Tunno Off the Mark in Calaveras Enterprise Column
August 25, 2014
David Tunno reports several inaccuracies in his recent article, "The CalPERS Hole: Who Owns It?" For starters, the “vast majority” (nearly two-thirds) of contributions for a member’s retirement benefits actually come from CalPERS investment earnings and not from employers. About 22 percent comes from employer contributions and 13 percent comes from employee contributions.
Next, the CalPERS assumed rate of investment return is 7.5 percent. This is not an arbitrary number, or one that can be capriciously rounded up or down, but rather one that is carefully thought out by CalPERS actuarial and investment staff, after analyzing current and future liabilities, member demographics, financial market conditions, and asset allocation structures, among other factors.
As for CalPERS’ ability to achieve the assumed rate of return, the System earned 12.5 percent for the 2012-13 Fiscal Year and 18.4 percent during the 2013-14 Fiscal Year. In fact, CalPERS’ average return is 12.5 percent for the past five years and 8.4 percent for the past 20 years, all surpassing our assumed return rate of 7.5 percent.
Perhaps most disturbing is Mr. Tunno’s inaccurate implication that CalPERS operates in the dark when it comes to its investments. Nothing could be further from the truth. The rate of return is evaluated by the CalPERS Board and staff every three to four years, and has been lowered twice in the last ten years. In 2004, it was lowered from 8.25 to 7.75, and it was lowered again in 2012 from 7.75 to 7.5. It was evaluated again this year and kept at 7.5 percent.
All of this information is available on the CalPERS website and is regularly updated. All Board meetings and discussion around the rate of return, asset allocation, and other investment and actuarial matters are conducted in public session, webcast live, and archived on the CalPERS website for on-demand viewing. All important decisions are made after input from stakeholders and the public.
In 2007, before the market collapse, CalPERS was 100 percent funded to meet all of its liabilities. CalPERS’ goal is greater sustainability and soundness of the Fund. As we work toward that goal for our members, we are committed to openness and transparency. With a treasure of information available, Mr. Tunno should get his facts straight before he makes such erroneous claims.