The moral of the well-known fable about Chicken Little is; while things may seem in dire straits, on closer examination they aren't.
While there have been much heated rhetoric recently about our public pensions you should not believe everything you are told… because indeed the sky is not falling. Every financial institution faces challenges in the current economy. But as president of the largest of more than 80 California public pension systems I want to cool down the debate and set the record straight.
For more than 78 years the California Public Employees Retirement System has made sure the retirement funds of hard working peace officers, bus drivers, firefighters, nurses, and other public employees are safely invested so they can retire with some security.
With $194.7 billion in current assets, CalPERS is the largest pension fund in the country. Our average monthly pension is $1,985.00. We are proud of what we do, who we serve, and how we invest. We protect retirement benefits for more than 1.6 million Californians. We consider our retirement security our sacred trust and they in turn have trusted us to protect their nest eggs.
CalPERS significantly contributes to the California economy. Our investments in California create more than $15 billion in economic activity and thousands of jobs. When you add in all of the benefit payments to and on behalf of members, CalPERS adds as much as $35 million per year to the California economy.
Just like the stock market, since 1932 we have had ups and downs. However, even with last year's unprecedented market losses our 20-year investment return remains positive at 7.75 percent. We have earned positive returns in 20 of the last 25 years. Those returns pay the lion's share of pension benefits. No questions, these are challenging times and we must manage in ways we have never had to before. We will do that together with our employers and our members and our stakeholders.
Of course there is complexity to managing benefits for more than 2,600 public employers – especially since each city, county, school district and other public agency negotiates benefit levels with their employees and has a specific formula for how they and their employees pay into the fund.
Whatever the benefit levels, regardless of the employer, historically as much as 75% of retirement costs have been paid by earnings on investments. The other 25% are roughly equally attributable to contributions by employers and employees. Leveraging as much as 87% returns on employers' contributions suggest how strong the system is over time.
No one knows when the markets will rebound, or how long that will take. In the meantime, it is our duty not to wait. So we are not waiting. Right now, the CalPERS board is re-positioning our assets for long term growth. While the economy is uncertain today, the California, U/.S. and world economies will recover and our assets will grow with that recovery. When the market dropped sharply last fall, out assets stood at $160 billion. Today, they are back to $194.7 billion as of the end of August.
We are fine-tuning our investment strategy to better take advantage of buying opportunities as they arise. We are negotiating with hedge fund, private equity and real estate partners to reduce fees and better align interests. We are implementing innovative risk management methods. We are stepping up activism to influence financial market reforms. And we are seeking ways to expand retirement security for more Californians. Because of our forward thinking programs the Obama Administration invited out input on the future of market reforms for the entire country.
Because we work closely with our employer members, we understand that the sluggish California economy means government agencies face increased pension costs at the same time they are taking in less revenue. To deal with the short-term impact of market losses on employer contributions we are moderating rate increases by spreading them over time through a process called smoothing. These are methods consistent with best actuarial practices.
The question isn't whether pension systems are sustainable. The question is whether costs for pensions are affordable, given all the obligations of employers right now CalPERS is working with our employer and employee constituent groups to foster a constructive dialogue on how to strengthen the system. IF there is waste or abuse in the system, we want to end it like everyone else. But by helping to separate fact from fiction and encouraging a sharing of ideas we, unlike Chicken Little, can help figure out which acorn actually hit our head, what its real impact is, and what is the will to go forward.
Together the 2,600 government employers we serve and the 1.6 million California police, firefighters, nurses, and other hard working public servants covered by CalPERS will make sure that they continue to have a retirement system that serves those who have and are providing public services and continues to be minimize the need for taxpayer contributions.
Rob Feckner is President of the CalPERS Board of Administration.