Falling Short of Previous Estimates, CalPERS Reports Dismal 1% Profit
The California Public Employees Retirement System (CalPERS) is the pension plan covering the vast majority of Humboldt County’s municipal employees. It’s looking at some tough times ahead with the recent announcement of less than expected earnings and the weakest numbers seen in recent memory.
Here’s the bare bones breakdown:
CalPERS reported a 1% annual profit on its investments for the fiscal year ending June 30, a figure far short of projections that officials said will likely bring pressure on California’s state and local governments to contribute more money, the Sacramento Bee reported Tuesday.
The earnings are significantly less than the 7.5% profit that the public pension fund had previously forecasted. Low interest rates, weak economic growth and poor stock market returns from outside managers contributed to the low earnings, according to the San Francisco Business Times.
The low earnings likely will prompt the fund to impose higher contribution rates on the state and participating municipalities. This could create additional stress for public agencies throughout California already having financial problems, according to the Sacramento Bee. State and local governments will have to phase in higher rates that they must pay toward pension costs. Taxpayers may have to pick up the tab for the difference if the pension funds fail to meet their performance targets.
In addition, CalPERS is also looking at increasing its health care contract costs. Last month, CalPERS announced that it’s seeking to reduce costs with a plan to raise health insurance premiums by an average of 9.6% next year for 1.3 million public employees, retirees and their families.
The 9.6% hike in health insurance premiums is one of the largest increases in recent years. The rate increases will cost members an average of $30 more per month and take effect Jan. 1, 2013.
The increases are more than twice the 4.1% premium increase that took effect this year. CalPERS likely will rebid its health insurance contracts this fall.
The largest public pension fund in the U.S., CalPERS administers retirement benefits for 1.6 million California State, local government, and public school employees on behalf of 3,000 public employers.
The average CalPERS pension benefit is $2,332 per month. The average benefit for those who retired in the most recent fiscal year that ended June 30, 2011, is $3,065 per month.
In 2008-2009, CalPERS paid $10.88 billion in monthly allowances and $5.7 billion in health benefits to 476,252 retirees, survivors, and beneficiaries, 86% of whom live in California. The organization has $234 billion in assets.
The California State Teachers Retirement System, the second largest U.S. public pension with $150.6 billion in assets, earned 1.8 percent in its fiscal year, the fund said July 13. It also assumed it would earn 7.5 percent.
California’s state pensions in 2010 had about 81 percent of what they needed to cover the benefits they promised, down from 87 percent in the preceding year, according to an annual study by Bloomberg Rankings.
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All is not golden in the Golden State.
Given our national economy, a nearly $16 billion state budget deficit, the municipal bankruptcies of Vallejo, Stockton, San Bernardino, and Mammoth Lakes (to note, the latter bankruptcy was primarily due to a lost lawsuit), and the cities of San Jose and San Diego drastically curtailing their pension obligations to avoid similar fiscal catastrophes, we see that CalPERS, the Big Dog on the Pension Block, is starting to buckle, too.
California taxpayers are already on the hook for billions of dollars in pension and health care benefits promised to public workers when they retire.
And you thought the cost of food was getting to be expensive. Hold on and buckle up. It’s gonna be a bumpy ride.