“California Pensions Underfunded By $1 Trillion Or $93k Per Household.” And this dramatic headline was written BEFORE the staggering $1.7 TRILLION loss in the bond market market.
To shore up rapidly deteriorating finances, CalPERS will consider significantly reducing its investment forecast in a long-overdue move that could shake up government retirement funds across the country.
The reduction would mean that local governments and the state would be required to contribute more to the California Public Employees’ Retirement System, the nation’s largest pension plan.
Public employee unions object because that would leave government agencies with less money for salaries and benefits. But the move would slow the soaring growth in pension debt for which California taxpayers are liable.
CalPERS currently assumes that its investments will earn 7.5 percent annually. But its consultant warns that it should anticipate only an average 6.2 percent in each of the next 10 years.
CalPERS staff next week will issue its recommendation on how far to reduce the investment assumption. They won’t suggest a one-step drop to 6.2 percent because the corresponding increase in contributions would financially devastate state and local governments.
But some expect a recommendation of around 7 percent annually. If the board agrees, that would set a new national benchmark.
Last year, the forecasts of the top 25 state pension systems averaged 7.64 percent, according to Nation’s data. Only one state system, Virginia, used a 7 percent forecast. Locally, the San Jose and Contra Costa County pension systems currently use a 7 percent rate.
CalPERS has consistently undercollected from government workers and employers, instead counting on overly optimistic investment forecasts to help fund retirees’ pensions.
That’s in large part why CalPERS has only 68 percent of the assets it should have. CalPERS’ paltry 0.61 percent investment return last fiscal year left the system with a record $139 billion shortfall. That’s $46 billion more than just two years ago.
Meanwhile, the pension system’s investment consultant this year radically adjusted its projections of future earnings, dropping its forecast from 7.1 percent annually to 6.4 percent and then to 6.2.
CalPERS’ investment officer, financial officer, actuary and consultants all warn that the system must stop using the rosy 7.5 percent prediction and instead seek more money from workers and employers.
The leader in California in terms of pension debt per household? Irwindale at $134,907! Irwindale is a small city located directly east of downtown Los Angeles in the San Gabriel Valley.
In terms of states, Alaska leads the nation in pension debt per household followed by California and Illinois.
Here is a typical home in Irwindale, California featuring an open-air living room that can also function as a bus stop.