Commentary
Markets go up—then down. The California Public Employees Retirement System just learned that lesson the hard way.
On Thursday it reported in the 2021-22 fiscal year, which ended on June 30, its funding ratio fell back to 72 percent from 82 percent the previous year, 2020-21. CalPERS’s official announcement read:
“Tumultuous global markets played a role in CalPERS’ first loss since the global financial crisis of 2009, as the System today announced a preliminary -6.1% net return on investments for the 12-month period that ended June 30, 2022. Assets stood at $440 billion at the end of the fiscal year.”
The 72 percent funding level is especially dangerous. Although some investment advisers say 80 percent is adequate, according to an October 2021 report by the American Academy of Actuaries, that is a “myth.” It explained, “The funded ratio of a pension plan equals a value of plan assets divided by a measure of the pension obligation as of the same date … Actuarial funding methods generally are designed with a target of 100 percent funding—not 80 percent. If the funded ratio is less than 100 percent, actuarially determined contributions are structured with the objective of attaining a funded ratio of 100 percent within a reasonable period of time.”…