Here’s why California public employees can have more confidence in their retirement security

The last five years have been defined by significant economic growth and rising financial markets, despite a global pandemic that will soon enter its third year. Throughout, America’s largest pension fund, CalPERS, has grown and emerged stronger.

The two million dedicated California public employees we serve can now have greater confidence in their retirement security than at any time since the global financial crisis. Here’s why:

A public pension’s funded status is the simplest way to understand its health — it measures how close a system is to having the money needed to honor the pension commitments made by governments to their workers. In the aftermath of the global financial crisis, CalPERS’ funded status dropped from over 100% to 61%. Since then, our funded status has steadily increased to more than 80%. This has occurred despite a declining outlook for future investment earnings. Over the same time period, our expectations for investment earnings have been reduced from 7.5% to 6.8% annually.

CalPERS pays more than $25 billion annually to approximately 633,000 retirees from the thousands of state and local government agencies in our system. Sixty cents of every dollar comes from investment earnings on contributions. While 80% is a mark of improved health for CalPERS, we have the team and strategy in place to build on this progress to once again be fully funded in the next 20 years.

The health of our fund has been bolstered by sustained investment portfolio growth — from $237 billion in 2011 to $475 billion today. To maximize returns and protect against market declines, the CalPERS Board just approved a new strategic portfolio, increasing investments in private markets and adding a prudent amount of leverage to the portfolio to increase lower-risk, diversifying investments. This strategy was shaped by research and data, the expertise of our investment team and the need to protect our funded status and achieve returns of an average of 6.8% every year.

CalPERS is committed to consistent progress, recognizing that while we may not always deliver the highest returns compared to other pension funds, we guard against significant losses when there is an economic downturn.

This careful approach to managing risk and investing ensures we best serve our members and government employers who rely on us regardless of the economy. It’s one of the reasons why CalPERS has delivered an average annual 10% return over the last decade, while outperforming our benchmark in every time period over those years. These benchmarks are critical indicators because they tell us that our investors are better than our peers once the decision is made on how to allocate our portfolio.

CalPERS also uses significant competitive advantages to capture opportunities and guard against risks. We use our global financial strength to shape how our nation addresses critical priorities such as climate change. We are leaders in national and international coalitions to drive greater disclosure and transparency in companies with respect to global emissions. We also use our position as shareholders to drive change in corporate practices so that they are more accountable and equitable.

In 2017, CalPERS co-founded Climate Action 100+, an investor-led initiative to demand the world’s largest corporate greenhouse gas emitters act on climate change and fully disclose their carbon emissions. To date, more than 615 investors with $60 trillion in assets are aggressively engaging 167 companies that account for over 80% of the global industrial greenhouse gas emissions.

This data and these facts demonstrate our progress and commitment to our members, employer partners and the people of our Golden State. It all starts with an extraordinary team, united by mission, focus and dedication for retirement security for those who spent their careers serving the public good.

This story was originally published February 23, 2022 at 9:30 AM.