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CalPERS returns sink -- more trouble for taxpayers

Original post made by POGO, Woodside: other, on Jan 25, 2012

Remember the concerns about CALPERS investment performance?

Remember all those public employees who rebuked us for questioning CALPERS optimism and said "don't worry!"?

Remember CALPERS prediction that they would easily return to those historic 7.75% investment returns and that all would be well in pension land?

Well, it turns out that we were right and they were wrong: Web Link

CalPERS just reported that their total investment return for 2011 was a paltry 1.1%! 1.1% The S&P 500 gained TWICE that much. So much for the "smartest guys in the room" ability to pick stocks. CALPERS should have canned them all and just bought an index fund.

But don't worry, taxpayers - YOU'RE on the hook for any shortfall.

Comments (42)

 +   Like this comment
Posted by Menlo Voter
a resident of Menlo Park: other
on Jan 25, 2012 at 6:46 pm

Wonder what Blue Collar Public Worker has to say about his "wonderful" Calpers retirement?

So let's see, Calpers missed their projections by 6%. Who gets to pick up the difference? Oh, that's right, you and me and the rest of the tax payers since BCPW retirement benefits are guaranteed. That's not unsustainable is it?


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Posted by Peter Carpenter
a resident of Atherton: Lindenwood
on Jan 25, 2012 at 8:32 pm

Peter Carpenter is a registered user.

"For the first time, the annual California Public Employees Retirement System actuarial report last fall on state and non-teaching school pensions included a sensitivity analysis.
The report showed how employer contributions could vary if, all other factors remaining unchanged, earnings during three fiscal year are above or below the target by a little or a lot.
For example, if earnings hit the target of 7.75 percent the employer contribution in fiscal 2015-16 for most state workers would be 19.5 percent of pay. (The employee contribution, 8 percent of pay, is bargained with labor and presumably unchanged.)
But if total investment earnings this fiscal year and the next two fiscal years show a loss, minus 3.64 percent, the employer contribution in 2015-16 would increase by about half to 28.9 percent of pay.
Falling short of the 7.75 percent target with earnings of 2.93 percent would increase the 2015-16 contribution to 22.6 percent of pay. Exceeding the target with earnings of 19.02 percent would produce little change, dropping the rate to 18 percent."

The downside cost is HUGE and we the taxpayers get the bill.


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Posted by Joseph E. Davis
a resident of Woodside: Emerald Hills
on Jan 26, 2012 at 12:15 am

A loss of merely 3.64% is quite optimistic. What if the funds lose 25%? 50%? Given the level of speculation and leverage needed to reach the absurd goal of 7.75% at a time where money funds yield next to nothing, losses of that magnitude are nearly assured.


 +   Like this comment
Posted by Michael Haltman
a resident of another community
on Jan 26, 2012 at 3:02 am

Losing 6.65% of the weigh gained during pregnancy is a great start for a supermodel.

But what would happen if the assumed rate of return that a pension fund is projected to earn is missed by a country mile and on top of that the fund suffers significant investment losses?

We are going to find out now!

Read more at The Political Commentator here: Web Link


 +   Like this comment
Posted by Ethan
a resident of Menlo Park: University Heights
on Jan 26, 2012 at 12:25 pm

Sounds like an excellent argument for not privatizing (i.e., Wall Street-izing) Social Security.


 +   Like this comment
Posted by Peter Carpenter
a resident of Atherton: Lindenwood
on Jan 26, 2012 at 2:10 pm

Peter Carpenter is a registered user.

"Sounds like an excellent argument for not privatizing (i.e., Wall Street-izing) Social Security."

What is the relevance of the CalPERS issue to privatizing social security? The problem with the public employee pension system is not public vs private but unsustainable defined benefits vs a defined contribution system.


 +   Like this comment
Posted by Joseph E. Davis
a resident of Woodside: Emerald Hills
on Jan 26, 2012 at 2:52 pm

I would say it sounds like an excellent argument for politicians not to promise things without raising sufficient taxes to pay for them.


 +   Like this comment
Posted by Steve
a resident of Menlo Park: Central Menlo Park
on Jan 26, 2012 at 3:52 pm

The Dec. 31 earnings result of only 1.1% is pretty remarkable considering that CALPERS was up 21% as of last June 30.
While it is obviously disappointing, this end of calendar report is actually not so important since it is the end of fiscal year results (June 30) that are used in calculating the employer contributions.
Tune back in in early July for the financial report that really matters.


 +   Like this comment
Posted by Steve
a resident of Menlo Park: Central Menlo Park
on Jan 26, 2012 at 4:19 pm

Peter -
You ask "What is the relevance of the CalPERS issue to privatizing social security?"
Well, since privatizing SS generally means giving folks back the money they contribute to SS so that they can invest it themselves in the Stock Market, much like current 401(K)s work.
Folks who had their defined contributions invested in the stock market during the first decade of this century would like have seen a loss during that ten years with the S&P falling from 1553 in 2000 to under 1200 at the end of 2010. It's not called the "lost decade" for nothing.
During this same period CALPERS Fund grew from $165 Billion to $225 Billion - earning a net rate of return on investments over the decade of nearly 55%.
I ask you, where would you prefer to have had your retirement funds during that decade - a defined benefit plan like Soc Sec and CALPERS or a 401(K)?


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Posted by Peter Carpenter
a resident of Atherton: Lindenwood
on Jan 26, 2012 at 5:14 pm

Peter Carpenter is a registered user.

"I ask you, where would you prefer to have had your retirement funds during that decade - a defined benefit plan like Soc Sec and CALPERS or a 401(K)?"

That is not the issue - the issue is that defined benefit programs are not sustainable. How an individual chooses to manage his/her defined benefit funds is a decision to be made once all public pension programs are transformed into defined contribution programs.


 +   Like this comment
Posted by explain
a resident of Menlo Park: Downtown
on Jan 26, 2012 at 7:44 pm

Here's what the CALPERS site has as their last report... up to the end of October.
Web Link

So... not that the LA Times would have a reason to LIE... but where are they getting their information when there is no more recent report posted??

It seems to me that that the fund as of the end of October lists 3% in inflation and 2% in total return (that based on 95%) means 5.2% growth..... a bit different than what the LA Times is saying.

I would like to see the public sector putting the same amount into retirement funds as the private sector should be putting in... meaning 6.2 percent not the current 4%. If the public employees want the same retirement investments then they can put in the difference. That would put them at about 10%. (Teachers) Should there be less taken out on the retirement side since we are all living longer? Yes. With those changes, hopefully someone would see fit to make the same changes to the Soc. Sec. system and make it support itself again without allowing any other part of the government to borrow from its funds.

Putting any of that money into the markets? Insane! But, if I worked on Wall Street I'd be paying politicians off left and right to make it happen!


 +   Like this comment
Posted by POGO
a resident of Woodside: other
on Jan 26, 2012 at 8:56 pm

If you don't think it's a problem that CALPERS is missing - AGAIN - their predicted investment returns by a country mile, then you deserve your fate.

Technically, your children will pay with drastically reduced public services such as libraries, police, fire, schools, etc. and drastically higher taxes to pay for all those retirees.

Just don't say you weren't warned.


 +   Like this comment
Posted by Steve
a resident of Menlo Park: Central Menlo Park
on Jan 27, 2012 at 9:26 am

POGO -
As I said above, I'll be more concerned if the return remains this low at the end of June. That is the return that is used to compute changes in the employer contribution.
And BTW, the returns at the end of June for the past 2 years have been 12.1% and 12.6% respectively.


 +   Like this comment
Posted by Steve
a resident of Menlo Park: Central Menlo Park
on Jan 27, 2012 at 9:30 am

Peter -
Isn't the real issue how we can encourage pension plans to be as widely used as they once were? 401(K) plans, on the whole, have proved to be far more volatile and far less successful at ensuring adequate retirements than most pensions. Pensions may need adjustments during times of financial turmoil but their past success argues they're still the superior retirement system for most people.


 +   Like this comment
Posted by Joseph E. Davis
a resident of Woodside: Emerald Hills
on Jan 27, 2012 at 10:34 am

We must ask, superior for whom? Government pensions are certainly superior for government employees in that taxpayers are on the hook to make up any shortfall. And in fact, shortfalls are virtually guaranteed due to the incentives that politicians and public unions have to make promises today and stick future taxpayers with the bill.

Gold-plated public sector pensions are not superior for the average citizen that must pay for them. They are essentially theft that goes unpunished due to the corruption of our political system.


 +   Like this comment
Posted by on the hook
a resident of Menlo Park: other
on Jan 27, 2012 at 1:39 pm

Yeah...
and those in the public sector are all "on the hook" for the debts that have been stacked up for Soc. Security, which we are not part of though many of us have lost any claim on our contributions. How much of our national debt has been borrowed from the "PEOPLE"? (Not China)

MORE money IN! Less MONEY OUT! It's going to hurt everyone to get on top of this. No way should those who've made out so well with decreased taxes since the 90's should continue as they have been. There has been no TRICKLE down... just a lot of SUCKING UP! The feds are pumping the system with money and it's still not getting out into the economy, never mind the fact that corporations are sitting on their money instead of investing in America. Great Nationalism and Patriotism with those corporate "people"!

Less Public Money? Yeah. When it takes over 2/3 of the people to vote to put money in, we will never ever have the money that the MAJORITY thinks should be paid for living here.


 +   Like this comment
Posted by Steve
a resident of Menlo Park: Central Menlo Park
on Jan 27, 2012 at 2:00 pm

Joe -
I'm saying that pensions are generally superior to the defined contribution system that's replacing them for all employees still lucky enough to have a pension - be they public or private. The solution is to begin to return private retirement systems to a defined benefit model that gives employees a benefit that they can count on, as do both pensions and Social Security.
I suspect a lot of the new 'class warfare' that's developed against public pensions is because many private retirement plans have switched to the inferior defined contribution plans and people are upset when they realize what they've lost. The solution isn't to eliminate the superior pension plan but to fix it so it isn't such a drain on the public coffers during downturns in the economy. Part of that is to correct the 3% at 30 years benefit that, in retrospect, is clearly unsupportable. And this mistake is being correct, both here in Menlo Park and in other cities & counties throughout California.
The rational 25 years ago for switching to defined contributions was to offload the responsibility for retirement onto the employee. This allowed more profits to go to the shareholders and less to the employees, which explains why the 1% has seen their wealth accumulation grow so out of proportion to the 99% during this time. To begin to correct this wealth imbalance, reinstating pension plans in the private sphere would be a good place to start. Else I fear we'll really face a retirement crisis 30 years down the road as the Gen X'ers start to retire and find their 401(K) plans haven't quite lived up to their expectations.
As for your last comment that "Gold-plated public sector pensions are . . . essentially theft that goes unpunished due to the corruption of our political system" - I expect you weren't complaining about the theft from employees 10 years ago when employers were able to contribute next to nothing to the retirement funds because CALPERS was routinely seeing annual returns of 20% and greater. That employers have to make up the deficit now when the returns have declined is the balance to those years when they contributed essentially nothing at all.


 +   Like this comment
Posted by Peter Carpenter
a resident of Atherton: Lindenwood
on Jun 11, 2012 at 9:25 pm

Peter Carpenter is a registered user.

And here is the next chapter:

"June 11, 2012, 8:00 p.m. EDT
CalPERS loses 4.3% so far this quarter
By MarketWatch
The California Public Employees' Retirement System, the nation's largest public pension fund, has lost 4.3% so far in the second quarter as markets reeled from renewed concerns over the European sovereign debt crisis and global economic growth.

The fund's assets were valued at $226.1 billion as of June 8, compared with $236.3 billion at the end of March. The fund's performance slightly outperformed the Standard & Poor's 500 index's 5.2% decline.

The pension fund's chief investment officer, Joe Dear, said at an investment committee meeting Monday that market conditions have been tough in May and June. "


 +   Like this comment
Posted by Menlo Voter
a resident of Menlo Park: other
on Jun 12, 2012 at 7:07 am

Blue Collar please come out and play. Love to hear what you have to say about your wonderful Calpers now?


 +   Like this comment
Posted by Peter Carpenter
a resident of Atherton: Lindenwood
on Jun 12, 2012 at 7:38 am

Peter Carpenter is a registered user.

Posted by Steve, a resident of the Menlo Park: Central Menlo Park neighborhood, on Jan 27, 2012 at 9:26 am

POGO -

As I said above, I'll be more concerned if the return remains this low at the end of June.


********

Well Steve, what now?


 +   Like this comment
Posted by POGO
a resident of Woodside: other
on Jun 12, 2012 at 8:21 am

And Blue Collar's worst dreams have come true. I think the leadership of our government employee unions finally bit the hand that feeds them just a little too hard.

San Jose's voters have voted in overwhelming numbers to limit the pensions and benefits of existing public workers. No benefits they may have already earned will be jeopardized, but from this point forward they will have a "blended" benefits where today's earnings will count toward a reduced plan.

A glimmer of sanity in an otherwise insane world.


 +   Like this comment
Posted by PV Parent
a resident of Portola Valley: other
on Jun 12, 2012 at 1:21 pm

POGO, what are you smoking? The S&P 500 LOST in 2011, not gained. It opened at 1271 on 1/4/2011 and closed at 1257 on 12/30/2011.


 +   Like this comment
Posted by Peter Carpenter
a resident of Atherton: Lindenwood
on Jun 12, 2012 at 1:38 pm

Peter Carpenter is a registered user.

What POGO and I are saying is that, because our public employee pensions are defined benefit programs, whatever CalPERS does not make in investment returns must made up for and be paid for by our local governments.

Clear?


 +   Like this comment
Posted by Ethan
a resident of Menlo Park: University Heights
on Jun 12, 2012 at 2:27 pm

"Blue Collar please come out and play. Love to hear what you have to say about your wonderful Calpers now?"

Not available. He's retired.


 +   Like this comment
Posted by POGO
a resident of Woodside: other
on Jun 12, 2012 at 3:00 pm

PV Parent -

Mr. Carpenter was copying and pasting a question "Steve" asked of me several months ago. That was not MY comment.

Mr. Carpenter's point is spot on. CALPers keeps representing wonderful returns are just around the corner. Yet every time we turn that corner, the returns go negative and they need even more extraordinary returns to make up for it. The required returns from CALPers are now so absurd that it defies reality. Perhaps they're planning to go to Las Vegas and put a big portion of their portfolio on "red" and hope.

At what point do we say this Sacramento king has no clothes?


 +   Like this comment
Posted by regardless...
a resident of Portola Valley: Portola Valley Ranch
on Jun 12, 2012 at 3:27 pm

The county - government or whatever shouldn't be investing MORE than what private companies have to invest in Social Security. The "People" can't expect to pay less than private companies, but why pay more? NOW, if the employees want to make up that difference, then what would you say to those expecting social security who pay 4.2% now (what should be 6.2%) when they want to compare their returns to employees who at that point would be putting in 10%. We're ALL living longer. We have to save more, and expect less.


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Posted by Amazed
a resident of another community
on Jun 12, 2012 at 5:30 pm

Talk about the ridiculousness of PC.......The same PC that voted to provide these pension benefits, now decries them and wants to act like he had nothing to do with it....Well not so fast......The fact is that in the go-go years, when the market was flying, AND MANY LOCAL AGENCIES PAID NOTHING TOWARD THE CALPERS SYSTEM, nobody said a word...NOT ONE....

How convenient that those who voted to increase these pensions to the detriment of the people they purported to serve. At the time, I am sure it seemed like a good idea to defer pay increases in lieu of pay increases since they did not show up on the bottom line and in the headlines.... But for a former Public Official to now decry the very pension increases he approved is remarkably disgraceful.....

You sir, are as responsible for this debacle as anyone. It was YOU that served on the elected board of a Special District that created this situation, along with others like you. CalPers could not have taken the actions it did with regard to pension increases without explicit consent, in writing.

Disgraceful


 +   Like this comment
Posted by Amazed
a resident of another community
on Jun 12, 2012 at 5:33 pm

in lieu of PENSION increases since they did not show up on the bottom line and in the headlines.


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Posted by Peter Carpenter
a resident of Atherton: Lindenwood
on Jun 12, 2012 at 5:48 pm

Peter Carpenter is a registered user.

Note that the last time a union contract was approved by the Fire Board was almost a decade ago - since then it has absolutely held the line.

So - get your facts straight before shooting from the lip.


 +   Like this comment
Posted by Amazed
a resident of another community
on Jun 12, 2012 at 5:56 pm

Oh pray do tell. I am sure we cannot wait to hear of the efforts you made to roll back pension benefits during your tenure.......................


 +   Like this comment
Posted by Peter Carpenter
a resident of Atherton: Lindenwood
on Jun 12, 2012 at 5:56 pm

Peter Carpenter is a registered user.

My documented record speaks for itself:


18 September 2005

Shelley Kessler
Executive Secretary
San Mateo County Central Labor Council
1153 Chess Drive, Suite 200
Foster City, Ca 94404
Dear Executive Secretary,
Thank you for your letter of Sept. 13, 2005 indicating that I did not receive the Labor Council's endorsement. When District 10's Board of Directors requested that I remove myself from the election because they have chosen to support other candidates and "the title `Incumbent' carries a weight with the voters that will be difficult to overcome", I declined their request to withdraw. As I told Tom Neylan, since there will be a new firefighter's contract negotiated with the Board during the forthcoming term, I can understand that it is in the labor union's interest to have Fire District Directors who you think will serve your interests. I shall be satisfied to continue to serve the interests of the citizens of the District. In a democratic society the choice of elected officials is properly the responsibility of the voters and not that of a small special interest group.
Similarly, an endorsement by a labor union for an election that will be immediately followed by labor negotiations carries with it the appearance of a conflict of interest. You state that, if I am reelected, "we hope for a good working relationship with you during the term of your office". Let me be clear, my responsibility as a Director of the Fire District is to serve the citizens of the District; labor relations are, quite properly, the responsibility of the Fire Chief.
I am confident that the voters will share the view expressed in the letter from District 10 which stated that my " leadership in these areas (US&R Team, our CERT program, the implementation of an improved District Sprinkler Ordinance) as well as your candidness regarding the Educational Revenue Augmentation Fund (ERAF) has guided the District with professionalism, conviction and clarity through rough times".
Sincerely yours,
Peter F. Carpenter


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Posted by Amazed
a resident of another community
on Jun 12, 2012 at 6:39 pm

Sorry. Must have confused you with a different PC that approved a 2008-09 budget that included a more than 30% payment for pensions. To say nothing of the other medical benefits in the budget.....

Thirty percent for pensions benefits..Really.....


 +   Like this comment
Posted by Peter Carpenter
a resident of Atherton: Lindenwood
on Jun 12, 2012 at 6:47 pm

Peter Carpenter is a registered user.

Amazed - Responsible elected officials honor the contracts that have been entered into. Change is made be insisting on better agreements moving forward not by abrogating existing agreements.

I presume that you would just refuse to pay what had previously been agreed to?

WHO are you anyway?


 +   Like this comment
Posted by Amazed
a resident of another community
on Jun 12, 2012 at 7:15 pm

Actually, any Public Official can vote NO for a budget they do not agree with. Were that not the case why hold elections? The existence of an agreement should not, AND MUST NOT, hold prevent anyone from stating their opinion and withholding their vote if they believe it it wrong to join the majority. I hope you understand that I only criticize you because to some degree you are the FACE of the problem. The truth is we are all the problem. You expressed the will of the people. Unfortunately, the People joined in the euphoria of the "bubble". In the back of my mind I knew what we engaging in could not last, I would bet you did too, as did most of the people reading this. It is no good now to say the consequences of our actions should be wrought upon any but us. Certainly it should not be brought upon the heads of those that were the subject of our grandiose largesse. We made these contracts,we have to live by them. That does not mean we do not change things going forward...In that regard I absolutely agree with you...But peeing and moaning about CalPers is a waste of time....We change this at the local level....and we have. JMHO
And YES, you know me very well


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Posted by Peter Carpenter
a resident of Atherton: Lindenwood
on Jun 12, 2012 at 9:14 pm

Peter Carpenter is a registered user.

Amazed - I look forward to you running for local office. It will be fun to see you in the arena rather than sitting in the stands.


 +   Like this comment
Posted by POGO
a resident of Woodside: other
on Jun 12, 2012 at 10:22 pm

Using Amazed's logic, any elected official who voted against a certain measure or tax would never be able to vote to approve a budget. When you vote to approve a budget, it doesn't mean you support every single line item.

The absence of Amazed's logic is what is truly "amazing." It would fit in perfectly in Sacramento.


 +   Like this comment
Posted by jackrabbit
a resident of Portola Valley: Westridge
on Jun 13, 2012 at 4:47 pm

Three words on Public Sector pensions and benefits -- "WISCONSIN", "SAN JOSE" and "SAN DIEGO".
To paraphrase Gavin Newsom -- "get ready 'cause its gonna happen"!


 +   Like this comment
Posted by Amazed
a resident of another community
on Jun 13, 2012 at 6:29 pm

So as I understand POGO's comment, a Public Official who now decries a pension system that he approved to fund, should have done so in order to maintain the status quo.

This may come as a surprise to you, but exactly how do you think California got into this mess in the first place. Unions can ASK for the moon, but it was Public Officials who GAVE..

Furthermore, nothing I wrote suggests that "any elected official who voted against a certain measure or tax would never be able to vote to approve a budget." Those are your words. Lets remember we are not talking here about the purchase of a new copier, or some other innocuous item, we are talking about pension payments of more than 30 percent of salary for a 2008/09 budget. A time when we were all aware of the massive problems with with CalPers returns and the stock market in general.

What I do believe is that having helped create the problem, it is somewhat incongruous to now complain about the effects of your actions.

Finally, given your apparent belief that if a problem exists, it should be continued simply because it exists would make you a far better candidate for Sacramento than I. I am sure they would welcome you with open arms.


 +   Like this comment
Posted by Peter Carpenter
a resident of Atherton: Lindenwood
on Jun 13, 2012 at 6:46 pm

Peter Carpenter is a registered user.

"What I do believe is that having helped create the problem, it is somewhat incongruous to now complain about the effects of your actions."

Believe what you like but I prefer to learn from my experiences rather than repeat my and others mistakes. When I get new information I am prepared to change my mind.

Evidently Amazed does not believe in either learning from experience or acting on new information. That would make a great campaign slogan.


 +   Like this comment
Posted by Amazed
a resident of another community
on Jun 13, 2012 at 7:06 pm

How nice you got your education at our expense


 +   Like this comment
Posted by Peter Carpenter
a resident of Atherton: Lindenwood
on Jun 13, 2012 at 7:19 pm

Peter Carpenter is a registered user.

"How nice you got your education at our expense"

Much better than being blind, stupid - or amazed by reality.

BTW, Amazed - thank you for your service.


 +   Like this comment
Posted by POGO
a resident of Woodside: other
on Jun 13, 2012 at 8:38 pm

Amazed -

Actually, this is what you said about Mr. Carpenter - who did not approve the higher pensions - but subsequently did approve budgets that included higher pension costs.

"The existence of an agreement should not, AND MUST NOT, hold prevent anyone from stating their opinion and WITHHOLDING THEIR VOTE [EMPHASIS ADDED]."

From your comment, I can only conclude that an elected official should WITHHOLD THEIR VOTE if the budget includes any item they disagree with. You say I'm putting words in your mouth. I say, I'm repeating your own word verbatim.

Again, using your logic, no elected official - local, state, federal - could ever approve a budget if it included a single item they disagreed with. The way our system works, once legislation is passed, it becomes law... and then all of us have to deal with it. We don't throw tantrums and hold our breath if we don't get our way.


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