Administration December 14, 2011

CalPERS Rebuffs Institute’s Pension Findings

December 14, 2011 (PLANSPONSOR.com) – The California Public Employees Retirement System (CalPERS) issued a response to a study that painted a bleak picture of the financial status of the state’s pension system.

Reported by

Rebecca Moore

The study report released by the Stanford Institute for Economic Policy Research (SIEPR) shows California’s pension problem as worse than just two years ago (see SIEPR Report Calls for Reform to Calif. Pension System). In a statement, CalPERS said the health of the CalPERS fund has improved in the last two fiscal years.

“The study is written from a perspective that is intended to exaggerate perceived costs and the instability of pension systems,” said Ann Boynton, deputy executive officer of CalPERS Benefit Programs Policy and Planning. “The report’s findings were based on low discount rates to artificially magnify unfunded liabilities. It is important to remember that CalPERS invests in a highly diversified portfolio that includes stocks, real estate, and other assets that have historically earned significantly higher returns than the rates assumed in the study.”

The statement noted that over the past 20 years through June 30, 2011, CalPERS has earned an average annual investment return of 8.4% in excess of the pension fund’s actuarial rate of return assumption of 7.75% needed to pay long-term benefits. The fund has achieved this rate by investing in a diversified portfolio with an acceptable level of risk. This historical average includes steep losses experienced in 2008-09.

As of the most recent fiscal year end, the fund earned a 21.7% rate of return and gained back $60.8 billion from the recent 2009 low of $181 billion. CalPERS assets currently stand at more than $224 billion.

CalPERS has maintained good levels of funding and delivered promised benefits for 80 years. Currently it is near a 75% funded status, with an unfunded liability of $85-90 billion.

For every dollar paid in pension benefits over the last 20 years the vast majority came from investments: