The return assumptions are part of the actuarial funding matrix required to keep the pension fund solvent. We've been calling CalPERS out for faulty assumptions since 2007, and are starting to think maybe they aren't very good at what they do.
Here's a post from July 2012:
FAIL: CalPERS Posts 1% Return for Fiscal Year Ended June 30, 2012.
CalPERS is the largest pension fund in the United States with assets of $233 Billion.As that post, and others, goes on to say, the embedded assumptions in the 1999 pension law, SB 400, are 25,000 on the Dow Jones Industrial Average by 2009 and 28,000,000 by 2099.
California taxpayers are on the hook for any shortfall in investment gains vs. the benchmark.
We have dozens of posts on the behemoth, does anyone else remember this from Patricia K. Macht, Assistant Executive Officer, Office of Public Affairs in March '09
Beware of the anti-pension ideologues who come out of the woodwork during market downturns. Like vultures, they prey on the highly charged and negative investment environment, looking for ways to convince you a temporary performance downturn will be typical for all time!They put that out when the fund assumed a 7.75% annual return.
They know -- but don't tell you so -- that we set our rates based on a fiscal year investment return. They don't tell you that our assumed rate of return is made based on advice from a range of experts within CalPERS and within the industry and that it is regularly evaluated every two to three years in public session. They don't tell you what you would learn from a textbook on pension management: that some years investment returns are as expected; other years, they will be more than expected and yes, some years they will be less than expected...
They only this year were shamed into lowering it to 7.5%.
Following up on January's "CalPERS Earns 1.1% in Calendar 2011, a Bit Less Than the 7.75% They Need"....
And the latest, from the Los Angeles Times:
CalPERS likely to fall short of annual investment goals
The nation's biggest public pension fund is falling far short of its annual investment goals, a setback for a system already straining to keep up with looming obligations.
The California Public Employees' Retirement System earned only 3% in the 10 months that ended April 30 and is likely to fall short of its 7.5% annual target when the fiscal year ends Tuesday, the pension giant's investment chief said.
Absent a "remarkable rally in the global stock market," said Ted Eliopoulos, CalPERS' chief investment officer, the ground to make up in two months is too great to avoid a likely shortfall.
"We don't like to get too excited about any one-year return," he said. "As the board is well aware, we would like to look at longer time periods as they are much more meaningful in measuring our performance."
Eliopoulos' remarks came in a prepared statement to the CalPERS board last week. A video of the public meeting was posted on YouTube, but not yet on CalPERS' website. CalPERS posted monthly financial data Thursday.We have so many posts on CalPERS (and the slightly smaller CalSTRS) that it is easiest, if interested, just to do a Google search rather than list individual posts which run into the hundreds:
The performance of CalPERS, with investments totaling $304.9 billion at the end of April, is closely watched in the financial world and has broad implications for California taxpayers.
Charged with paying benefits to 1.7 million current and future retirees, CalPERS has the power to compel government employers to make up any shortfall in its fund. The pension plan was only 77% funded at the end of last June....MORE
site:climateerinvest.blogspot.com calpers
