CalPERS Funding Might Be Only 40 Percent Funded

John Seiler:

As we’ve been warning here on for more than two years now, CalPERS’ funding is way too low. I’ve written before how CalPERS might only be funded at the 55 percent level.

It turns out that even that is too optimistic. The new level might be just 40 percent, according to

“As CalPERS puts a new focus on risk, a funding level that drops to 40 percent is emerging as the red line.

“The worry is that if the funding level of the big pension fund drops too far, it may not be practical to raise annual employer payments enough to regain proper funding.

“The rough estimate (final figures are not in yet) is that CalPERS funding as of last June averaged 74 percent, up from 65 percent the previous year. A spokesman said the average level has never fallen below 55 percent.

“But CalPERS wants some cushion in case the economy slides back into a major recession, punching another big hole in investment earnings expected to provide about two-thirds of pension revenue.”

New Recession?

That’s another thing I’ve been warning about: a new recession. Recessions or depressions strike about every five to seven years. The last one struck in December 2007, almost five years ago.

Moreover, recessions seldom occur in election years (the 1980 and 1992 recessions were exceptions) because the politicians goose the economy to get re-elected. That’s happening this year.

As Wayne Lusvardi has reported on this site, you can’t have long-term growth when interest rates are close to zero, as now. That means people can’t save and invest in new business and jobs creation. Something has to break. And it will — probably next year.

The problem for CalPERS is that its portfolio needs to use recovery periods to make up for what was lost in the previous recession. But that hasn’t happened during the current economic recovery.

On June 30, 2007, CalPERS’ all-time peak valuation was $247.7 billion. According to its Web site, as of March 21, 2012 its valuation was $237.3 billion. So, it’s down 4 percent in nearly five years.

However much you massage the numbers, down is never up, not even 0.000001 percent up.

Here we are, probably at the end of an economic recovery period, and CalPERS still hasn’t recovered from its losses during the Great Recession.

CalPERS recently reduced its expected annual discount rate to 7.5 percent from 7.75 percent. Starting July 1, that’s a new $167 million yearly hit on California taxpayers. And we don’t get anything for it: No new roads, no schools built, no new teachers hired, no parks kept from being shuttered.

The money just goes to the generous pensions of former workers who don’t even work for us anymore, and might not even live in the state. Such as the 9,000 members of the “$100K Club,” who make $100,000 or more in their pensions per year.

Such as retiree Bruce Malkenhorst, who pulls in an incredible $509,664.60 a year for his pension.

And it’s all guaranteed by the California Constitution.

Unless we reinterpret the constitution.

Or change it.

Or ignore it.

March 22, 2012



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