CalPERS CEO Surpasses $1 Million After Record Investment Year

Marcie Frost, the CEO of CalPERS, the largest state-backed pension fund in the nation, is set to surpass $1 million in earnings for the first time since her appointment. This milestone comes after a record-breaking bonus was awarded to her, reflecting a successful investment year for the pension fund.

The CalPERS board announced that Frost will receive a bonus of $667,320, which is three times her previous performance incentive. This significant bonus is in addition to her base salary of $578,000, resulting in a total compensation that exceeds $1.2 million.

This increase marks a notable rise from last year, when Frost's total compensation amounted to $752,000. The substantial boost in her pay underscores the board's recognition of her leadership and the pension fund's strong performance during the year.

CalPERS recently announced a 9.3% return on its investments for the year, significantly exceeding its target of 6.8%. This strong performance is a positive development for the pension fund, which manages an impressive $528 billion in assets and provides retirement benefits to hundreds of thousands of California's public employees. The better-than-expected returns mean the fund will not have to increase charges to state agencies to cover its obligations, which is a win for both taxpayers and government budgets.

Since joining CalPERS in 2016, Frost has been a key figure in leading the agency through both financial reforms and unprecedented challenges brought on by the COVID-19 pandemic. Under her leadership, the pension fund implemented critical changes to its funding strategies, including adjusting its expected rate of return on investments to more conservative levels. These reforms were accompanied by a requirement for state agencies to contribute more upfront toward employee pensions.

Frost's tenure at CalPERS has been marked by a commitment to long-term sustainability and financial health. By making strategic adjustments to the fund's investment outlook and contribution requirements, she has positioned the agency to better meet its future obligations. These efforts have helped ensure that CalPERS remains on solid financial footing, benefiting both its members and the state as a whole.

While Frost is a key leader at CalPERS, she is not the agency's highest-paid executive. That title typically belongs to the Chief Investment Officer, a position that has experienced considerable turnover in recent years. Since Frost joined, CalPERS has had four different individuals in this role. Currently, Stephen Gilmore holds the position of Chief Investment Officer, earning an annual base salary of $718,750, plus performance bonuses. He is responsible for aligning the investment strategy with CalPERS' ambitious annual earnings goals.

At the same time, California’s other major pension fund, the California State Teachers’ Retirement System (CalSTRS), is also drawing attention. The fund is preparing to award bonuses to its top executives next week, marking a significant moment for the organization. Last year, CalSTRS’ CEO, Cassandra Lichnock, earned a total compensation package of $984,000, which included a $574,000 bonus.

CalSTRS, which manages approximately $341 billion in assets, plays a critical role in providing retirement benefits to California's educators. Like CalPERS, it faces the challenge of meeting ambitious investment goals to sustain its long-term obligations. The bonuses awarded to its executives highlight the competitive environment for leadership talent in managing large-scale pension funds.

However, it’s important to note that despite these headline-grabbing bonuses, both pension funds face long-term financial challenges. Both are considered underfunded, with assets covering only about 75% of what they owe to current employees and retirees. These deficits trace back to policy changes in 1999 that increased retirement benefits for public employees during a time of economic prosperity, as well as the massive investment losses suffered during the Great Recession.

Since then, both CalPERS and CalSTRS have implemented long-term plans to close those funding gaps. Public employees hired after January 1, 2013, receive less generous pension benefits as part of an effort to improve the financial health of these massive pension funds.

With more than half a trillion dollars in assets between them, these pension giants remain crucial to the retirement security of hundreds of thousands of public servants in California. Yet the question of how to fully fund their future obligations remains a topic of ongoing debate.