— A federal judge in California has ordered the state pension fund to cover the benefits of hundreds of thousands of retirees, saying the plan failed to adequately monitor its investment strategy and failed to ensure it was properly compensated for its risk.
Federal District Judge John P. Zloch ordered the California Public Employees Retirement System to pay $4.5 million to the pension fund, the first of its kind, in an order issued Wednesday.
The order covers only a small portion of the plan’s liabilities, and it does not cover its liabilities related to its failure to implement and maintain a diversified and prudent asset allocation strategy.
The order requires the state to make the pension system and the funds’ management responsible for paying back the money to the fund.
The state must also make a $200 million bond payment to the state’s public employees pension fund.
Zloch wrote in his order that the pension plan failed several key tests, including failing to monitor the strategy and ensure it had sufficient funds to cover its risks.
In addition, the state failed to properly evaluate its risk profile and did not monitor its performance, Zlack said.
He also said the state did not provide sufficient compensation to retirees who received pension benefits.
California has more than 300,000 public-employee pension plans, including the California State Teachers’ Retirement System, the California Employees Retirement Systems, the State Teachers Retirement System and the California Municipal Employees Retirement and Security Fund.
Many of those pension plans were created to replace the federal Public Employees’ Retirement Systems in the wake of the financial crisis and the retirement of retired public servants.
“The pension fund is responsible for protecting the money and protecting the investment of public employees, which means the pension funds must do more than simply fund the pension and the benefit programs,” said Chris J. Kline, executive director of the California Association of Government Employees, the union that represents some of the state public workers.
“It must also be responsible for making sure that the money it funds is used efficiently.”
The state is also responsible for administering the pension plans.
The federal Public Service Retirement System is also subject to Zlocch’s order, and the state must provide additional compensation to those who receive public service pensions, Kline said.
The federal government requires public employees to have an investment portfolio of at least $10,000 a year.
In addition, many public workers have a retirement savings plan, including pensions and other benefits.