CalPERS Pays Million-Dollar Salaries for Below-Median Returns

The California Public Employees’ Retirement System (CalPERS) continues to demonstrate a stunning disconnect between its investment performance and the compensation it awards its top administrators. A 255-page forensic investigation conducted by former SEC lawyer Edward Siedle and pension analyst Chris Tobe, commissioned by the Retired Public Employees’ Association of California, details a culture of secrecy and underperformance at the nation’s largest public pension fund. The report reveals that four CalPERS executives currently make more than $1 million annually — including CEO Marcie Frost, at $1.4 million — while another four take home over $900,000, and 26 earn between $500,000 and $900,000. These compensation levels are being paid out even as the fund’s long-term returns lag behind its peers.

According to Reason Foundation’s Annual Pension Solvency and Performance Report, the national median five-year rolling return for public pension funds was 8.02 percent as of fiscal year 2024. CalPERS’ own reported five-year return for the same period was just 6.6 percent — trailing the median by more than 140 basis points. Its 10-year and 20-year returns of 6.2 and 6.7 percent, respectively, both fell below even its own assumed rate of return of 6.8 percent. Over 20 years, CalPERS’ average return was far outpaced by the S&P 500’s 10.4 percent. As highlighted in a recent NBC News investigation by Gretchen Morgenson, CalPERS is operating with profound conflicts of interest and hidden excessive costs that prioritize Wall Street managers and internal staff over California taxpayers.

CalPERS CEO Frost disputes the investigation’s conclusions, saying the fund has ranked in the top five percent of large U.S. pension funds over the past two years and in the top 15 percent over the past three, driven by private equity returns. She has also noted that investment fees have been reduced by 35 percent since 2024 and characterized the report as “an opinion piece full of baseless assertions.” The fund did post an 11.6 percent return for fiscal year 2024-25, its best result in four years, and its five-year annualized return improved to 8.0 percent — essentially matching the prior year’s national median — largely because the strong fiscal year 2025 result replaced the disastrous -6.1 percent loss of fiscal year 2022 in the rolling window. But these recent short-term improvements do not erase the longer-term record, and Reason Foundation’s data confirms that even a passive 60/40 stock-and-bond portfolio outperformed 84 percent of public pension funds — including CalPERS — over the past 20 years.

The documented compensation largesse is symptomatic of a bureaucratic entity that has replaced objective performance metrics with internally constructed benchmarks designed to guarantee maximum payouts for its staff. Rather than evaluating executives against standard, transparent indexes, CalPERS uses compensation consultants to compare public employees against high-risk private sector investment professionals who actually have personal capital on the line. As Tobe detailed in his analysis — written as a companion to the forensic report he co-authored — this flawed benchmarking allows CalPERS to pay higher than private-sector salaries for investment performance that would typically result in termination elsewhere. Notably, CalPERS is transitioning on July 1 to a Total Portfolio Approach with a single reference benchmark of 75 percent equities and 25 percent bonds, replacing 11 separate asset-class benchmarks. Whether this reform meaningfully changes compensation incentives or merely reshuffles the benchmarking apparatus remains to be seen.

The systemic failures exposed in this report align with the structural problems I identified in my 2021 Reason Foundation study on private equity in public pension investments. I warned then that public pension funds were increasingly relying on opaque alternative investments to chase unrealistic return targets, exposing taxpayers to high fees and significant liquidity risks. The current forensic investigation confirms this trajectory. According to the report’s authors, private equity firms extract billions of dollars annually in fees from CalPERS through negotiated limited partnership agreements that are not subject to competitive bidding — a structure CalPERS defends as industry standard but which the investigators argue enables precisely the opacity that shields excessive costs from public scrutiny. Siedle himself acknowledged that CalPERS refused to produce the records necessary to determine total fee amounts, telling NBC News that he does not believe CalPERS itself even knows what the fees are. The report raises particular concerns about the relationship between CalPERS and Apollo Global Management, detailing the history of corruption, placement-agent scandals, and ongoing conflicts of interest that Tobe argues have cost taxpayers billions. When a government agency now has roughly 35 percent of its portfolio in private markets — with plans to push toward 40 percent — transparency becomes not just a governance preference but a fiduciary imperative.

If the California legislature continues to ignore these structural deficiencies, the unfunded liabilities of CalPERS — currently estimated at $179 billion, with the fund only about 84 percent funded — will continue to pressure state and local budgets. Lawmakers should impose meaningful constraints on CalPERS executive compensation, tying bonuses strictly to the fund’s performance against the new single reference portfolio benchmark rather than consultant-approved custom metrics. The state must also mandate full, itemized public disclosure of all private equity management fees, carried interest, and transaction costs before any future capital commitments are authorized — a measure that the recently defeated SB 1319, the Private Equity Sunshine Act, attempted to accomplish before CalPERS successfully lobbied to kill it. Without these legislative interventions, CalPERS will continue to operate as a self-enriching bureaucracy that drains public resources while failing to deliver the returns necessary to secure the retirements of California’s public employees without overburdening taxpayers.