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CalPERS Reports Preliminary Return of 21.3% for 2020-21

The strong performance triggers a reduction in the assumed rate of return to 6.8%.
By Michael Katz


The California Public Employees’ Retirement System (CalPERS) reported a preliminary 21.3% net return on investments for the 12-month period ending June 30 to raise its total asset value to more than $469 billion. Despite the strong performance, it fell just short of the portfolio’s benchmark return of 21.7%.  

“I’m proud of our investment office and of our ability to execute on our strategy to achieve strong returns in these unprecedented times,” Dan Bienvenue, CalPERS’ interim CIO, said in a statement.

The lion’s share of the gains was led by private equity and public equity investments, which had net returns of 43.8% and 36.3%, respectively. Real assets and liquidity returned 2.6% and 0.1%, respectively, while fixed-income investments ended the fiscal year down 0.1%.

As of the end of May, the portfolio’s largest asset allocations were 52% in public equity, 28.9% in fixed income, 9.9% in real assets, and 8.2% in private equity. Private equity has been the highest returning asset class for the portfolio over the longer term, with 10- and 20-year annualized returns of 12% and 10.1%, respectively.

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“Our investment team has done an outstanding job of capturing strong returns in this very dynamic investment environment,” Theresa Taylor, chair of CalPERS’ investment committee, said in a statement. “These results prove that we have the right investment strategy in place to take full advantage of what the markets have to offer.”

Under a policy enacted by the CalPERS Board of Administration in 2015, the double-digit return will trigger a reduction in the assumed rate of return used to calculate employer and member contributions to 6.8% from 7%. CalPERS said that from the preliminary returns, it estimates the pension has a funded status of 82% based on a 7% assumed rate of return, and 80% based on the new 6.8% assumed rate of return.

“As pleased as we are with these great returns, let me emphasize that we don’t count on this kind of investing environment every year,” Taylor added.

The fiscal year returns raised the fund’s five-, 10-, 20-, and 30-year annualized returns to 10.3%, 8.5%., 6.9%, and 8.4%, respectively.

CalPERS has been without a permanent CIO since early August, when then-CIO Ben Meng left the pension fund giant under a cloud of controversy. He said he had resigned for health reasons.

In April, officials suspended the search for a new CIO to replace Meng and said they did not expect the process to resume until early this month.

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Home > News > Regulation > PBGC Issues Interim Final Rule on Multiemployer Bailout Plan
Regulation

PBGC Issues Interim Final Rule on Multiemployer Bailout Plan

The agency’s proposal sets a priority system for distributing $94 billion to severely underfunded pension plans.
By Christine Giordano


The Pension Benefit Guaranty Corporation (PBGC) has made public its interim final rule for bailing out financially troubled multiemployer defined benefit (DB) pension plans under provisions of the American Rescue Plan Act (ARPA).

ARPA, signed into law earlier this year, allows multiemployer plans that are in critical and declining status to get a lump sum of money to make benefit payments for the next 30 years, or through 2051.

The legislation provides an estimated $94 billion for severely underfunded plans and empowers PBGC to implement a so-called special financial assistance (SFA) program to help the struggling plans. The interim rule explains the information a plan is required to file to demonstrate eligibility for SFA, as well as the formula used to determine how much PBGC will pay an eligible plan. It also prioritizes which plans get help first.

ARPA also addresses the solvency of PBGC’s Multiemployer Insurance Program, which was projected to become insolvent in 2026. 

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“The American Rescue Plan Act provides funding to severely underfunded pension plans that will ensure that over 3 million of America’s workers, retirees, and their families receive the pension benefits they earned through many years of hard work,” PBGC Director Gordon Hartogensis said in a statement. “These benefits are critical to the economic security of so many retirees and their families.”

The interim rule also outlines a processing system to accommodate the filing and review of many applications in a limited amount of time, specifies permissible investments for SFA funds, and establishes certain restrictions and conditions on plans that receive SFA. PBGC has included a 30-day public comment period on the interim rule.

There are four types of multiemployer plans that are eligible to apply for SFA under the PBGC’s regulation:

  1. A plan in critical and declining status as defined by the Employee Retirement Income Security Act (ERISA) in any plan year beginning in 2020, 2021, or 2022.
  2. A plan that had enacted a suspension of benefits approved under ERISA as of March 11, 2021.
  3. A plan certified to be in critical status as defined by ERISA that has a modified funded percentage of less than 40%, and a ratio of active to inactive participants of less than 2:3, in any plan year beginning in 2020, 2021, or 2022.
  4. A plan that became insolvent for purposes of section 418E of the Internal Revenue Code (IRC) after Dec. 16, 2014, when the Multiemployer Pension Reform Act (MPRA) became law, has remained insolvent, and has not terminated under ERISA as of March 11, 2021.

PBGC has prioritized seven groups of plans that qualify for the aid, ranked by the most impacted plans and participants first. The highest priority is given to applications of plans that are projected to become insolvent under ERISA by March 11, 2022, so that they will not have to reduce participant benefits, and to plans that are already insolvent, to help them reinstate benefits, provide makeup payments to participants and beneficiaries, and restore previously suspended benefits.

PBGC’s goal is to accept and process as many applications in the highest priority group as possible before opening the submission process to the next priority group. The agency is currently accepting applications from this group.

The second highest priority goes to plans that have implemented a benefit suspension under ERISA as of March 11, 2021, and plans expected to be insolvent within one year of filing for SFA. This group is eligible to apply for SFA beginning Jan. 1, 2022. The third group, which can apply beginning April 1, 2022, includes plans in critical and declining status that have 350,000 or more participants.

PBGC has yet to specify when the remaining groups can apply for assistance, but it notes that it will be no later than Feb. 11, 2023.

The fourth and fifth groups include plans projected to become insolvent before March 11, 2023 and March 11, 2026, respectively.

The sixth group includes plans for which PBGC computes the present value of financial assistance under ERISA to be greater than $1 billion without SFA assistance, and the seventh group covers additional plans that may be added by PBGC based on other circumstances similar to those described for the first six priority groups.

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