US - The California Public Employees' Retirement System (CalPERS), the largest US public pension, is now worth just as much as when Lehman Brothers Holdings went bankrupt in 2008 and wiped out $6.8trn in US stock-market value in six months.
Even with the gain, CalPERS today has only about 70% of the money it needs to cover benefits promised to government workers. The pension fund, which lost almost a third of its value in the crash, has had to demand more from taxpayers to cover those costs even as Governor Jerry Brown proposes a budget that cuts out vision care for poor children and may force 350,000 students out of community colleges.
CalPERS chief investment officer Joe Dear said: "Taxpayers pay about 23 cents out of every dollar for the CalPERS' retirement cost. That cost is going to go up slightly in light of the crisis, but that's not an unreasonable amount and these pension liabilities stand like the state's debt obligations, as an unavoidable commitment."
Public pensions across the US such as CalPERS face as much as $3trn owed for promised but unfunded retiree benefits, and that's putting pressure on states, cities and counties struggling with a drop in tax collections.
Estimates vary for the scale of the liabilities because pension funds are allowed to adjust assumptions to account for expected investment returns.The higher those expected returns are set, the smaller the reported liability. Because of that, forecasts for the additional sums that public pensions need have ranged from $500bn to $3trn, according to separate studies.
"There are certainly difficult choices for all public managers in this time, but there's no way to avoid the liabilities which already exist," Dear said.
CalPERS lost 23.4% in the fiscal year that ended 30 June 2009, its worst one-year decline on record. It earned 13.3% last fiscal year. The pension was fully funded when the recession began in 2007, but is now down to 65% to 70%, according to Brad Pacheco, the pension fund's spokesman.
CalPERS had assets of about $225bn when Lehman filed for bankruptcy. That fell to $164.7bn by 31 January 2009, and reached $227bn as of 13 January. Its all-time high was about $260bn in October 2007, when the global recession began.
In 1999, flush with profits from the dot-com boom, CalPERS won passage of legislation that retroactively boosted benefits for retirees at the same time it lowered contributions from the state and local governments.
Proponents of the increase at the time said investment gains that would push the Dow Jones Industrial Average to more than 20,000 points by 2010 would cover the cost. Then the worst financial crisis since the Great Depression hit in 2008 and CalPERS lost a decade's worth of value.
The fund is still on the hook to pay for those benefit increases, said David Crane, who was former Governor Arnold Schwarzenegger's chief adviser on jobs and the economy.
"It's debt as real as any other debt and it's taking an enormous amount of money away from other programs," Crane said. "What matters is disclosure. When the state in 1999 retroactively granted pension increases for state workers, that's the same thing as issuing debt."
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