CalPERS Rebounds to Pre-Crisis Levels Following Lehman's Downfall

(January 19, 2011) — The California Public Employees’ Retirement System (CalPERS), the largest US public pension, has rebounded from loses following the Lehman crash as taxpayers face increased costs.

Yet, the pension fund still has only roughly 70% of the money needed to cover benefits and as a result, CalPERS needs to demand more from taxpayers to cover those costs. “Taxpayers pay about 23 cents out of every dollar for the CalPERS’ retirement cost,” Joe Dear, the fund’s chief investment officer, told Bloomberg. “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.”

Joe Dear, the chief investment officer of CalPERS, which lost 23.4% in the fiscal year that ended June 30, 2009, told the news service that there’s no way to avoid liabilities which already exist. While the fund was fully funded at the start of the recession in 2007, it’s now down to around 65%, Bloomberg reported.

The shortfall is not limited to CalPERS, as public pensions nationwide face massive shortfalls in the money needed to cover benefits promised to government workers. Lawmakers recently approved legislation that forces municipalities to pay more into pension funds over the next three decades in an effort to increase the funding level for pension schemes for local firefighters and police officers. Chicago officials worry that the new legislation will lead to increased costs and result in an up to 60% increase in property taxes. According to Bloomberg, Quinn said last week that he needs to analyze the bill, calling it an “important area of reform” imperative at the local level.

“Illinois is much like other states not keeping up with its annual payments to their fund,” Pew spokesman Stephen Fehr told aiCIO in November. “They’ve been increasing benefits to public employees without thinking how they are going to pay for them in the future,” he said. “It’s not just the recession that caused this problem — Illinois didn’t manage their pension bill in good times and bad, and its not a problem that will get better anytime soon,” noting that the pension deficit around the nation has led to severe underfunding in other state programs to make up for mismanagement.