Pension fund hits milestone: It's earning more money than it's paying out

February 13, 2018

For the first time in years, CalPERS is stable enough that it no longer expects to run deficits into the middle of the century.

Though still underfunded, the $345 billion pension fund has a better financial outlook because it’s collecting more money from employers and making the most of recent stock market gains, its chief investment officer said on Monday. That should help it avoid scenarios where it has to sell investment assets to pay pensions.

It’s a milestone in the California Public Employees’ Retirement System’s recovery since it suffered severe losses in the recession that left it badly underfunded.

Since then, CalPERS has regularly had to sell off assets to pay pensions. In 2016, for instance, CalPERS paid out $20.5 billion in benefits – $4 billion more than it earned, according to its annual financial report.

That year the CalPERS board voted to lower its investment forecast, acknowledging that it expected to earn less money over time from its portfolio. The vote effectively required cities and other organizations that belong to CalPERS to kick in more money to fund their employees’ pensions.

CalPERS Chief Investment Officer Ted Eliopolous said the higher payroll rates and recent investment returns put the fund in a better position to handle recent stock market swings that have swayed the value of its portfolio by billions of dollars.

CalPERS now expects to earn more money than it spends over the next 20 years. Previously, its financial outlook projected deficits through 2040.

“We are now forecasting neutral to positive cash flows, taking into account both contributions and investment income, which strengthens the fund and strengthens our ability to invest through volatile periods like this. Not only not having to sell assets during a downturn, but also to reinvest during downturns,” Eliopolous said told the CalPERS board.

CalPERS has about 70 percent of the assets it would need to pay the benefits it owes to its members. Its decision to raise payroll contribution rates has stressed local governments. City governments especially have raised complaints recently that the higher rates are “ crowding out ” their ability to fund public services.

Distributed by Tribune Content Agency

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