How did CalPERS dig a $153 billion pension hole?

By Dan Pellissier | During the next five weeks, the CalPERS board, custodian of $326 billion in assets needed to fulfill retirement promises for 1.8 million California public employees and beneficiaries, will make decisions affecting government budgets for decades to come.

Dan PellissierThe problem is, despite their fiduciary duty under the state Constitution to “protect the competency of the assets” under their absolute control, CalPERS is roughly $153 billion short of fully funding the retirement promises earned to date.

How did CalPERS dig this huge hole?  During the last decade, they manipulated actuarial assumptions and methods to keep employer and employee contribution rates low in the short term.

Besides over-estimating investment returns, CalPERS uses very long amortization schedules to push debts onto future generations, greatly increasing the pension system’s long-term cost.  As a result, CalPERS is just 68 percent funded, barely above what would be “critical” status for private-sector pension plans.

Just like a family that assumes it will receive healthy raises every year and only makes minimum payments on its credit card debts, there must be a day of reckoning. Yet it is not clear the CalPERS board recognizes this important moment is now.

To read the rest of this commentary in the East Bay Times, please click here.

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