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CalPERS' Recent 5.8% Investment Return Spells More Unfunded Liabilities for Public Agencies

Escalating Unfunded Liabilities Pose Challenges for Public Agencies

The California Public Employees' Retirement System (CalPERS), the largest pension fund in the US, has reported a disappointing investment return of 5.8%. This figure falls short of their target discount rate of 6.8% by a full percentage point, raising concerns about the financial challenges ahead. Last year's historically poor investment performance, with a negative return of 7.4%, has exacerbated the financial burden on public agencies. As a result, public agencies are now facing an approximate 10% drop in their funded status across all plans in the new fiscal year. Anxiously Awaiting the CalPERS Portals Results

To meet their long-term funding targets and avoid creating shortfalls in the form of unfunded actuarial liabilities (UAL), CalPERS must consistently achieve returns of at least 6.8%. With a massive shortfall of 14.2% across all plans reported last year, public agencies are anxiously awaiting the results that will appear in their CalPERS Portals in early August. Unfortunately, agencies can expect to see their funded status drop by approximately 10% across all plans. To make matters worse, next year’s reports will reflect a further drop in funded status due to this year’s investment miss. Mitigating the Situation - Steps for Public Agencies

Moving forward, proactive measures will be necessary to address these challenges and ensure the long-term sustainability of the pension system for public employees and retirees. Weist Law, with decades of experience in complex pension matters, emphasizes the importance of developing and adopting a robust Pension Management Plan (PMP) as a crucial first step toward managing pension costs effectively. A detailed PMP provides management with a valuable framework to achieve and maintain a healthy pension plan-funded ratio/status.

Weist Law has worked with hundreds of agencies and has developed over twelve different cost mitigation strategies, including the integration of a 115 Trust, all aimed at reducing long-term pension costs and achieving and maintaining a healthy funded status. Each cost mitigation measure should be incorporated into a PMP to avoid overlooking such opportunities each year. Once a PMP and Pension Policy have been established, disciplined ongoing proactive management is the only viable solution. Unfunded liability evolves over time, so there is no one-time fix or solution. The creation and adoption of a customized pension management plan and policy represent the first steps towards achieving and maintaining healthy pension plans.

If you are interested in learning more about our PMP and Policy development services, as well our cost mitigation strategies, please click here to sign up for a free consultation.

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