CALPERS EYES ADVICE FOR PARTICIPANTS

The $147 billion California Public Employees’ Retirement System is considering the unusual step of offering financial counseling to its participants.

Most pension fund executives have avoided giving financial advice, worrying about possible lawsuits. That appears to be changing.

William Crist, chairman of Calpers’s board of trustees, said at a San Francisco planning seminar late last month that participants should receive “comprehensive counseling” on defined benefit plans, Social Security, defined contribution supplemental plans, personal savings and retirement savings of spouses.

If it does start advising participants, Sacramento-based Calpers, a mix of the United States’ largest defined benefit plan and several defined contribution plans, likely will be among the first U.S. public pension funds — and one of the few of any kind — to do so. Teachers Insurance and Annuity Association-College Retirement Equities Fund — the world’s third-largest pension fund manager — is training its 500 registered representatives to make asset-allocation recommendations to its 1.9 million clients (InvestmentNews, Nov. 3, 1997).

At the seminar, Calpers’s board focused on challenges facing the fund because of accelerating changes in pension services and retirement planning, including proposals such as those suggested by President Clinton, the growth and increasing range of the mutual fund industry and the growth of defined contribution plans.

more data sought

Such changes are leading employees increasingly to demand more information about their retirement benefits.

Participants and employers are more sophisticated and want such services as interactive websites, voice-response systems and education seminars, said Barbara Hegdal, assistant executive officer of the member and benefit services branch of Calpers.

Some Calpers officials were stunned virtually into silence at the meeting when Mr. Crist rebuffed a proposal from a staff official that called for assembling a 65-member team to provide education — but “never” advice — to participants.

“I think in some instances advice from this system is essential,” said Mr. Crist.

But Kayla Gillan, Calper’s chief legal counsel, smoothed things over, saying Calpers and other pension funds are facing a “culture clash” between the way they have been doing things for 60 years and new thinking that is needed.

Mr. Crist noted retirement planning is so complex he can’t understand his own retirement plan without assistance.

Charles Valdes, a lawyer who is chairman of Calpers’s investment committee, cautioned that giving financial advice would produce a legal liability for the system. “We are the greatest (potential) defendant around — with deep pockets — and we have to have protection for that, unfortunately,” he said.

Regardless, said Mr. Valdes, “As long as we are aware of the potential liability and as long as we take steps to mitigate it, there is nothing wrong with us making an active decision that we will accept the possibility of lawsuits. After all, we have great attorneys and we can probably win those lawsuits.”

board to deal with issue

Mr. Crist expects the issue of financial advice will be brought up at a future board meeting.

But that question is only one facing pension plans. “Change is coming so fast it is really challenging our ability to act and act quickly,” said Ms. Hegdal. “We are not the only game in town anymore.”

She cited Fidelity Investments as a “a real threat.” The Boston fund company uses technology to rapidly provide plan participants with information through the Internet and voice-response systems.

Calpers is less automated — although staff members promise big technological and policy changes in the future.

In the first few days of each month, for example, Calpers receives between 10,000 and 12,000 phone calls from participants, but is able to answer only about 2,000.

Another threat — from 1996 when California State Assemblyman Howard Kaloogian unsuccessfully introduced legislation to give Calpers participants the choice of moving their assets to new defined contribution plans — still looms large.

According to pension consultants, some employees have fallen in love with the services mutual funds provide, and younger ones don’t see the value of defined benefit plans.

Calpers, said Ms. Hegdal, is now “competing with the big boys,” and the days when participants “pretty much took what they got” are past.

Crain News Service