CalPERS reported its best annual investment gains in a decade Monday, a development that could alter the political climate as another fight looms over pension reform.
The California Public Employees’ Retirement System said its portfolio grew by 16.2 percent in 2013, boosted by a whopping 25 percent run-up in stock prices. The performance was substantially better than CalPERS’ official forecast of 7.5 percent, and marked an improvement over the 13.3 percent the pension fund earned in 2012.
Despite those gains, CalPERS is still in a huge financial hole, largely the result of catastrophic losses suffered during the 2008 market crash. While it has plenty of cash to pay its bills for the foreseeable future, the pension fund is facing a long-term shortfall of $103 billion as of June 2012, the latest figures available.
To pump more money into the system, the governing board of the $282 billion fund will consider an increase in contribution rates next month.
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Higher rates, as CalPERS acknowledeges, will put further strain on government budgets – so much so that the increases wouldn’t take effect until fiscal 2016-17. “Concern has been raised that the contribution increases may be too much for employers to bear,” CalPERS staff members said in a report to the board last month.
As it is, the state contributes $3.5 billion a year to CalPERS, and several municipalities say they’re being smothered by their CalPERS bills. The bankrupt city of San Bernardino has hinted that it might try to use its bankruptcy reorganization to slash its CalPERS payments, and San Jose Mayor Chuck Reed is pushing a ballot initiative to give state and local governments the leeway to reduce pension costs.
Nonetheless, strong investment returns from CalPERS could undermine the argument, posed by Reed and others, that the public pension system in California is out of control. Steve Maviglio, a spokesman for the union-backed Coalition for Retirement Security, said on Twitter that the 16.2 percent gain represents “another nail in the coffin” for Reed’s initiative.
Reform advocate Marcia Fritz, president of the California Foundation for Fiscal Responsibility, acknowledged that CalPERS’ performance doesn’t help her cause. “It might make it difficult to convince voters we have a problem,” she said.
Reed is attempting to qualify the initiative for the November ballot.
California’s other big public pension fund, CalSTRS, expects to have year-end investment results available later this week. Officials with the California State Teachers’ Retirement System, whose long-term shortfall is around $70 billion, have been begging the Legislature for help for several years. In his recently unveiled budget proposal, Gov. Jerry Brown pledged to enact a plan in 2015-16 to address CalSTRS’ problems.
Unlike CalPERS, the teachers’ fund needs legislative approval to raise contribution rates.
In spite of the havoc created by the 2008 crash, CalPERS officials have long insisted that they can generate solid investment returns. The 2013 results, announced at a CalPERS board meeting in Monterey, were the best calendar-year returns for the fund since 2003, when it earned 23.3 percent.