It’s encouraging to learn that California’s two big pension funds earned a combined $66 billion last fiscal year — gains of more than 20 percent. But let’s put things in perspective. Not to be bearers of doom and gloom, but a single year’s earnings don’t erase the looming problem of underfunded pensions.
Even with last year’s gain of 20.7 percent, the California Public Employees’ Retirement System, or CalPERS, averaged earnings of just 3.41 per year over the past five years; 5.36 percent over the past 10 years; and 7.11 percent over 15 years.
So for CalPERS Chief Investment Officer to announce, “We are back,” is premature and misleading.
As the Sacramento Bee reported Tuesday in an article that also ran on The Tribune’s front page, both CalPERS and CalSTRS — the California State Teachers’ Retirement System — have only about 70 percent of the assets needed to cover their long-term obligations. Many experts agree that pensions should be at least 80 percent funded.
Unless pension reform is enacted now, taxpayers could wind up picking up far too much of the tab for unfunded pensions in the years to come.
Granted, some measure of pension reform has been achieved in Sacramento.
Over the past year, contracts negotiated with a dozen state employee groups included increases in pension contributions for some 200,000 state workers. For roughly two-thirds of those employees, contributions increased to 8 percent, from 5 percent.
That’s a move in the right direction; however, there must be far greater focus on across-the-board pension reform.
For starters, CalSTRS must stop dragging its feet and seek legislative approval for higher contribution rates.
CalSTRS’ own chief executive points out that the fund would need to achieve more than a 20 percent return on investments every year, for the next four years, to be fully funded in 30 years.
One year was remarkable enough.
Four years? Forget about it.
To repeat, the recent economic gains by California’s pension funds merit a sigh of relief.
But the problem of under-funded pensions has not gone away — and it won’t unless we demand substantive reform from Sacramento.