News Report Blasts City for Poor Investment Performance

By the Numbers: $68 million

When city of San Jose officials sold pension reform to voters in 2012, taxpayers were told it would save $68 million a year. That claim has since come under scrutiny countless times.

The latest salvo came last week in a story by Al Jazeera America, which called the city's 2012-13 investment performance “atrocious” and argued that the city could've saved twice that amount in 2012 alone if it had reined in risky investments and performed as well as the Standard & Poor's 500.

San Jose's investment strategy of “shifting money from stocks and bonds to high-risk, low-transparency 'alternative investments' … may be a bigger factor in the financial crunch” than generous retirement benefits to employees, the news agency reported.

But Arn Andrews, the city's assistant director of finance, says that doesn't account for the bigger picture.

“That is not a comparison that makes any sense,” he told San Jose Inside. “I think it's really unfair to use only a year or two of return information to make a point on a program that is really looking 20 to 30 years in the future.”

Roberto Peña, the city’s director of retirement services, added that it's like saying an athlete's first two years on a team will determine the rest of his or her career.

Al Jazeera does note, however, that only one other public pension fund in the nation fared worse than San Jose's in 2013. The Indiana Public Retirement apparently underperformed the San Jose Federated City Employees' 8 percent return, the report states, adding that the stock market redoubled that year and the S&P returned more than 20 percent.

San Jose's Federated system returned -3.2 percent by the end of the 2012 fiscal year, the article states, while the national average for public funds sat around 1 percent.

"This was the worst of the statewide pension funds surveyed by Al Jazeera, and the worst of any public pension fund in California," the report declared. "The S&P 500, meanwhile, returned 5 percent during that same period."

Some dramatic restructuring of the retirement boards took place just before the two poor-performing years highlighted by Al Jazeera. A city-ordered audit in 2009 recommended replacing elected city officials from the two retirement boards with appointed "independent experts." The city complied a few years ago. Today, those boards are vying for full autonomy—to secede into an agency independent from the purview of the city manager.

Peña says his office will draft a response to the article this afternoon to circulate among employees, "to correct some mistakes and misinformation."

Jennifer Wadsworth is the news editor for San Jose Inside and Metro Silicon Valley. Email tips to [email protected]. Follow her on Twitter at @jennwadsworth.

8 Comments

  1. Back when City employees elected Board members, the rates of return were high- understandable as the employees had “skin in the game.” About 2009, Reed commissioned an “independent” study that recommended adding financial professionals to the Board (his version of accountability and transparency).

    Unsurprisingly, the rates of return were not as high as years’ past which was increased fodder for Rufas’ pension reform crusade. Now, his administration is pushing for more reforms- financial advisors with untold conflicts of interest.

    Reed has been tied to Wall Street money and this is another money and power grab for his backers. Local media is failing by not investigating the obvious ties and motivations- from 2009 onward. The City employees have been calling attention to the current Administration’s shenanigans but only now, 5 years later, are they being proven correct.

  2. Roberto Peña, the city’s director of retirement services, added that it’s like saying an athlete’s first two years on a team will determine the rest of his or her career.

    This is pure BS. The thing that these bozos should be doing is trying to match benchmarks instead of trying to beat them.

    Someone should be shown the door. That’s the least that should happen.

  3. Reed is quietly trying to place his “people” in place so that they can either raid the pensions , or run them into the ground , all while the managers of these funds are making a killing. It is no secret that Reed has been tied to wall street , and corrupt individuals such as John Arnold .

  4. Let’s hope Al Jazeera continues its coverage of San Jose as the Mercury News shows little interest in reporting on San Jose. The mayoral race is a good example: the coverage so far has been mainly Mr. Herhold’s ruminations.

    • T. Miller,

      I read the article you linked to and found it very interesting. This paragraph further supports the Al Jazeera article:

      “State pension plans that rely on hedge funds and other so-called “alternative investments” perform worse overall than those with more conservative strategies such as Treasury notes or the S&P 500, according to many studies, including recent reports from the Maryland Tax Education Foundation and Yale professor Roger Ibbotson. Critics charge that hedge funds not only are far more risky investments, but also that they produce less value because they carry hefty management fees and are entitled to a portion of future profits.”

      It should also be noted that Mayor Reed and the city are pushing a ballot initiative that in essence would put hedge fund managers in charge of San Jose 2 pension funds. The way the measure is worded would pretty much eliminate ate any retiree representation on the retirement board.

  5. Its really no fun to say, “I told you so.”, but I did. When Reed and cronies turned our pension funds over to “financial experts” anyone could predict the outcome. We did much better before Reed and his banker friends took control of the pension boards. There really should be a criminal investigation say by either the County District Attorney or the Attorney General.

  6. Carlos, all the fancy words to cover the fact that they are trying to get their hands on our pension funds, which they allowed in San Diego, causing a mass exodus of police officers to other agencies. They should be asking about how the monstrosity that is known as city hall was financed.

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