CalPERS’ unfunded liabilities grow as investment earnings lag
It then jumps 0.61'. missing its guarantee by nearly 7'!
Hat tip: "Pensions Are a Big Old Slow-Moving Disaster"
More below the fold.
"'Positive performance in a year of turbulent financial markets is an accomplishment that we are proud of,' CalPERS’ chief investment officer, Ted Eliopoulos, said in a statement as the fund’s 0.61 percent investment performance for 2015-16 was released.
That’s not as outlandish as it sounds because CalPERS is not alone. Pension funds and other big-scale investors around the world are seeing very slight, or even negative, results in an era of political and economic volatility, particularly in Europe, and interest rates near zero."
Can we expect next year that CalPERS will be more honest, and estimate something close to 1% growth? Hahahahahahahahahahaha, no!
"But the fact that CalPERS is not alone is not comforting. It means there’s almost nothing Eliopoulos can do on his own to generate higher returns – and, in fact, he sees an extended period of low trust fund earnings.
Over the last two years of earning just a fraction of the assumed 7.5 percent “discount rate,” CalPERS has fallen behind its assumptions by $30-plus billion. Thus, the entire trust fund has shrunk in relative terms because “contributions” by state and local governments and their employees fall well short of pension payouts and the earnings needed to bridge the gap haven’t been there.
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And that shortfall is based on its 7.5 percent discount rate, even though the average return has been under that mark for decades."
"Extended period of low trust fund earnings," check. "Two years of earning just a fraction of the 7.5% 'discount rate,'" check. In 2009 the fund lost one quarter of its assets, check. Any change in that discount rate planned? No, check!
"If one cannot fairly fault CalPERS for anemic earnings, its overseers can be fairly criticized for maintaining the 7.5 percent earnings assumption that their own advisers say is too high.
Lowering it to a more realistic level, say to the 5-6 percent range, would sharply increase the unfunded liability and thus ramp up political pressure for more tax dollars from employers, or perhaps for modifying pension promises. It would risk a backlash in the form of one of the many pension reforms that have surfaced in recent years."
Even 5-6% is too high. This will become a serious problem and quite quickly.
Why Lower Rates of Return Will Destroy Pension Funds - California Policy Center
But if CalPERS acts like every other pension fund, it will ignore, ignore, ignore until it implodes.
Central State Pension Plan is bankrupt . . .
Central State Pension Plan may be ahead but CalPERS is accelerating smartly. This race will go to the swift of foot.