CalPERS reports strong investment returns, but warns against raising pension costs further.

The California Public Employees’ Retirement System (CalPERS) has reported a remarkable investment return of 14.8% for the past year, marking its highest annual performance in a decade. This substantial return is a positive development for California taxpayers, as it not only strengthens the financial standing of the state’s pension system but also helps mitigate its considerable pension debt. With these results, expectations for improved system funding arise, yet concerns about the implications for long-term fiscal responsibility are evident.

There are troubling signs that some state lawmakers may seek to allocate these gains towards increasing pension benefits for influential public safety unions. This move would echo decisions made in the late 1990s, when California’s pension system was buoyed by a technology-driven economic boom. During that era, CalPERS enjoyed significant returns – including exceeding 20% in 1997. Unfortunately, lawmakers opted to leverage this financial windfall to enhance pension benefits for government employees rather than build reserves for potential downturns.

The consequences of such decisions proved dire as the economy soon faltered, culminating in a series of financial crises, including the dot-com crash and the Great Recession. By 2009, CalPERS was grappling with 5 billion in unfunded liabilities, prompting a critical turning point in state pension policy. Under the leadership of then-Governor Jerry Brown, the Public Employees’ Pension Reform Act (PEPRA) was enacted in 2012, aimed at correcting previous fiscal missteps and addressing the looming pension crisis.

PEPRA instituted measures to temper future pension benefit increases and established a framework for substantial catch-up contributions to alleviate pension debt. Since its implementation, funding levels for CalPERS have gradually improved, but the state still faces a significant timeline, estimated at 10 to 20 years, to adequately reduce its debt.

Despite the progress made, recent legislative proposals, such as Assembly Bill 1383, threaten to undermine these reforms. The bill seeks to grant enhanced, unfunded pension benefits to first responders by lowering retirement ages and raises the baseline for pension calculations for high-earning employees from 0,000 to 5,000. While lawmakers contend this initiative is aimed at improving employee retention, data suggests no substantial retention crisis exists within California’s public safety workforce.

According to annual survey data, the average tenure of public safety employees in California has doubled since 1983, with a median tenure of 13 years—substantially exceeding the national average of nine years. Furthermore, the financial repercussions of AB 1383 could impose significant burdens on taxpayers. Analysis by CalPERS predicts an added cost of .8 billion from the proposed benefits, with long-range assessments suggesting taxpayer liabilities could soar to .3 billion or more, depending on market conditions over the next three decades.

CalPERS currently faces a staggering 6 billion in debts, and while recent investment returns provide some respite, the potential for repeating past fiscal mistakes is concerning. The optimism surrounding record market returns should not serve as a justification for deploying unfunded pension enhancements that threaten the financial stability of taxpayers across California.