CalPERS, Other Big Pension Funds Are Getting More Conservative, Report Says

Feb. 06--A new survey of public pensions suggests the financial health of California's largest pension system is roughly in line with that of the majority of funds around the country.

The National Conference on Public Employee Retirement Systems, a trade association, released a survey Tuesday of 167 state and local government pension funds.

On average, the pension funds reported they had 72.6 percent of the assets they would need to cover all their liabilities -- a measure of financial health known as pensions' funded levels. The California Public Employees' Retirement System, worth about $350 billion, most recently reported it was 71 percent funded. Fitch Ratings typically considers a funded rate of 70 percent to be adequate.

The survey, which was conducted for the second year in a row, shows CalPERS is among many responding pensions taking incremental steps toward better financial health.

"CalPERS largely mirrors the survey findings," said the trade association's executive director, Hank Kim. "I think it's another indication that they are very much on a sustainable path."

Common reforms include reducing expectations for how much the funds will earn each year.

In the survey, pension plans reported expecting to earn an average rate of 7.34 percent per year, down from 7.49 percent last year. Fitch views a 6 percent rate as reasonable.

CalPERS has lowered its expected return rate to 7 percent. It earned an 8.6 percent return in the 2017-18 financial year, which ended June 30.

This year is proving to be more challenging. At the end of December, following drops in stock prices, the fund's portfolio had lost 3.5 percent of its value. Stock prices have since rebounded. Updated figures are not yet available.

Decisions by pensions funds to lower their anticipated investment return rates can help stabilize retirement plans, but they also can stress government employers by requiring them to contribute more money to fund pensions.

A survey last year by the League of California Cities, which represents local governments, found that most California cities expected their spending on public employee pensions to rise by about 50 percent by 2024, restricting the cities' ability to provide local services.

A Fitch report on state pensions from last year suggested a recession could test how healthy the funds are.

"The current economic expansion, even with recent gains, has been weaker than past expansions, and arguably is closer to its end than its beginning," the report stated. "This means pensions may soon be absorbing another round of recessionary weakness that further raises contribution pressure, without having fully recovered from the last downturn."

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