CalPERS’ CEO Marcie Frost’s History of Embellishment and Poor Management Goes Back to Washington

The CalPERS board has decided to fight the inevitable by backing CEO Marcie Frost even though her days are clearly numbered. The board’s Performance, Compensation & Talent Management authorized a 4% salary increase and a $85,000 bonus payment yesterday which is sure to be ratified by the full board today.1

But as our story today shows more and more people are disturbed that Frost continues to get away with misrepresentations and performance exaggerations that go back much earlier than her time at CalPERS. People who have worked closely with Frost for many years in Washington are coming forward with first hand accounts of her poor performance and cover-ups.

Two employees of the Department of Retirement Systems (DRS), the back office/call center portion of the Washington state pension system where Frost worked for over a decade, contacted me to confirm the accuracy of our reporting on Marcie Frost and voice their concerns about her conduct and performance in Washington and its implications for CalPERS. As one put it, “The taxpayers of California need to know the truth.”

Both individuals spent many years at DRS and their tenures overlapped with that of Frost as Executive Director. Each at different times had substantial direct interaction with her and went to meetings and conferences with her. Each of them had also worked outside DRS. Through either direct experience at other agencies or having worked in interface roles with other agencies, they were also confident of the information one provided and the other was able to confirm about Frost’s claims regarding her work at her employer prior to DRS, the Department of Labor & Industries.2

The bottom line is that Frost is a poor manager who is nevertheless, as one put it, “cunning” and very skilled at self promotion. Each source described multiple instances of how Frost took credit that was not warranted for her work early in career and grossly misrepresented her initiatives at DRS, falsely depicting efforts that were either failures or never completed as successes.

As one stated:

Marcie ran the agency like a high school student body – unprofessional, catty, and a con game. She was an incompetent and dysfunctional manager.

As the other wrote:

Everything you say in the CalPERS articles is spot on about Frost. She highly embellishes everything she touches and is untrustworthy to her employees and her organization for her own personal gain, and regularly throws people under the bus. Not unexpectedly, she schmoozes well with upper management. Many people I know would not recommend her for the CalPERS job and were actually surprised to hear she got the job.

The specific issues we will cover are Frost’s poor management decisions, her misrepresentation and exaggeration of her supposed accomplishments, and her toxic management style.

Poor management decisions. After Frost returned to DRS in 2010, she decided to reorganize its call center. As you can imagine, the call center is the key interface between beneficiaries and DRS. It is not just their first but often their only channel for getting questions answered and problems resolved.

As readers may recall, DRS handles roughly 15 separate defined benefit pension plans, including those of teachers, judges, and firefighters, along with a defined contribution plan. Each of the defined benefit plans has its own terms and they are often complex. Historically, each plan had its own dedicated call center reps who were familiar with the idiosyncrasies of the plan they handled. The system had worked well for 20 years.

Frost decided to end the specialized call center teams and have every call center representative handle all plans. This radical change was implemented without giving the staff much in the way of additional training or upgrading the caliber of the staff. The apparent aim was to improve efficiency.

The initiative backfired. Not only did wait times rise and beneficiaries increasingly wind up having their calls go into voicemail, but even worse, the overloaded call center workers were making significant errors more often. One of several examples provided was of a retiring employee who had over $10,000 of accumulated vacation which would by default be paid out as a lump sum. Instead, he asked (as was permissible) to have it treated as deferred compensation and rolled over into his defined contribution account at DRS. Even though the call center agent said she was going to implement his request, the funds were paid to him, with 20% withheld, resulting in him paying more in taxes than necessary. He was not able to get DRS to reverse this transaction.

The misguided combining of call center operations also hurt other beneficiary service efforts. DRS also had a walk-in customer service center, where wait times had seldom been longer than ten minutes before Frost’s reorganization. The queues increased greatly.

What did Frost do when confronted with these problems? She did not attempt to fix them, say by increasing training of the call center staff or undoing or partly undoing her reorganization (one option would be to re-create dedicated teams for the 3 or 4 biggest plans and have the rest handled by another group). She instead resorted to scapegoating and external image management.

Frost pressured the managers of the call center, getting them to write up the front line staff for their supposed performance failures, based on new metrics Frost had implemented, when in fact the new system imposed unreasonable demands on them. As one put it:

People in the call center were crying. They even left when they had no new job lined up. But Frost cherry picked data to present to the Governor [Jay Inslee], even though it was an utter failure.

Needless to say, high turnover in an operation where staff performance problems result in large measure from them lacking sufficient knowledge to execute a greatly expanded job scope is a recipe for continued poor results and higher expenses. New employees are guaranteed to need time to learn the required information and are likely to make mistakes. Hiring staffers in and of itself involves costs, plus new employees require training, yet another cost.

And the charge of cherry-picking data is credible since Frost has been doing that at CalPERS.

At the end of this post, we’ve embedded the slides from a presentation at the July 2018 offsite from the presumably most persuasive, two case studies Frost could show to demonstrate that her implementation of “lean” management techniques was paying off.

If you don’t know any better, the slides look compelling. The problem is the underlying work is bogus.

We’ve embedded the slides from the first of the two examples at the end of the post. They show an egregious case of data distortion.

CalPERS implemented alleged “lean” changes in its death benefits processing and the slides depict CalPERS as having achieved marked improvements, such as reducing the number of cases that took more than 45 days to process.

Why are the touted results clearly the result of cherry-picking?

CalPERS used an obviously cooked-up basis of comparison. Rather than take the same time period in successive years, CalPERS instead chose a set number of cases to examine (300 each) before and after a suspiciously-artbitrary-looking cutoff date, February 12. Under questioning, the presenters admitted the “before” cases included ones submitted in November and December.

Why does this matter? The beginning of November through end of January is certain to be the worst time of year in terms of efficiency for a government agency. First, you have a high density of holidays compared to the rest of the year (Veterans’ Day, Thanksgiving, Christmas, Martin Luther King Day). Output suffers due to distractions like holiday shopping, more interaction with family members, and even getting out of the mood to work. Second, many employees also take vacation days around these holidays (and recall that CalPERS employees have generous vacation allowances). So there was also almost certainly reduced manpower to process claims during this period.

Finally, even if this comparison had been constructed properly, a single iteration proves nothing. Any apparent improvement could be the result of sheer happenstance. You would need to have multiple properly-contructed comparisons before you could conclude anything.

The second case study, on purported improvements in the processing time of disability benefits, suffers from similar deficiencies. Again there is only one performance comparison. And there is no control for quality, such as proportion of claims rejected. Any improvement in turnaround could be due to rejecting more difficult cases, the same way that the fastest way to reduce average time per call in a call center is to hang up more often.

Even third party evaluators who have reason to be as nice as possible to CalPERS can’t do enough in the way of porcine maquillage to hide what is going on. The normally very CalPERS-friendly Chief Investment Officer Magazine reported CalPERS Gets a D for Fixed Income Management, But B For Overall Program:Consultant Wilshire Associates also gives overall CalPERS leadership a C grade. If you click through and read the article, the reason for giving the giant pension fund a “D” in fixed income (vacancies in too many key roles) applies even more so to private equity, which accounts for more than half the investment risks and fees CalPERS incurs. So how exactly does that add up to an overall “B” grade, with leadership also getting a “C”?

Misrepresentation and exaggeration of accomplishments. The call center fiasco shows Frost misrepresenting a terrible outcome as a success. This is not an isolated case. Frost has a pattern of exaggerating results that goes well beyond acceptable apple-polishing.

Frost has represented herself repeatedly at conferences in Washington, and presumably also to CalPERS, as an expert in migrating systems off mainframes to desktops. That is flat out false:

DRS’ reliance on mainframes was not seen as a good thing. Marcie was going to all these IT conferences telling the audience how we’d gotten off them. The IT staff from DRS at them would be poking each other in the ribs about her statements.

We did have a huge number of projects to get off the mainframe, but we haven’t made any substantial progress. 90% to 95% of the IT processing power at DRS is still on the mainframe.

Another clear misrepresentation was one we cited on our website, that of Frost claiming she had implemented the first human resources IT system in the State of Washington:

Washington was one of the first states to adopt computer processing in the 1960s and 1970s, as you wrote earlier. It was her embellishment to claim that she had anything to do with a first implementation. And Labor & Industries [the department she worked in] was not the one that developed human resource systems. That was the Department of Personnel.

The most she would have been responsible for was training for the rollout of a Department of Personnel systems program.

The only other thing she might have referred is Labor & Industries working on their own version of a leave system (sick leave, vacation leave, etc) using the enterprise Department of Personnel data. But the creation of that interface would be considered a worst IT practice, not a best IT practice. It would be like a vendor modifying a Microsoft product.

So predictably, that Labor & Industries system has had ongoing problems, even though the people at Labor & Industries would try to deny that. Employee leave balances were many times out of sync with the official Department of Personnel leave balances. This would result in people taking vacation leave for example, when they did not have the official balance to take the time off. It became challenging to manage at L&I. On top of that, when the Department of Personel made a change to their enterprise system, L&I had to scramble to change their system. It was an ongoing maintenance challenge.

Toxic management style. Frost was an abusive, scapegoating boss:

Marcie said she believed in six sigma type practices, such as the the “leader-servant” style of management, where low-level employees had a lot of authority, just like factory workers at Toyota could stop the production line if they saw something wrong happening.

But what she would say and what she would do were two different things.

She would regularly discredit and embarrass junior people before senior management. Morale plunged. Frost also is politically well connected and vengeful, so her victims and people who saw this sort of thing happening and were unhappy about it felt powerless to do anything about it.

If you look at LinkedIn, you can see a significant number of bios on it with short times of employment at DRS, which is not what you’d expect from a government agency, since staffers get good benefits and have strong incentives to stay in order to get a pension. These insiders confirmed that DRS suffered from a high level of departures under Frost:

Turnover was much higher under Marcie since Marcie returned to DRS from WSECU around 2010. That is when Marcie reorganized the call center to “everyone does everything,” and people started getting written up. People were stressed out and leaving at higher rates than in the past. I am pretty confident you could confirm this from information you could get by FOIA, but Marcie admitted to it by her aggressive attacks on managers at DRS.

Marcie blamed the turnover on the the human resources management and secondarily on the call center managers, accusing them of not creating a supportive environment. In actuality, the front-line phone reps were overwhelmed by the new demands and there was nothing their supervisors could do to change that.

The higher turnover numbers were numbers that were reported to Governor Inslee on his performance measures so Marcie refused to take responsibility for the higher turnover and blamed the HR management. The head of HR eventually quit, and most people I know at DRS believe that it was directly due to Marcie’s unfair criticism and pressure.

The reports also suggest that the level of CalPERS employees contacting me about Frost’s misrule is certain to rise. California civil servants are well protected from dismissal, and it would not be difficult to provide evidence of problems at CalPERS without exposing confidential information. So keeping Frost at the helm will guarantee a continuing flow of bad news about CalPERS.


1Frost’s salary level last year was $318,000 and her bonus was $80,000.

2 The sources insisted on anonymity out of a belief that Frost would seek to retaliate and still had the connections in Washington to be able to do so. A third potential source backed out due to a stated fear of Frost’s vindictiveness.

CalPERS data doctored lean case study
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  1. Clive

    “Getting off mainframes” is almost invariably a Very Bad Idea. An approach believed by those who are put in charge of IT but don’t, unfortunately, have the foggiest idea about how IT works; they’re seduced by the top line cost savings but haven’t a clue about the inherent resiliency and scalability that mainframe offers. Plus mature and capable code and release management tools.

    That’s the “pros” of sticking with mainframe. The biggest “cons” (in every sense of the word) of trying to move away from them for core applications is the sheer unmitigated butchery that over enthusiastic under skilled management types can wreak using distributed architecture. Horrid, unmaintainable, under specified undiagnosable lash-ups that almost always still find there’s a necessity to end up with having the mainframe chugging away at the back end are all-too-easy to implement. You not only get no cost or efficiency or speed-of-change benefits, you get spaghetti systems complexity making things worse.

    The fact that Marcie fell for this old-as-the-hills scam (usually a consultants’ bait and switch hoodwink) is enough to have me, for one, conclude Frost was not an appropriate candidate for CalPERS’ CEO.

    Then you’ve got all the other stuff which former coworkers are whistleblowing on. Marcie is a material risk to CalPERS, their beneficiaries and the state employers. Time — way past time, in fact — for legislature action.

    1. Synoia

      Cost saving from moving off the Mainframe?

      That I doubt. The cost of creating and testing the new systems completely outweigh the cost of a mainframe.

      The justification always underestimates the cost of the new software, and the pain of integration. Typically by orders of magnitude.

      I was hired to resolve issues with a Unix front end to an IBM IMS system at some large enterprise. The Cost for the system was bid at $3 Million, but the run rate when I arrived was $1 Million per month.

      I had the infrastructure to deploy, and the concern was the infrastructure, LANs, Unix Machines and X-Terminals were on the critical path. The software, 1 Million lines of code, was not on the critical path, because the estimate was 2 month for testing software.

      The infrastructure plan was changed to deploy the Unix and X-Terminals in “green screen” or 3270 mode, and keep ahead of the software roll out, instead of deploying new hardware and software concurrently.

      We deployed all the hardware in one year. The software took an extra year over the original timeline. At $1 million per month.

      1. vlade

        ‘That I doubt. The cost of creating and testing the new systems completely outweigh the cost of a mainframe.’

        Not necessarily. The running costs of a (good) system are usually much higher than upfront developmeent costs. The running costs for mainframes can be very expensive. One of my former employers run a critical piece of valuation on a mainframe (I think it was System/390?) – but their main problem was sourcing HW boards for it, when the old one gave up the ghost. They were buying them in auctions from former users – at quite high prices too. You can solve that now with emulators, although I’m not sure how well.

        Similarly, it’s getting expensive to get developers (or even admins) for those systems. Say OS/400 is nothing like unix-like systems – where I broadly include Windows – which most people are used to.

    2. flora

      Many US college business schools now offer an IT Systems Management degree without requiring more than 1 programming course, if even that much hands-on experience with computers and networks. Degree path seems heavy on current management theory slightly tweaked to IT field.

      1. zer0

        A roomate of mine, actually post college, went on and on about how he wanted to be a product manager. He was applying to LinkedIn, Microsoft, Apple, Google, etc. I was a mechanical engineer and knew nothing about what that meant, so I asked him to describe what he would do.

        Basically, he described it as managing programmers/IT personnel. So I started asking him some basic questions on computing (I minored in EECS). Turns out, he knew what I knew as a freshman coming in. I was shocked.

        Then I started working. Realized America somehow has career paths for management starting in undergrad. I already thought MBAs were bad enough – a gatekeeper to separate the haves from the have nots in finance.

        1. John Zelnicker

          September 26, 2018 at 1:42 pm

          When I attended The Wharton School as an undergraduate, Class of 1972, I had 2 professors who said that they taught the MBA’s exactly the same course that they taught us. However, the undergraduates completed more of the syllabus than the MBA’s and we got better grades.

          flora on September 26, 2018 at 12:43 pm is correct. All of those “management” degrees require very little subject knowledge. That’s the problem with the massive administrative takeover by MBA’s of almost every type of business in this country, no knowledge of the subject of the work they are supposed to be “managing”.

  2. The Rev Kev

    The board is giving her a 4% salary increase and a $85,000 bonus payment? After all that bad publicity on her lying on her resume that got her the job in the first place? What the hell is wrong with these people? Do they really think it wise to tie their fortunes to that of Frost? If I were them I would be keeping very accurate diaries and the like – it should all come in handy when there is an eventual inquiry and they are each called to give their testimony.

    1. pretzelattack

      sounds like the bankers–a special bonus for almost wrecking the economy; of course it worked out better for them than it is likely to for frost and the calpers board.

  3. Mark K

    Please stay on topic. Marcie Frost invented a fictional education and perpetuated the lie for 6 years. That is the problem, that is why she must go. Attacking her “performance” is just helping them change the subject.

    I’m new to CalPERS. Until yesterday I thought I had found a place where I could make a career.

    A central topic on the CalPERS website yesterday was “accountability.” What a joke. Zero accountability for the top leaders. The boards decision yesterday confirmed that the entire senior leadership here is openly corrupt and willing to lie directly to us. Yesterday was a sword through employee morale. Everyone I work with is either shocked, hurt or done.

    1. vlade

      IMO, this is on message, as it shows she lied not only on her education, but on her achievements.

      That shows she’s not just a semi-accidental liar (there are people who would say ‘education, so what’?), but a carefully thought out liar.

      On the first one, the board could have (if it had the balls) censure her, make her to do a degree, and say not to pay the bonus until she does, saying ‘yes, she misrepresented, but we don’t think it’ a biggie because she did and does wonderful job, and this is punishment enough’. But this shows she lied on her performance, and is likely to lie on her performance at CalPERS to any externals (and board) as well.

    2. Synoia

      Quo Bono?

      It’s hard to look at yesterday’s announcement and not ask about who wins, and is there a cover up of under-performing the 7% funds growth.

  4. vlade

    DRS has a high staff turnover. From what I can see, CalPERS has a high staff turnover, and is struggling to find staff (less than 50% staffing in two crucial investment departments??? ).

    That alone is an indicator that people do not want to work for CalPERS, and either avoid it, or exit.

    Once it can be by chance. Twice, it points out to a systematic problem.

    It also looks like (a majority of) the board is fully captured – how common in the current world.

  5. EoH

    A CEO’s most important job is to control her board. All else is commentary.

    Ms. Frost appears to use the common technique of kissing up and dumping down. For those below her, it would be obvious, sadly, not for those above her, in this case, her board. The technique ruins morale and ruins trust. The knock-on effects in reduced productivity and effectiveness are legion. So good skills at manipulating presentations and reports are essential to this type of personality. That seems to be Ms. Frost’s principal talent.

    CalPERS effectiveness effects millions of people and billions of dollars. To use another worn but useful analogy, her board can change the oil or change the engine.

    1. Yves Smith Post author

      No, the CEOs job is to manage the organization. CEOs get fired all the time by boards who really don’t like doing that sort of thing because the CEO controls the nomination of candidates to the board (the pretense of independence is a joke, I’m pressed for time now so maybe I’ll elaborate later) because performance falls and/or the organization suffers too many black eyes.

      And the CEO and the board at CalPERS are fiduciaries, so their obligation to the beneficiaries is under the law their overriding obligation.

      1. zer0

        Agreed. I also think the CEO is usually the one to set the course of the work culture.

        If the CEO tends to massage numbers & put performance over honesty, then the directors, managers, and eventually analysts will follow suit.

  6. flora

    When I read that Frost’s replacement in Washington has a great list of earned credentials and experience I assume some people in Washington are reading your CalPERS/Frost posts with great interest… and a knowing half-smile.

    Thanks for your continued reporting on CalPERS, PE, and pensions.

  7. Donna Snodgrass

    And another thing. The elected retiree representative, Henry Jones, stated publicly to a large retiree organization that he accepted her high school diploma because she would have her college degree by October. Has he changed his mind? No! He also should resign. Or retirees better pay attention. He’s up for re-election next year. It does not surprise me that the current board president, Priya Mathur, is going along with this. I believe she’s been compromised for years. She also defended Fred Buenrostro until she couldn’t. He is now serving time for bribery. She defended the CFO, Asubonten, until she couldn’t. He was fired for what? Oh yea, dishonesty- lied on his application. Most recently Priya lied – on tape – about her fines for not disclosing her conflicts. She needs to be replaced. Her re-election campaign is going on now. If you work for a public agency with CalPERS retirement VOTE NOW! This is the last week to speak up – with your vote.

  8. RUKidding

    Thanks again.

    Such a frickin’ slap in the face: 4% raise + $85,000 bonus? _____________________ (family blog)

    I haven’t had a COLA that’s more than 2.5% in well over a decade. I’m at the top of my range, so I’m no longer eligible for a merit increase.

    That this EXTREME LIAR and worthless CEO gets such a huge raise and bonus is a giant slap in the face to all CA citizens.

    Keep up the good work on your true investigative journalism. Let’s just hope that someone somewhere in CA will take up the mantle and get this lying, cheating charlatan fired. And no golden parachutes, please.


  9. ThisIsNuts

    PR 18:60
    September 26, 2018
    Contact:Press Office


    SACRAMENTO – The following is a statement from State Treasurer John Chiang on the multiple news stories involving CalPERS CEO Marcie Frost:

    “Since her appointment in June 2016, Marcie Frost has largely proven her competency as the CEO of the nation’s largest pension fund, and I have submitted extensive performance evaluations that reflect my favorable opinion of her. However, recent ethical questions are not so much focused on her work once on the job, but rather on how she got the job to begin with.

    “Now, some are accusing her of knowingly and willfully making false and misleading statements regarding her pursuit of a college degree at the time she applied to CaIPERS. Others concede that the misstatements may have been the result of benign misunderstandings, but point to her benefitting from the misimpressions by failing to set the record straight in a timely way.

    “I can no longer sit on the sidelines, watching how some have been quick to paint Ms. Frost as an untruthful villain, while others have too casually dismissed what are serious allegations. Both are a rush to judgement. As someone who has always favored evidence-based decision-making, I believe we must focus on a fact finding mission that ascertains what information was initially submitted and where that information was unfortunately distorted.

    “Integrity and transparency matter. Ms. Frost’s, as well as the pension system’s long-term success depend on vigilantly maintaining the public’s trust.

    “Therefore, I am requesting we conduct an independent review — by a neutral third party — that removes any inherent bias that the Board, including myself, may have towards our CEO. This will allow us to say, with a straight face, that CalPERS does not act in an arbitrary manner.

    “Once this independent firm reviews the allegations and reports its findings to the Board, we will have the objective information necessary to make an informed decision. An opaque process that lacks independent fact-finding, due process, and thoroughness is no way to conduct state business or resolve a situation impacting millions of members and billions of dollars.

    “While I believe Ms. Frost has performed well in her role and hope she will be completely exonerated, my fiduciary responsibility to CalPERS and its nearly two million members must come first. We have a duty to follow the facts to whatever ends serve the best interests of our members.

    “An organization with the strong reputation of CalPERS needs to have a leader with unimpeachable integrity. If we do nothing, we will be perpetuating a double standard. Worse yet, a cloud of controversy will continue to hang over the head of the nation’s largest public pension fund. Until that cloud is removed, pundits will continue to question the decisions made by its leadership.”

    For more news, please follow the Treasurer on Twitter at @CalTreasurer, and on Facebook at California State Treasurer’s Office.

  10. Anon

    That anyone, including the CalPERS board, would think that Marcie Frost had either the educational or financial managerial experience or expertise to lead the largest pension plan in the nation is phcking Beyond Belief. She is a typical governmental weasel with an eye for advancement. At no time in her career has she proven a superior skill for leadership, financial astuteness, or professional management. She is a stick in the eye to all the working people who attempt to attain real expertise and professional skill.

    I’ve seen it in Nevada government, but that was 30 years ago; and the then Governor had the good sense to ‘cull the herd’ when it was brought to his attention. Marcie Frost clearly has no expertise/skill in IT, no expertise/skill in Finance, no skill/expertise in managing professional staff. So why does the Board think she can lead CalPERS out of the darkness?

    1. Yves Smith Post author

      Lambert’s formulation was “Is everything like CalPERS?” which has become, upon further study, “Everything is like CalPERS.”

      But you have the idea down.

  11. Lo Smif

    Last i read CalPERS funded status was increasing. Seems like the funded status would be avoid health indicator of a pension fund. I’d say things were improving.

    1. Yves Smith Post author

      CalPERS’ funded status improved solely as a result of the Trump bull market, and Chief Investment Officer Ted Eliopoulos cut equity allocations right before November, so CalPERS got much less benefit than it should have.

      And as one CalPERS retiree who is also in finance said to me today on this very topic, CalPERS touts its numbers when they are getting better and acts like they don’t matter and goes into speeches about being a long-term investor to take the focus off poor performance. So your statement sounds an awful lot like CalPERS PR….except….

      Based on the market action of the last two days, CalPERS’ funded status has fallen from 71% (not good) to just a bit over 68%. So by your simple metric, things are getting worse.

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