More Pension Math

The real reason CalPERS hasn’t recovered.

Many legislators don’t understand why massive gains in the stock market have barely improved the Funded Ratio of California’s principal pension fund, CalPERS. The answer is simple: massive growth in liabilities.

See for yourself. Below is a schedule of CalPERS’s Funding Progress. On June 30, 2009, when the Dow Jones Industrial Average was at 8440, CalPERS reported assets of $179 billion and liabilities of $294 billion, producing a Funded Ratio of 61%. Fast forward to June 30, 2016 by which time the DJIA had risen more than 100 percent to 17,456 and CalPERS’s assets had grown more than 66 percent to $298 billion. Yet the Funded Ratio had risen only 11 percent, to 68 percent.

CalPERS 2016–17 Comprehensive Annual Report, page 119

That’s because by 2016 liabilities had grown to $437 billion, nearly 50 percent more than 2009. Because liabilities in 2009 were already 64 percent larger than assets, there’s no way assets could catch up, even with a fast-rising stock market.

That growth in liabilities was not a surprise. It’s the consequence of CalPERS’s board choosing to suppress the initial reported size of liabilities at the cost of explosive liability growth down the road, as explained here. In other words, as Chicago Mayor Rahm Emanuel once pointed out, it’s the consequence of a lie.

Because of that lie, much worse is on the way, especially when the stock market takes a pause. The lie results in thefts from school, local and state budgets. Legislators will have their hands full addressing the consequences.

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