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Morgan Stanley pays California pension funds $130 million over charges it misled PERS, STRS

What is CalPERS? We explain in one minute

CalPERS, California Public Employees Retirement System, aims to build retirement and health security for state workers. Here's a quick look at the retirement system.
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CalPERS, California Public Employees Retirement System, aims to build retirement and health security for state workers. Here's a quick look at the retirement system.

Morgan Stanley will pay $150 million to the state of California to settle claims that the bank misrepresented investment risks to the state’s biggest pension funds from 2003 to 2007, Attorney General Xavier Becerra announced Thursday.

About $122 million will go to CalPERS, the pension plan for most state and local government employees, according to a news release on the settlement. About $8 million will go to CalSTRS, the pension plan for teachers, according to the release.

The final $20 million will stay with the Department of Justice to cover its costs in pursuing the lawsuit and to pay for future investigations.

“The company lied about the risks of its products that it was marketing to CalPERS and to CalSTRS,” Becerra said in a press conference. “It was peddling mortgage-backed securities knowing there were higher risks than it ever was letting on.”

Becerra said the bank didn’t disclose the proportion of high-risk loans that were bundled up with low-risk loans in packages of mortgage-backed securities, the investment vehicles involved in the 2008 financial crisis that led to the Great Recession.

California has recovered $1.3 billion for its pension funds from financial institutions in lawsuits related to the financial crisis, Becerra said. Bank of America and J.P. Morgan Chase paid the largest settlements to California pension funds. Each paid about $300 million, according to the Department of Justice.

In the settlement agreement, Morgan Stanley denies the claims in the lawsuit and all claims of wrongdoing. A spokesman said the settlement resolves the last claim from a government against the bank related to the financial crisis.

CalPERS, the nation’s largest public pension fund worth about $360 billion, was fully funded in 2007, with about 100 percent of the money it would need to pay all its obligations to current and future retirees.

Its funded status dropped to about 61 percent in 2009, and currently stands about 70 percent. State and local governments are paying extra each year as part of a long-term plan to close the funding gap.

CalSTRS also suffered during the crisis, experiencing a 25 percent loss in the fiscal year that ended June 30, 2009. CalSTRS is about 63 percent funded, and school districts and teachers are paying more for their retirements plans to improve its funded status.

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Wes Venteicher anchors The Bee’s popular State Worker coverage in the newspaper’s Capitol Bureau. He covers taxes, pensions, unions, state spending and California government. A Montana native, he reported on health care and politics in Chicago and Pittsburgh before joining The Bee in 2018.
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