CalPERS' Lobbyist Sees More Stalling on Volcker Rule

(November 16, 2012) – The chief federal lobbyist for the California Employees’ Retirement System (CalPERS) does not foresee the Volcker Rule coming into full effect by the year’s end.

In a CalPERS board meeting on November 15, board member J. J. Jelincic, former president of the California State Employees Association, questioned Tom Lussier about his take on the immediate future of the Volcker Rule. Nearly two years after the financial regulatory legislation was publically endorsed by President Barack Obama, it still has yet to be finalized or implemented.

Jelincic asked: “Tom, in your month in Washington, for October, you point to [Senators Carl] Levine and [Jeff] Merckly as pushing to get the Volcker rule implemented. Is there—as you look at the tea leaves—is there going to be any effort to get that done before the end of the year? Is it going to get pushed aside until they deal with or don’t deal with the fiscal cliff?”

Lussier was not overly optimistic on this section of the Dodd-Frank Act being implemented before the year’s end.

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“I think there will be a push, but I would not be at all surprised to see it delayed until after the beginning of the year,” Lussier said. “The reality is that at this point, most of the work to be done is regulatory. And there are members of Congress, for example, Chairman [Barney] Frank, who has basically said, yes, it needs to happen, but if delay allows it to happen more effectively, then he is okay with that.”

The Volcker Rule separates financial institutions’ investment banking and private equity activities from those firms’ consumer lending arms. Effectively, the rule bans the practice of proprietary trading (prop trading) by commercial banks and their affiliates.

For institutional investors, this rule—if implemented and operates as intended—would reduce counterparty risk for the assets held by major multi-armed finance firms, such as Morgan Stanley and Goldman Sachs.

CalPERS’ lobbyist reported some appetite for the low-awaited implementation, but likely not enough to actually get it down before 2013.

“So the reality is [that] there are somewhat mixed messages in terms of the speed in which this has moved,” Lussier told the board of the $242.5 billion pension system. “That causes some confusion right there. But I would be very surprised if this issue gets any sort of high priority. At this point, we are sort of expecting a pretty brief lame duck [session], that will in all likelihood just push these issues into the next Congress. But we don’t see a lot of other issues being considered.”

(November 15, 2012) – A major study of Illinois’ vastly underfunded public pension system has deemed the problem “unfixable.”

The Civic Committee of the Commercial Club of Chicago, a influential non-profit group of business leaders, told its members in a public letter published this week that only drastic action would make a dent in the state’s $83 billion in unfunded pension liabilities.

“The pension crisis has grown so severe that it is now unfixable,” the committee’s president, former state Attorney General Tyrone Fahner, wrote. “We do not make that statement lightly. It is an honest statement that no one – not our legislators, nor our governor, nor labor leaders—is willing to say publicly.”

The Civic Committee argued that the state no longer has the capacity to “preserve all state pension benefits as currently structured.” However, it outlined steps that it says the state must take to “to minimize the long-term damage” to state employees, retirees and taxpayers:

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1) Eliminate all members’ cost-of-living increases, which are currently 3% compounded annually.

2) Cap the final salary on which pensions may be based.

3) Increase the retirement age to 67.

4) Shift the employers’ share of teacher pension contributions to local school districts.

Illinois Governor Pat Quinn has aggressively pursued drastic pension reform, but thus far been unable to get legislation passed. In August, he called lawmakers back for a special session to vote on a bill for dealing with the unfunded liabilities, which did not pass.

“This is a date with destiny for our state,” Quinn said before the vote. “We have to deal with this. We can’t just shuffle it under the rug and pretend it doesn’t exist. It’s an $83 billion [unfunded] liability for Illinois.” This is the official figure. The Illinois Policy Institute, an economic think tank, estimated the total state and local retirement debt to be $203 billion.

“I’ve tried to make it very clear that our state is now spending more on pensions than on education,” he said.

Both Republican and Democratic leaders agreed on reducing liabilities by boosting the retirement age and limiting the cost of living adjustments, according to ABC reports at the time. Republicans, however, opposed shifting the cost of suburban and downstate teacher pensions from the state to local school districts, fearing property tax increases.

The Civic Committee insists that all of these measures are now necessary.