calpers

Under a proposal, CalPERS would begin slowly moving more money into safer investments such as bonds.

By Melody Petersen
August 30, 2015

California taxpayers have never paid more for public worker pensions, but it’s still not enough to cover the rising number of retirement checks written by the state’s largest pension plan.

Even before the stock market’s recent fall, staffers at the California Public Employees’ Retirement System were worried about what they call “negative cash flows.”

The shortfalls — which totaled $5 billion last year — are created when contributions from taxpayers and public employees who are still working aren’t enough to cover monthly checks sent to retirees.

To make up the difference, CalPERS must liquidate investments.

With more than $300 billion in investments, the nation’s largest public pension fund is in no danger of suddenly running out of cash.

But even its staff acknowledges in a recent report that despite fast-rising contributions from taxpayers, the pension fund faces “a significant amount of risk.”
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To reduce that financial risk, CalPERS has been working for months on a plan that could cause government pension funds across the country to rethink their investment strategies.

The plan would increase payments from taxpayers even more in coming years with the goal of mitigating the severe financial pain that would happen with another recession and stock market crash.

Under the proposal, CalPERS would begin slowly moving more money into safer investments such as bonds, which aren’t usually subject to the severe losses that stocks face.

Because the more conservative investments are expected to reduce CalPERS’ future financial returns, taxpayers would have to pick up even more of the cost of workers’ pensions.

Most public workers would be exempt from paying any more. Only those workers hired in 2013 or later would have to contribute more to their retirements under the plan.

The changes would begin moving CalPERS — which provides benefits to 1.7 million employees and retirees of the state, cities and other local governments — toward a strategy used by many corporate pension plans. For years, corporate plans have been reducing their risk by trimming the amount of stocks they hold.

The plan is the result of CalPERS’ recognition that — even with significantly more contributions from taxpayers — an aggressive investment strategy can’t sustain the level of pensions promised to public workers. Instead, it could make the bill significantly worse.

At an Aug. 18 meeting, CalPERS staff members laid out their plan for the fund’s board, saying the changes would be made slowly and incrementally over the next several decades.

That isn’t fast enough for Gov. Jerry Brown. A representative from the governor’s finance department addressed the CalPERS board, saying the administration wants to see financial risks reduced “sooner rather than later.”

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