‘A Public Calling’: CU Board Member in 2 Worlds Shares Thoughts

Jose Luis Pacheco, Board Member of Santa Clara County FCU and Board Member-Elect of the California Public Employees Retirement System (CalPERS) Board of Administration — to be sworn in on Jan. 16, 2022.
Jose Luis Pacheco, Board Member of Santa Clara County FCU and Board Member-Elect of the California Public Employees Retirement System (CalPERS) Board of Administration — to be sworn in on Jan. 16, 2022.

You won’t find many — if any — credit union board directors who double as board administrators of their state’s pension fund. Jose Luis Pacheco, a nearly four-year board member of $1 billion-asset Santa Clara County FCU, is that leader.

Although it feels like his fiduciary responsibilities soared nearly overnight, the volunteer says he reveres his latest public calling with a sense of duty. In early October he won a four-year term on the California Public Employees Retirement System (CalPERS) Board of Administration.

As a trustee of the largest pension fund in North America with $500 billion under management, Pacheco will work with 12 fellow board administrators and a staff of financial consultants to guide risk levels, investments, and steer the fund’s general direction. He will be sworn into the seat on Jan. 16.

It’s a notable commitment commuting a few hours back and forth to Sacramento each month and advocating for a huge state employee pension fund that is not in the worst of financial health, yet technically is still “underfunded” by actuarial-accounting standards. A confluence of older-worker labor market trends, investment decisions, and retirement policies have made their impact on many state pensions over the years. Pension boards have been weighing difficult decisions, such as having younger workers contribute higher amounts and diversifying funds into slightly riskier, non-traditional investments.

These fiduciary obligations and hard judgement calls are on top of his other credit union duties (sitting on the information technology/security committee), as well as his computer developer day job for San Jose-Evergreen Community College District in San Jose, CA. Pacheco also serves on the California Credit Union League Board of Directors Volunteer Leadership Committee, which meets a few times each year to discuss credit union advocacy issues, strategize on increasing volunteer engagement, and educate federal and state legislators on the purpose and philosophy of credit unions.

“At both CalPERS and the credit union, I serve our members,” Pacheco said. “At CalPERS, we serve current and future employees so they can eventually retire or live out their retirement today. At the credit union, we serve our community where members live, work, or go to school — and many of them also happen to be part of the CalPERS family. Both volunteer positions come from my heart. They are personal callings.”

CU Weekly interviewed Pacheco about his new journey as he balances two important yet similar roles: safeguarding and growing the financial livelihood and wellbeing of individuals, workers and households. He will serve on the CalPERS board from January 2022 – January 2026:

Why run for a seat on the California Public Employees Retirement System (CalPERS) Board of Administration and serve as a “pension trustee”?
It’s a family affair. I grew up in Watsonville, California and my parents sacrificed a lot to raise a family. I am the son of farmworkers. When my father got sick in the fields, it devastated my family financially.

At six years old, a cafeteria worker let me clean dishes at my elementary school. Her compassion, empathy and humanity served as a guide, as well as encouragement from my mother at home. My mother was able to get a great union job. When she eventually retired, I saw firsthand the power of a defined-benefits pension program. She was able to live with the dignity she deserved. Going through this experience made me realize the importance of the pension in the lives of public employees.

You could say the same thing for members of Santa Clara County Federal Credit Union. One of our pillars is for members to accumulate wealth through financial education, coaching and literacy. In both the credit union and CalPERS realms, I want to make sure people can live the American dream through their savings. I want to serve our credit union’s members, as well as public employees, so they can retire with dignity — just like my mother did.

What’s it like serving on the CalPERS administration board versus Santa Clara County FCU’s Board of Directors?
The one common theme is acting as a fiduciary — and that’s the key. At the credit union, we are charged to protect our members’ hard-earned savings and investments, but also help them build their wealth and a future through proper planning. With that empowerment, they can make an awesome life for themselves, even on a modest wage. Many current and future pension beneficiaries work locally, and some are also member-owners of the credit union. Being a family, we want to take care of that family.

At CalPERS, we are charged to make sure both our active and retired beneficiaries receive the pension they are promised. We made a promise to municipality, school, and so many other public employees: If you were a public servant, you’ll have a pension and retire with dignity and respect after working for so many years. As fiduciaries, we have a public role. We have to keep that at the center of what we do.

There is a noticeable time commitment between these two duties — and CalPERS is the much larger one. Not only are there CalPERS committee and other meetings leading up to board administration meetings, but our main monthly board meeting is from Mondays to Wednesdays, which is two to three days of hard discussion and deliberation. Before that, it begins each month with investment consultant meetings, a lot of analysis, discussion items, and ironing out issues. My monthly CalPERS board packet for review is up to 1,000 pages compared to my 200-page credit union board packet.

At CalPERS, we educate the broader public about the importance of the defined-benefits pension. I have a responsibility to the pension, and I will stand up against any individuals or organizations that bring harm to the pension program.

How do you foster leadership synergies between two different boards and put your best foot forward within two different worlds?
You want board governance at meetings to run smoothly. You manage the conversation and you work through action items and issues. But many issues can, and should, be studied and worked out before the actual meeting. You don’t want meetings that look like they are in chaos. There may be controversy, but you don’t want to impede the flow of the board process in general. Many issues can be worked out beforehand.

When it comes to the credit union versus CalPERS, managing the largest pension in North America means there are many subcommittee meetings and consultation meetings. There are also closed sessions where sensitive issues are discussed. When we question something going on in the financial investment markets on behalf of our public employees and retirees, it is very material. It means something.

While CalPERS administers a range of modest to moderately risky investments, Santa Clara County FCU cooperatively intermediates deposits and loans in their members’ best financial interest. How do you balance different mindsets as you help lead both?
Philosophically, I think the fiduciary responsibilities are similar in nature. It’s the magnitude that’s different. 

The credit union is nearly 51,000 members strong and almost $1 billion in assets. Right now we struggle with yield. It is such a low interest rate environment. One strategy we are using to earn revenue is participation loans and developing partners with other credit unions to complete due diligence on them. It helps, but unfortunately there is an accelerated rate of paydown on these participation loans, so they are gone very fast. We also invest in some collateralized debt obligations (CDOs) and mortgage-backed securities where the risk profile is on the more conversative side. Another strategy is offloading loans by selling them but becoming the loan servicer.

Our credit union has a glut of liquidity and is trying to maintain its net worth ratio. It can be difficult in a highly competitive environment, and members have received many rounds of federal and state stimulus dollars, which equates to deposits coming in.

On the CalPERS side, we are looking into new avenues to target more yield as well. A few weeks ago we selected a new asset allocation model that’s rebalanced every four years, and we made our target rate of investment return 6.8 percent. Combined with a diverse set of investment assets, this will help us achieve that 6.8 percent target in the long run. The vote was tight — seven board members were for this decision and four against it.

We’ve also added 5 percent “leverage,” which means we can borrow money as part of the asset-mix allocation to purchase additional securities. This will hopefully protect against the impact of any potential serious “drawdown” during an economic downturn in the future and serve as a buffer to diversify our funds. We have also increased allocation of private equity investments from 8 to 13 percent. This is enormous for us since we are $500 billion strong.

Our pension is “underfunded,” so we are asking younger workers to contribute more to offset this shortfall over time. This increase will start affecting them in 2022. They are modest-wage employees in occupations like food services, office clerk, janitor, and other jobs. These are the kind of balances where you have to weigh-in and see where you land. It makes for a very interesting board position in many respects.

What is your vision for the future of CalPERS, as well as Santa Clara County FCU?
I made three campaign promises when I ran for CalPERS. First, to make sure the fund not only meets but exceeds its 6.8 percent target rate of investment return — and to eventually reach 100-percent “funded” status without any excessive risk-taking. Second, CalPERS plays a major role in health care services for its members since we purchase it for them. We need to use our enormous buying power to not only contain costs, but to provide savings to public-employee members whenever possible without a loss in services. 

Third, we at CalPERS need to be leaders in educating the broader public from being misled about the financial health of our pension system, as well as how pensions help public servants retire. These are individuals who assisted us throughout our lives and provided an essential public service, whether cafeteria workers, police officers, firefighters, schoolteachers, you name it. These are modest-wage earners juggling family obligations and other issues. I’m going to be a champion of the defined-benefits pension plan for them.

At Santa Clara County Federal Credit Union, we’re also a family. Our credit union members come from ordinary households just like many public employees, which is what I love. I envision the credit union growing by continuing to provide loans, enhancing our brand for our members, staying connected to giving back to the community, and growing our select-employer groups. I also see us enhancing products and services that respond to our members’ changing needs so they have the financial means to live their lives well.

These are both personal and public callings I have embraced — and look forward to continuing these fiduciary roles.

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