Steep Drop in CalPERS Funded Ratio, 1995–2015

A reader of a recent post asks the following: “On page 100 of its 2015 annual report, CalPERS notes with approval that it earned a 20-year investment return of 7.76%, exceeding its 7.50% investment return assumption. Did that healthy investment return improve the Funded Ratio?”

The Funded Ratio is the ratio of a pension plan’s assets to its liabilities, a measure of a plan’s ability to pay benefits without requiring additional contributions from taxpayers. The lower the ratio, the greater the future contributions.

Unfortunately, despite that healthy return, the Funded Ratio fell from 96% in 1995 (see page 60 of 2005 CalPERS Annual Report) to 73% in 2015 (see page 5 of 2015 Annual Report) as unfunded liabilities grew 2500% to more than $100 billion (estimate based on NPL growth) in 2015.

As explained here, CalPERS must earn much more than 7.50% to keep unfunded liabilities from growing. Further (and as this Rockefeller Institute report explains), the negative consequences of underfunding increase with time.

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