CTA: Are the funds in CalPERS stable since the economic downturn?
Anne Stausboll: We have never missed a benefit payout. Standard & Poor’s recently affirmed its highest rating for our ability and liquidity to meet our short-term obligations. We’re holding the line on employer contributions and will do so through the 2009-10 fiscal year, helped in part by a rainy-day fund built up during four years of strong performance.
What investment strategies does CalPERS have in place to safeguard against turbulent markets?
While all investors, asset classes, and markets are facing extraordinary global conditions, CalPERS is designed to weather market cycles. We have a diversified asset allocation strategy and a long-term investment horizon. We are large enough that we don’t have to do widespread selling and lock in market losses. In market downturns, we have sufficient capital to position ourselves for investment gains once the market recovers.
Can you explain how the funds are protected by law?
The California Public Employees’ Retirement Law obligates employers to meet their contractual obligation to members’ retirement security through their lifetimes. Court decisions have held that CalPERS retirement benefits are a vested right that cannot be taken away once they are earned.
Pensions tend to use a system which includes actuarial smoothing. Can you explain what actuarial smoothing is and how it results in predictable performance over the life of a CalPERS pension?
Smoothing helps to stabilize employer contribution rates, reducing volatility by spreading investment gains or losses over a 15-year period. The practice makes rates more predictable for employers as they draft their annual budgets. It doesn’t make investment returns more predictable, however. In fact, smoothing is designed to mitigate rate fluctuations caused by spikes and valleys in investment returns.
Can you provide any current educational information (online or otherwise) that can assure our non-teaching school personnel of CalPERS’ financial stability?
CalPERS periodically updates a message to members on our home page at www.calpers.ca.gov, in publications and videos for members and employers, and in telephone and e-mail responses by our Contact Center.
Is there any other information you would like to impart to our non-teaching school personnel?
We are taking actions in all asset classes to maximize risk-adjusted investment returns. We received average returns of 15 percent in 20 of the last 25 years, and averaged returns of only negative 5 percent in the down years. We are diversified and disciplined. Led by skilled investment professionals, we have the right people and the right people to stay on course, as we have done for 77 years.