CalPERS is strong — but challenges remain

In Gov. Gavin Newsom’s recently released state budget he proposed to contribute an additional $3 billion to the CalPERS fund.  This commitment is a prudent one that will help to ensure the long-term sustainability of the fund.

The governor also made one very important point as he detailed his priorities during his inaugural address – that “every senior should be able to retire with security and live at home with dignity.” That’s exactly what CalPERS, the California Public Employees’ Retirement System,  is committed to deliver for current and future generations of public employees.

The next 10 years in the financial capital markets will require focus and innovative solutions to meet our investment goals.

Much has been written of late about the state of pension systems across the nation and here in California. Despite problems in other states, CalPERS is strong.  We had more than 70 percent of the assets needed to pay benefits at of the end of the 2018 fiscal year, and our average annual return on investments over 30 years is 8.4 percent.

Nevertheless, challenges exist.

The next 10 years in the financial capital markets will require focus and innovative solutions to meet our investment goals.  The complex arena of pension economics will also provide a steady stream of hurdles for any state, including California. These are all very real and important issues that we must address.

Ensuring that our pension fund can meet its obligations is something that I take very seriously. I grew up witnessing firsthand the human consequences of economic insecurity. My grandparents survived the Great Depression, but not without great suffering and a significant cost. Despite their efforts to save money and live frugally, they were ultimately denied a dignified retirement. Our success at CalPERS is one way that I can honor my grandparents’ memory and their lasting influence on my life.

To ensure success we will focus on four key areas in the next five years.  These include improving our investment capabilities, leveraging our brand and size, staying focused on total fund returns, and harnessing our advantages such as our long-term investment horizon.

Pressures to dismantle defined-benefit plans will continue, but we can’t overlook the value they bring to our state.  California’s defined-benefit pension system has a positive impact on government’s ability to recruit and retain a diverse and talented workforce.

Today, approximately 25,000 CalPERS members retire every year with an average pension of $2,876 per month. That’s a modest amount given California’s cost of living. Economic inequality is a serious issue, and we are helping to address it by making certain that our retirees have retirement security. As these professionals retire, it is critical that there is a strong pipeline of women and men to replace them. The promise of a fair retirement helps keep California’s public workforce strong.

Additionally, CalPERS’ investments benefit California’s private sector economy. In 2018, we invested more than $30 billion throughout the state, supporting more than 266,000 jobs and laying the groundwork for future economic growth and job creation. It’s another way that California’s public sector strengthens what is today the world’s fifth largest economy.

As we head into 2019, CalPERS remains committed to keeping its promise of a secure retirement to California’s public-sector employees.

A sound pension system is important to the fabric of our state. When public servants retire, the last thing they should have to worry about is whether they will receive the pension that they have rightly earned.
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Editor’s Note: Marcie Frost is the chief executive officer of CalPERS, the largest public pension fund in the United States, serving more than 1.9 million members in the retirement system and administering health benefits for 1.5 million members and their families.