California's two big pension funds report huge returns

What a difference a cooperative stock market makes. The California Public Employees' Retirement System earned 20.7 percent for the 12 months ended June 30, the best result in 14 years. The almost-as-big California State Teachers' Retirement System earned 23.1 percent. That's the good news. The not-so-good news is that pension fund performance is measured over many years in order to smooth out the ups and downs - and on that basis, they still have a ways to go: Calpers' five-year average return is 3.4 percent, and the average 10-year return is 5.4 percent, well below the 7.75 percent that's required to meet its obligations. From Bloomberg:

Calpers had assets of about $225 billion when Lehman Brothers Holdings Inc. went bankrupt in September 2008, leading to a panic that wiped out more than $6 trillion in U.S. stock- market value in about six months. Calpers value plummeted to $164.7 billion by Jan. 31, 2009. It had reached $251 billion at the end of June 2007, climbing to a record of about $260 billion in October of that year, just before the global recession began. The 13-member Calpers board in March voted to keep the expected rate of return on assets at 7.75 percent. They rejected a recommendation from actuaries to lower it to 7.5 percent, which was based on projections for market returns to trail historical averages. Some board members expressed concern at the time that a lower rate would have burdened local governments by forcing them to put more cash into the fund as they were already facing financial strains.

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Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
 
Mark Lacter, business writer and editor was 59
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