More Pension Math

Asset recovery isn’t enough.

Let’s say your house was worth $251,000 in 2007. Then came the Great Recession. By 2009 your house’s value had dropped to $179,000. But prices climbed and by 2016 your house was worth $298,000. Would you say your house had recovered its pre-Great Recession value? Of course you would.

If you add six zeroes to those dollar values you would have CalPERS’s asset values for 2007, 2009 and 2016:

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As you can see, CalPERS’s assets were $251 billion in 2007, $179 billion in 2009, and $298 billion in 2016. Would you say that pre-Great Recession asset values had been recovered by 2016? Of course you would. In fact, assets in 2016 exceeded pre-Great Recession assets by 20 percent. But now look at the growth over the same period in CalPERS’s unfunded liability, which is the difference between pension liabilities and those assets:

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CalPERS’s assets exceeded liabilities by $2.9 billion in 2007 but by 2016 liabilities exceeded assets by $139 billion. That unfunded liability developed even though assets in 2016 were 20 percent higher than before the Great Recession. The reason: CalPERS’s pension liabilities exploded, for reasons explained here. An unfunded liability would’ve developed even without a Great Recession, as explained here. Other pension plans that went through the same recession didn’t have explosions in unfunded liabilities for reasons explained here.

CalPERS’s liabilities will continue exploding. The consequences are falling on our state’s most vulnerable citizens and institutions — students and young teachers, the needy, courts and more — and tax increases are being diverted to pension debts rather than new services. Those consequences will worsen. Legislators will be called upon to make very difficult choices. Students, citizens and taxpayers who did nothing wrong have already had to make sacrifices. Current and future public employee retirees who did nothing wrong will be called upon to make sacrifices.

Pension accounting abuse by CalPERS and other public pension plans in California has created a serious threat to civil order. The more that legislators and journalists understand how we got here and where — in the absence of reform — we are headed, the better.

Written by

Lecturer at Stanford University and president of Govern For California

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