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  • Bad news for California pensions

    Calpers To Report Losses of 103% on its Residential Investments - (Mish at globaleconomicanalysis.blogspot.com)

    CalPERS, the California Public Employees' Retirement System announced a new milestone in pension plan incompetence today by admitting losses in Risky, Ill-Timed Land Deals. At the height of the property bubble, California's giant pension fund, Calpers, made a fateful decision: It aggressively poured money into real estate. As a result, today it's one of the biggest owners of undeveloped residential land in America. Partly because of these investments, California Public Employees' Retirement System is struggling to avoid one of its worst annual declines since its 1932 inception. Calpers has lost almost a quarter of its assets since July 1, the start of the current fiscal year.

    The problems come at a time of uncertainty for the nation's largest public pension fund, which has been without its top two executives for nearly half a year. Calpers is poised to appoint a new chief executive as early as this week, people familiar with the matter said.Calpers is now warning California's cities, towns and schools that they may have to cough up more money to cover the retirement and other benefits the fund provides for 1.6 million state workers. Some towns are already cutting municipal services, and at least one is partly blaming the Calpers fees. Calpers in recent weeks said it expects to report paper losses of 103% on its residential investments in the fiscal year ended June 30. That's because Calpers invested not only its own money, but billions of dollars of borrowed money that must be repaid even if the investment fails. In some deals, as much as 80% of the money invested by Calpers was borrowed.

    PLEASE NOTE THAT I CANNOT VOUCH FOR THE RELIABILITY OF THE SOURCE
    Facts do not cease to exist because they are ignored. -- Aldous Huxley
    Two things are infinite: the universe and human stupidity. -- Albert Einstein

  • #2
    I'm suspicious of the info and it's source, "Mish" at a blog site. CalPERS has been extremely conservative in it's investments and diversified. If a large percentage of their capital was invested in real estate (and I doubt it's as large as reported), there's a huge difference between "paper" loss and actual loss. Even with the recent depression of real estate values in CA, it's hard to believe CalPERS lost "a quarter of it's assets" since July! I'm calling BS on this one.
    "I'm not fluent in the language of violence, but I know enough to get around in places where it's spoken."

    Comment


    • #3
      Here is a more measured article from the Contra Costa Times.

      Slump could raise SB costs for retirees
      Andrew Edwards, Staff Writer
      Updated: 12/28/2008 12:47:15 AM PST

      SAN BERNARDINO - The economic decline could increase local governments' financial burdens by requiring officials to set aside more money for retirement benefits, but the system gives budget planners two years to prepare for the fallout.

      The city of San Bernardino is among the 2,500 governments that are part of the California Public Employees Retirement System, or CalPERS. Like many other entities, CalPERS has felt the economic downturn this year as its investment portfolio has pretty much tanked.

      As of the close of the market Friday, CalPERS' investment fund was worth $184.4billion. As big as that number seems, it's about 23percent smaller than its value on June 30: $239.2 billion.

      June 30 is an important date because that's the end of California's fiscal year. Each year, CalPERS uses the June 30 fund value to determine how much its member governments contribute to maintain their pension obligations.

      In fat years, the value of CalPERS' investments can ease cities' burdens, but the opposite is the case in lean times.

      CalPERS notified its members in November that if its portfolio absorbs a 20percent loss over the course of the fiscal year ending June 30, 2009, its member rates could increase by 2percent to 5percent.

      "At the upper end of CalPERS' estimate of how high contribution rates could climb," interim San Bernardino City Manager Mark Weinberg wrote in an e-mail, "the impact for the city would be formidable. The additional annual employee retirement costs may be measured in thousands of dollars, not hundreds."

      "San Bernardino recently approved fully employer-paid enhanced retirement benefits for its employees," he also wrote. "While it did so to remain competitive in recruiting and retaining high-quality public safety and non-safety employees, the plan improvements proved to be ill-timed given the sharp turn in the national and state economy."

      City officials, employees and the residents who rely on those people for public services may find some consolation in CalPERS' reporting that contributions for the upcoming fiscal year will be based on 2007 returns, when the fund had a nearly $40 billion return.

      The two-year gap is a function of the time it takes for CalPERS personnel to calculate how to divvy up revenue among retiring public employees.

      CalPERS manages retirement benefits for more than 2,500 public agencies, and pension benefits vary not only among different municipalities and special districts but among different classes of employees. For example, police and fire employees typically earn more generous benefits than public works or library staffers

      CalPERS spokesman Ed Fong explained that fund managers spread gains and losses over a 15-year period. Smoothing out the effects of good and bad years means cities don't have to absorb the shock of a downturn in a single blow.

      "One year of extremely good or one year of extremely poor investment by itself would not have a dramatic impact," Fong said.

      Six months are still left in the budget year and economic recovery could lessen the pain. Nevertheless, Douglas Johnson, a fellow at the Rose Institute for State and Local Government, said cities won't be able to dodge problems when 2011's bills come due.

      "Some pain is definitely guaranteed," he said.

      "They should be planning for this," Johnson said later. "They should be banging down CalPERS door and asking, `What's coming?"'

      Rich Lawhead, president of the San Bernardino police union, said he's not expecting CalPERS-related headaches to affect relations between City Hall and the union.

      The union's contract runs out at the end of 2009 and he said he's begun informal talks with city officials before negotiations and "we're going to see what we can do to help the city out."

      San Bernardino County is not part of CalPERS. County employees' retirement plans are managed by the San Bernardino County Employees Retirement Association.

      Executive Director Timothy Barrett was not available to comment on that fund's current situation.

      Gary McBride, a county deputy administrative officer, said the fund's performance this year will affect county contributions during the 2010-11 budget year.

      McBride didn't want to predict whether potential increases in the county's contributions to the retirement association would affect government programs.

      "I wouldn't be willing to say that because it's all dependent on what our other revenue streams are doing," he said.
      Facts do not cease to exist because they are ignored. -- Aldous Huxley
      Two things are infinite: the universe and human stupidity. -- Albert Einstein

      Comment


      • #4
        LACERA is still in a good position. I'm happy I work for LA County now!!
        sigpic
        Originally posted by Smurfette
        Lord have mercy. You're about as slick as the business side of duct tape.
        Originally posted by DAL
        You are without doubt a void surrounded by a sphincter muscle.

        Comment


        • #5
          Originally posted by jb5722
          i wouldn't say calpers is in a terrible position, that fund is one of the most highly respected pension funds, they've done well in the past they just got hit by an unexpected turn of events that they weren't able to include in their investment strategy. it might put a few bumps in the road for the next few years but i'm sure they'll more than rebound from the losses.
          Yes, because the agencies that have CALPERS pensions will have to contribute more money.

          A big problem is that CALPERS had very aggressive actuarial assumptions, as a result of which they are almost certainly underfunded.
          Facts do not cease to exist because they are ignored. -- Aldous Huxley
          Two things are infinite: the universe and human stupidity. -- Albert Einstein

          Comment


          • #6
            Originally posted by FJDave View Post
            LACERA is still in a good position. I'm happy I work for LA County now!!
            Per one of the board members of LACERA, it is doubtful that retired members will get their COLA raise this April 1st. I have had a COLA raise for the past 12 years, but don't think it come this year.. Lacera lost money, but not nearly as much as CALPERS.
            Retired LASD

            Comment


            • #7
              Originally posted by jb5722
              While this is true my statement was that once their fund managers are able to get a better understanding of the financial markets and economic climate (which is pretty much what every fund is trying to do right now) they will be able to determine a better strategy. whenever people are losing a lot of money because of volatility in the market, there are also people making just as much money because of the volatile market.
              Unfortunately, volatility is not the only problem. It seems unlikely that the economy will grow at the rates seen from 2001-2007. The prospect of slower growth also means that California's tax revenues (both property tax and income tax) will be far below last year's for the foreseeable future. Therefore, there will be pressure to lower government salaries, which will also mean that higher contribution rates from current employees will be needed to fund the pensions for those who already have retired or are about to do so.
              Facts do not cease to exist because they are ignored. -- Aldous Huxley
              Two things are infinite: the universe and human stupidity. -- Albert Einstein

              Comment


              • #8
                Originally posted by FJDave View Post
                LACERA is still in a good position. I'm happy I work for LA County now!!
                Dave, I lost a few grand in my horizons !!! WTF ??

                Comment


                • #9
                  WOW I am so glad that our pention is privatized and 98% funded still!!!!!!
                  "For he is God’s servant for your good. But if you do wrong, be afraid, for he does not bear the sword in vain. For he is the servant of God, an avenger who carries out God’s wrath on the wrongdoer." Romans 13:4

                  Comment


                  • #10
                    I lost some in my Horizons, too (457K plan, for those unfamiliar with the County's deferred comp). But I didn't lose nearly as much as others did, since I'm in pre-assembled Plan B and C, with 20% going into the stable income fund. I think I lost only $1,000. But LACERA is in a much better position than CalPERS is....thank goodness!
                    sigpic
                    Originally posted by Smurfette
                    Lord have mercy. You're about as slick as the business side of duct tape.
                    Originally posted by DAL
                    You are without doubt a void surrounded by a sphincter muscle.

                    Comment


                    • #11
                      Originally posted by FJDave View Post
                      I lost some in my Horizons, too (457K plan, for those unfamiliar with the County's deferred comp). But I didn't lose nearly as much as others did, since I'm in pre-assembled Plan B and C, with 20% going into the stable income fund. I think I lost only $1,000. But LACERA is in a much better position than CalPERS is....thank goodness!
                      I lost lots !! gotta check and see how mine is assembled, what plans.

                      between my PERS, LACERA, and Horizons I should only have to work part time after retirement

                      Comment


                      • #12
                        Hell, I can retire after I'm 85, but still have to flip burgers until I'm 95.
                        sigpic
                        Originally posted by Smurfette
                        Lord have mercy. You're about as slick as the business side of duct tape.
                        Originally posted by DAL
                        You are without doubt a void surrounded by a sphincter muscle.

                        Comment


                        • #13
                          Originally posted by FJDave View Post
                          Hell, I can retire after I'm 85, but still have to flip burgers until I'm 95.
                          ain't that the truth!!

                          Comment


                          • #14
                            Originally posted by WPD954 View Post
                            ain't that the truth!!
                            You ain't neva lied!!
                            sigpic
                            Originally posted by Smurfette
                            Lord have mercy. You're about as slick as the business side of duct tape.
                            Originally posted by DAL
                            You are without doubt a void surrounded by a sphincter muscle.

                            Comment


                            • #15
                              Nothing to worry about with CalPERS. Here is a report from Oct 30, 2008 from the CSEA.

                              http://pylcsea.com/2008/10/30/calper...fund-is-sound/
                              Be courteous to all, but intimate with few, and let those few be well tried before you give them your confidence!

                              [George Washington (1732 - 1799)]

                              Comment

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