Dan Walters

By Dan Walters
July 12, 2016 – 3:04 PM

  • California Public Employees’ Retirement System lost money
  • Fund is now well short of what’s required to cover pensions
  • CalPERS demands more from governments to cover outlays

The California Public Employees’ Retirement System – the nation’s largest pension trust fund – took a beating during the Great Recession, dropping nearly $100 billion in value.

However, it recovered nicely as the nation emerged from recession and finally got back to its pre-recession level three years ago.

At the time, it sparked much celebratory verbiage from the system’s professional cheerleaders. But the public employee union flacks have been noticeably quiet since then – for good reason.

CalPERS’ investment portfolio barely eked out a profit during the 2014-15 fiscal year and it performed even more poorly during the 2015-16 cycle that ended June 30, declining by $8 billion (2.6 percent) to $293.7 billion.

Thus, CalPERS is falling extremely short of its earnings benchmark, known as the discount rate, of 7.5 percent per year, and its average earnings over the last two decades are now under that level.

It also means the fund is scarcely 70 percent of fully covering liabilities, even at 7.5 percent, and therefore under the 80 percent deemed to be minimally sufficient,

The timing for flat earnings couldn’t be worse. CalPERS is seeing pension outlays rise as baby boomer workers retire in large numbers and claim benefits that politicians irresponsibly increased during a brief period of high earnings. Moreover, the projected lifespan of retirees continues to increase, which means even more outlays.

Nor is CalPERS alone in seeing, at best, flat earnings. The Wall Street Journal reported this week that public and private pension trust funds are being clobbered worldwide. It implies that despite its immensity there’s little that CalPERS can do to counteract the trend.

To read expanded column, click here.