CalPERS is back - sort of.
Slowly, sometimes painfully, America's largest public pension fund has erased the nearly $97 billion worth of investment losses it suffered in the market crash. Its portfolio swelled to a record $261.7 billion Friday, surpassing the pre-crash high in 2007.
But the California Public Employees' Retirement System is nowhere near back to full financial health. Once fully funded, CalPERS is now about $100 billion in the hole, and it's putting increased pressure on state and local governments to pay more into the system.
The problem is that CalPERS' pension liabilities - the dollars it will have to pay retirees in decades to come - have soared in recent years as government payrolls grew. With a smaller pool of available money to invest following the crash, CalPERS hasn't been able to earn enough profits to keep up.
"Our liabilities never took a vacation," CalPERS spokesman Brad Pacheco said. "They continued to grow based on higher payroll. That means we have to pay out higher pensions."
Pension reform advocates attached little significance to the fact that CalPERS' assets have reached their pre-crash levels.
"It's no reason to break out the party hats," said Dan Pellissier, a former legislative aide who is president of California Pension Reform. "You've hit this marker, but it's completely meaningless ... unless you view it in the context of the liabilities."
Top CalPERS officials have been careful not to brag about the new record.
Speaking to the fund's investment committee last week, when the portfolio was just under $260 billion, chief investment officer Joe Dear said the asset record "does not account for the liabilities and where they stand. We should keep that in mind."
The funding shortfall isn't an immediate cash crisis. CalPERS has plenty of money to pay retirement claims now and for the foreseeable future. But the unfunded liability means CalPERS doesn't have enough in hand to cover all its long-term pension obligations.
Barely six years ago, CalPERS had no such shortfall. In June 2007, it had 101 percent of the assets it needed to pay retirement claims well into the future.
Those assets - spread among stocks, bonds, real estate and other investment vehicles - peaked in value at $260.5 billion on Oct. 31, 2007.
The market crash hit all pension funds. CalPERS' portfolio fell to a low of $164.9 billion on Feb. 28, 2009.
The road back hasn't been easy or smooth. For instance, CalPERS had to overhaul much of its battered real estate portfolio, which accounts for about 8 percent of the portfolio, and fired several of its outside investment partners. Nowadays, the fund puts much of its real estate money into more conservative projects than before.
During the years that CalPERS spent turning its investment fortunes around, pension liabilities continued to balloon. Even though governments were tightening budgets, payrolls grew and so did pension obligations. CalPERS' liabilities increased by around $80 billion between 2007 and 2011, the last year for which figures were available.
"New people are added to the plan, and people accrue more service time," said CalPERS spokeswoman Amy Norris.
CalPERS membership has grown by around 150,000 since 2006, according to pension fund data, a 10 percent increase.
The comeback in the stock market and other investments has helped CalPERS narrow the funding gap somewhat during the past few years.
In June 2009, CalPERS was $115 billion short. It had barely 61 percent of the assets it needed to cover its long-term obligations.
By last June, the latest month for which figures are available, CalPERS' funding situation had improved to 70 percent. But it was still about $100 billion short of full funding status.
After several years of political wrangling, CalPERS' problems prompted Gov. Jerry Brown last fall to sign a pension reform law that reduces benefits for newly hired public employees. The law took effect Jan. 1.
The new law doesn't address the existing shortfall. Last week, the CalPERS governing board took a dramatic step to deal with that.
Board members implemented a new accounting policy that, in effect, forces CalPERS to face up to its investment losses and funding shortfalls far more quickly than before.
As a result, state and local governments will have to raise their annual contributions to CalPERS by up to 50 percent over five years, starting in 2015. CalPERS currently gets about $11 billion a year in contributions, including almost $8 billion from government agencies.
Call The Bee's Dale Kasler, (916) 321-1066. Follow him on Twitter @dakasler.