California: How did CalPERS dig a $153 billion pension hole?

During the next five weeks, the CalPERS board, custodian of $326 billion in assets needed to fulfill retirement promises for 1.8 million California public employees and beneficiaries, will make decisions affecting government budgets for decades to come.

 The problem is, despite their fiduciary duty under the state Constitution to “protect the competency of the assets” under their absolute control, CalPERS is roughly $153 billion short of fully funding the retirement promises earned to date.

How did CalPERS dig this huge hole?  During the last decade, they manipulated actuarial assumptions and methods to keep employer and employee contribution rates low in the short term.

Besides over-estimating investment returns, CalPERS uses very long amortization schedules to push debts onto future generations, greatly increasing the pension system’s long-term cost.  As a result, CalPERS is just 68 percent funded, barely above what would be “critical” status for private-sector pension plans.

Just like a family that assumes it will receive healthy raises every year and only makes minimum payments on its credit card debts, there must be a day of reckoning. Yet it is not clear the CalPERS board recognizes this important momentis now.

This week, CalPERS will discuss its quadrennial Asset Liability Management process, one that assesses its financial position and proposes course corrections.  The results are pretty bleak.

Read the rest here.

Civil service employees in California should be really worried. Just like in Illinois and other liberal fantasy lands they have been promised this, that and the other thing, with no realistic idea of how it's all going to be paid for.  The basic idea at the moment is to not worry; someone thirty years down the road will figure it all out or just send the bill to the tax payers. The problem is that the tax payers are not going to pay. All they will do is flip Sacramento what those of us from New York used to call the Bronx salute as they pack up and move out of that insane asylum masquerading as a state.