CalPERS said Tuesday its financial health improved significantly in the latest fiscal year, thanks to a strong investment gain, although the nation’s largest public pension system remains underfunded.
In its annual financial report, the California Public Employees’ Retirement System said it was 77 percent funded at the end of the fiscal year June 30. That represents a 7 percentage-point increase from a year earlier.
The pension system’s funding status is a key measure of how it’s performing financially – and how much money it will require from state and local taxpayers in the years to come. In effect, the latest numbers mean CalPERS has 77 percent of the funds it needs to pay pension obligations over the long term. Many experts say an 80 percent funding level is tolerable, but 100 percent is ideal.
As for the recent jump in funding levels, “it’s safe to say it’s the investments,” said CalPERS spokesman Brad Pacheco. CalPERS earned 18.4 percent in the latest fiscal year, well above its official forecast of 7.5 percent.
Despite the improvement in finances, public pension critic Dan Pellissier said CalPERS is still struggling to deliver what he called “unsustainable benefits.”
He said CalPERS hasn’t been able to fully right itself even as investment performance strengthens, and a 77 percent funding ratio isn’t sufficient to safeguard benefits for future retirees. Without benefit cuts, taxpayers are going to have spend more, he said.
“That 23 percent that’s still unfunded represents billions of dollars that will be paid by future taxpayers,” said Pellissier, president of California Pension Reform.
As it is, CalPERS has been raising contribution rates from taxpayers in recent years, in part to help overcome the disastrous investment losses suffered during the 2008 market crash. Its most recent rate hike, approved by its governing board last April, is designed to compensate for longer life expectancies for retirees. The rate hike means the state’s annual contribution will gradually grow from $3.8 billion to $5 billion. Local governments and school districts’ rates will go up, too.