The State Worker

Chronicling civil-service life for California state workers

November 20, 2008
CalPERS, LAO respond to Forbes article

We called out a comment by one investment expert quoted in this Forbes.com piece speculating that CalPERS could be "the next shoe" to drop in the global economic crisis.

The Forbes piece drew swift reaction from fund spokeswoman Pat Macht. Here's what she said in an e-mail this afternoon:

Two words for the Forbes article: Conjecture. Baseless.

CalPERS has more than enough money to pay benefits. It has never missed a payment in 77 years, not even during the Great Depression.

Forbes need only go to the S&P to get independent confirmation. Last week S&P re-certified CalPERS with the highest rating of liquidity. Just because the markets are down doesn't mean CalPERS can't weather it: We have short term tactics and long term strategies for investing and we have a long term investment horizon so we can afford to wait for the markets to recover. We aren't focused on the daily Dow number. The most improtant numbers to us are long term returns.

For the last 25 years we have had a positive return with an average of 16 percent return; we have had paper losses in five (averaged -3.8 percent). We are still way ahead of the game. Downturn in market values are concerning, but based on history of at least a half dozen downturns in 77 years, it is possible to overcome, given time. We have the right people, the right tools and the world's best investment minds navigating through the general financial markets' extraordinary conditions.

The rain falls on the just and unjust alike, and while the overall market conditions are unnerving, we are resilient and confident in our ability to protect our members' retirement security.

Jason Dickerson, who tracks all things state worker for the LAO, passed along this information:

I noticed the comment at Forbes' Web site too.

Even after mammoth investment losses, CalPERS reports having $176.2 billion worth of assets in its portfolio. According to CalPERS' audited financial statements, the Public Employees' Retirement Fund -- its main pension trust -- paid out just $10 billion in benefits in 2006-07 and had just hundreds of millions of dollars of other expenses. (See Comprehensive Annual Financial Report [CAFR], page 15.)

Other CalPERS defined benefit pension funds paid out under $200 million (CAFR, p. 19). In fact, CalPERS-wide, total benefit payments, refunds, administrative expenses, withdrawals, and other expenses from fiduciary funds totaled under $11 billion in 2006-07 (CAFR, pp. 34-35), and operating expenses of self-funded proprietary accounts (not funded from the same accounts as pensions) totaled under $2 billion (CAFR, p. 37).

There are serious funding issues that the state and local governments will need to address related to CalPERS in future years, but the specific comment you cite from Forbes has no basis in reality whatsoever.

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About The State Worker

Jon Ortiz The Author

Jon Ortiz launched The State Worker blog and a companion column in 2008 to cover state government from the perspective of California government employees. Every day he filters the news through a single question: "What does this mean for state workers?" Join Ortiz for updates and debate on state pay, benefits, pensions, contracts and jobs. Contact him at (916) 321-1043 and at jortiz@sacbee.com.

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