Despite the current economic mess in the United States, the California Public Employees’ Retirement System (CalPERS) fund remains stable. Retirees will continue to receive their pension checks without interruption.
In light of recent headlines, CalPERS issued a statement to remind members that their retirement benefits are guaranteed by law and, more importantly, to reassure members that the retirement fund is solvent. As of last year, CalPERS had an overall funding ratio of more than 90 percent. This means that the market value of its assets was 90 percent of what its liabilities were for each retirement plan; this is considered excellent for pension funds.
This solvency in times when others are losing their retirement funds to bad investments reflects the importance of having a responsible organization such as CalPERS manage classified employees’ retirement funds.
Like other investors, CalPERS has suffered some losses because of the drop in stocks. However, with its team of investment experts and a diversified portfolio, CalPERS will weather this downturn much like it has gotten through market downturns in the past.
Unlike 401(k) plans and personal investments, CalPERS has a highly diversified portfolio that can withstand the ups and downs of the stock market. The pension fund has its assets not only in stocks, but also in bonds, real estate, commodities and many other types of investments. In situations such as the current one, certain CalPERS investments may drop while others remain stable or even increase.
In addition, CalPERS investments are long term. Since the market is constantly in flux, downturns eventually give way to better times when CalPERS makes up its losses. During the four years leading up to the 2007-08 fiscal year, the CalPERS fund enjoyed double-digit gains. CalPERS can actually take advantage of a downturn such as this one to buy stocks at a low price and position itself for a market recovery.
Also of note, because CalPERS healthcare benefits are financed by premium payments from employers and employees, they are not affected by stock prices.