ICYMI: CalPERS running up record pension debt on your credit card

Friday, July 22, 2016

East Bay Times
Daniel Borenstein
July 21, 2016

When the nation's largest pension system Monday announced its annual earnings, news coverage focused on the dismal 0.61 percent return for the last fiscal year.

That missed the bigger picture: The paltry investment yield leaves the California Public Employees' Retirement System with a record $139 billion shortfall. That's $46 billion more than just two years ago.

Consequently, CalPERS has just 68 percent of the assets it should, the system's lowest ratio at any time except the two years coming out of the Great Recession.

This isn't a problem for workers and retirees. It's a problem for you, the taxpayers. The shortfall is a debt that must be paid off by state and local governments. That means higher taxes or fewer public services, or both.

The Great Recession battered CalPERS' portfolio and forced it to require greater contributions from state and local governments. But if it doesn't further bolster its accounts, the damage from the next recession could be even worse.

If it had entered that downturn in the position it's in today, the results would have been catastrophic, requiring a massive infusion from state and local governments -- that is, taxpayers.

Make no mistake: Another recession is coming. We don't know when, but we know we're due. The current recovery, entering its eighth year, is already two years longer than the postwar historical average.

CalPERS' average earnings haven't met the current 7.5 percent average annual return target over the last three, five, 10, 15 or 20 years. And going forward, a CalPERS consultant warns, the system is likely to earn an average of just 6.4 percent annually over the next decade. That would mean about $50 billion less in earnings.

But the CalPERS board is dominated by worker representatives and elected officials beholden to organized labor for campaign support. They know that higher investment return forecasts mean lower contributions to CalPERS and more immediate money for worker salaries.