CalPERS Loses $69 Billion in Market Crash

The California Public Employees Retirement System (CalPERS) has lost $69 billion as a result of the pandemic-induced global financial meltdown. It is the fund’s greatest loss since the recession of 2008. And it will mean difficult days ahead for California’s local governments and school districts.

Cities and school districts were already struggling to meet their pension obligations. In the coming years, they will need to make up for the shortfall. A number of workers hired in the past 7 years will likewise be forced to contribute a larger portion of their paychecks to their pensions.

We don’t know how much the California State Teachers’ Retirement System (CalSTRS) lost from the market drops, but we can expect a similar view when the figures are released. One month ago, CalPERS’ fund stood at $404 billion. Today, it is down to $335 billion. At the end of February, CalSTRS was valued at $243 billion.

What happens next will depend on CalPERS' rate of return for the fiscal year. A drop below 7.25% will mean higher payments for for local governments and school districts. Following the Great Recession, CalPERS’ return rate hit negative 24%.

The Sacramento Bee tells us what the future will look like for California’s municipalities:

As an example, a larger-than-average local government with 471 employees would owe $11.9 million this year if CalPERS earns 7 percent, according to projections from GovInvest, a local government consultant that models pension costs.

Under that normal scenario, the agency’s pension costs would increase to $14.45 million by 2026. If CalPERS’ return rate drops to negative 25 percent, similar to the Great Recession, the agency would owe about $22 million in 2026, according to the projection.

That could drive some struggling municipalities into bankruptcy.

CalPERS CEO Marcie Frost says the pension fund is better prepared to handle a downturn than it was after 2008 thanks to a reduction in the target rate and greater liquid assets. The fund was about 70% funded in July (that would drop to 68% if it earns nothing for this fiscal year). CalSTRS was about 64% funded as of May.

How are local officials reacting to the news? Read more at the Orange County Register.