Follow LA Observed on Twitter here
Not serious trouble anyway, but like most any investor the California Public Employees' Retirement System, the nation's largest public pension fund, has taken it on the chin. Assets have declined by more than 20 percent from the end of the June 30 fiscal year through Oct. 10. This gets a little complicated - from the WSJ:
The declines are taking a toll on Calpers funding status, which is the fund's assets divided by its liabilities. That ratio would be down to 68%, based on the market value of its assets, unless Calpers reverses the current level of declines. Analysts suggest that the ratio for healthy pension funds should be at least 80%. At the end of the June 2008 fiscal year, Calpers was 92% funded. It was at 102% funded at the end of June 2007.
If assets continue to decline, employers will have to shell out more in contributions (the employers are cities, counties and the state of California). Since state legislation established the fund in 1931, Calpers has never missed a payment. From the Sacramento Bee:
CalPERS' members have guaranteed retirement benefits that are funded three ways: employee contributions, employer contributions and returns on CalPERS' vast investment holdings. If the fund's assets are squeezed and the revenue from that income stream slows down too much, the fund can ask employers to contribute more. This, of course, doesn't make taxpayers outside of the civil service system happy, because "employer contributions" are essentially passed through to the public, since the "employers" are government entities.
David Frum stirred the pot last Friday on National Review Online when he posted this:
This crisis occurs as the first baby boomers approach retirement. Will asset values have recovered by 2011, when the babies born in 1946 turn 65? I can't see it. Those pension funds will be coming under severe strain ... and will clamor for help.
Calpers issued a statement today that tried to arrest any concerns by pensioners:
The California Public Employees’ Retirement System (CalPERS) today said employer rates for fiscal year 2008-09 are unaffected by the market losses experienced in October of this year. Employer rates were built using investment returns from earlier periods, and the effect of the current market downturn in October will be unknown until investment returns are determined for the fiscal year ending June 30, 2009.
Mark Lacter created the LA Biz Observed blog in 2006. He posted
until the day before his death on Nov. 13, 2013.