What is CalPERS? Deciphering the Giant Pension Fund’s Role, Benefits, and Impact on Corporate Governance

calPERS, short for the California Public Employees’ Retirement System, stands as a cornerstone for 2 million members, comprising 38% school members, 31% public agency members, and 31% state members. Since its establishment in 1932, calPERS has been instrumental in providing a range of financial benefits, including health and long-term care insurance, pension distribution, and retirement-related financial benefits. Governed by a 13-member Board of Administration, it is a crucial entity in the financial landscape.

calPERS’ financial stronghold is evident as it managed $372.6 billion in assets as of 2019, with nearly 3,000 participating employers, including 1,300 school districts and 1,500 public agencies in California. The financing model relies on member and employer contributions, coupled with investment income. Membership spans state and school employees, judges, legislators, and local public agency workers, though not all California cities or counties participate.

calPERS members enjoy health benefits, often extending coverage to family members. Retirement compensation hinges on factors such as age at retirement, years of service, and final salary, varying among participating employers.

Originating as the State Employees’ Retirement System in 1932, calPERS expanded to include counties, cities, and school districts in 1939. Over the decades, it evolved to offer health insurance in the early 1950s, rebranding as calPERS in 1992. This nomenclature shift aimed to distinguish the organization from other state programs, marking its commitment to financial prudence and stability.

calPERS, with its colossal size, wields significant power in the investment landscape. Managing a diverse portfolio, it invests both in foreign and domestic markets. Notable was the erstwhile annual “Focus List,” identifying companies with financial concerns and undesirable governance practices, discontinued in 2010. calPERS opted for a direct approach, actively engaging with companies to enhance their performance, a strategy that manifested in its participation in a class-action lawsuit against UnitedHealth Group Inc. in 2009.

calPERS manages its substantial assets through a combination of member and employer contributions, along with income generated from strategic investments in both domestic and foreign markets.

Retirement compensation for calPERS members is influenced by factors such as the member’s age at retirement, years of service, and final salary. The formula used for compensation may vary among participating employers.

calPERS exercises significant influence in corporate governance through its considerable investment power. It engages directly with companies to improve their performance and has a history of taking actions such as participating in class-action lawsuits to address financial concerns and governance issues.