ICYMI: Dan Walters: CalPERS' unfunded liabilities grow as its investment earnings lag

Wednesday, July 20, 2016

Sacramento Bee
By Dan Walters
July 18, 2016  [Excerpts]

You can smear lipstick on a pig, but that doesn’t change its innate porcinity. Officials of the California Public Employees Retirement System, the nation’s largest pension trust fund, tried Monday to cast its very anemic investment earnings – well under 1 percent – in a positive light.

Pension funds and other big-scale investors around the world are seeing very slight, or even negative, results in an era of political and economic volatility, particularly in Europe, and interest rates near zero.

Over the last two years of earning just a fraction of the assumed 7.5 percent “discount rate,” CalPERS has fallen behind its assumptions by $30-plus billion. Thus, the entire trust fund has shrunk in relative terms because “contributions” by state and local governments and their employees fall well short of pension payouts and the earnings needed to bridge the gap haven’t been there.

With the fund stuck at around $300 billion for two years, it’s about $100 billion short of fully funding its pension obligations, and falling shorter each day. And that shortfall is based on its 7.5 percent discount rate, even though the average return has been under that mark for decades. 

Soaring pension costs have contributed to the bankruptcies of three cities, and under the revised schedule that went into effect July 1, contributions of 50 percent of payroll, or more, for police and fire personnel are not uncommon.

But just as a pig with lipstick is still a pig, a pension fund in crisis is still in crisis, and ignoring that reality benefits no one, including pensioners.