on Thursday that the California Public Employees' Retirement System's probe into the fees underscores the activist pension fund's responsibility that it should hold a mirror up to itself and follow the advice it frequently dispenses for better corporate governance.

The $200 billion pension fund is reviewing placement agent fees paid to former board member Al Villalobos' firm for private equity investments overseen by outside money managers.

Placement agents are under intense scrutiny in other states, notably New York and New Mexico, where politically connected individuals have served as middlemen for investment institutions, particularly private equity funds.

"It's just one thing after another, where we have to question what's going on," said John Moorlach, an Orange County, California supervisor.

The top priority for local officials is how much Calpers pays out in retirement benefits defined in contracts with government employers, Moorlach said.

"Calpers is sort of the poster child for public defined benefit abuse," he said. "There is a serious problem here."

Scores of local governments across the most populous U.S. state pay into Calpers and its performance during the market downturn, marked by the loss of more than $50 billion in the last fiscal year, left them stunned.

They expect to be called on to help make up a shortfall to cover pension benefits.

"Our concerns, of course, are more about what the contribution rates are going to be," Dwight Stenbakken, an official at the League of California Cities, told Reuters during a recent interview.

LETTING VOTERS DECIDE

A political campaign aimed at overhauling Calpers is already underway and the fund's probe into placement agent fees could play to its advantage.

"To me it smells of corruption," said Keith Richman, a former Republican state lawmaker and leader of the campaign.

Richman and associates have already embarrassed Calpers in recent months with a website posting the names of fund members receiving six-figure annual pensions, playing on the anxiety of investors with steep losses in 401(k) retirement accounts.

The headlines generated by the online effort has so emboldened the former lawmaker and his allies that they plan a a ballot measure campaign to overhaul state public pensions.

One obvious change would be to impose two benefit tiers for public employees, said Steve Levy of the Center for the Continuing Study of the California Economy.

Under that plan, Calpers members would receive current benefits. New public employees would receive reduced benefits to give local governments some budget relief in the face of steep drops in tax revenues from falling property values due to the housing slump and sharply lower retail sales as consumers rein in spending.

(Editing Bernard Orr)