The California Public Employee Retirement System (CalPERS) Reports $30.8B Loss

This loss is a result of investment losses and the assumption of unrealistic investment gains. CalPERS

"Despite Governor Jerry Brown last summer demanding CalPERS immediately “lower its investment risk and volatility of returns” by reducing its “assumed” annual investment return from 7.5 percent to 6.5 percent, the CalPERS board voted 7- 3 on November 15, 2015 only to slowly reduce the investment return expectation over the next decade.

CalPERS has notoriously minimized the annual pension contribution for its 3,007 government entities by fantasizing that its superior investments expertise will allow its investments to compound every year without loss for the next three decades at an annual rate of 7.5 percent.

To understand just how inflated CalPERS’ assumed investment return really is, the U.S. Pension Benefit Guarantee Corporation estimate for private sector defined-benefit investment returns is only 4 percent.

Had CalPERS’ Board adopted Brown’s proposal to cut their public pension plan investment return assumption to 6.5 percent, the California Legislature have been required to increase the state’s annual pension contribution by 43 percent."

Thus we see the results when a pension fund fails to align its assumed investment returns with reality. Texas Municipal Retirement System (TMRS) clings to the fiction that they can earn 6.75% annually for the next 30 years when infact they have only earned 5.42% over the last decade.  TMRS needs to change their assumed investment return to more closely align with reality, whether it is 5.42% or the 4% estimated by the Pension Board Guarantee Corporation.