By ROB FECKNER
In the debate over the future of public pensions, there has been a lot of misinformation and misunderstanding about pensions, including in the pages of this paper. I would like to set the record straight by correcting a few pension myths and providing a fuller picture.
First, here are some important facts you should know:
• The average CalPERS pension is about $25,000 per year.
• Half of CalPERS retirees receive $16,000 per year or less.
• Seventy-eight percent of retirees receive $36,000 per year or less.
• It’s been reported that some of our members earn a pension of more than $100,000 a year. While true, it represents less than 2 percent of all our retirees, specialized skilled employees or other high-wage earners who worked 30 years or more and served in high-level management positions.
• Pension costs for the State of California are less than 5 percent of the state’s general fund.
It is important to remember that pensions are a shared responsibility. Every dollar paid to CalPERS pensioners comes from three sources—investments, employers and members. Approximately 63 cents of every dollar currently paid in pensions comes from our investments. Historically, this number has been as high as 75 cents on the dollar. The remainder is funded by employers who contribute 22 cents and members 15 cents on a dollar.
The health of CalPERS investments has also been called into question. While we did experience a decline in our investments like all investors, our assets stand at approximately $200 billion, a gain of more than $50 billion from our low point during the economic downturn.
Finally, there has been a lot of attention paid to two studies’ analysis of whether a pension plan’s financial statements accurately reflect the plan’s assets and liabilities.
The studies—completed by graduate students at Stanford University and the Reason Foundation— concluded that pension funds use overly optimistic assumptions about future investment returns, thus lowering projected liabilities. The studies further stated that pension funds should use a risk-free investment return assumption. By doing so, the studies have conjured up a half trillion dollar liability and the falsehood that CalPERS and other pension funds are hiding trillions of dollars of liabilities. These conclusions are not supported by the facts.
The studies ignore our diversified investment portfolio that has been time-tested during our 78 year history. If CalPERS had followed the recommended approach in the study, we would have given up billions of dollars in investment earnings that have helped finance pensions.
The future of public pensions is an important topic. CalPERS has, and will remain, an honest broker of information.
Rob Feckner is president of the CalPERS Board of Administration.