July 20, 2015

In an email to journalists and election officials, David Crane arrives at a false conclusion with his claim that CalPERS unfunded actuarial liability (UAL) will continue to grow unless the system achieves a return of at least 9.7%, not the 7.5% CalPERS currently assumes.

His principle is correct, but he arrives at an incorrect conclusion. Liabilities do grow at 7.5% per annum and, if there are no contributions towards the UAL, assets would have to grow faster than 7.5% for there not to be an increase in the UAL.

However, at CalPERS, contributions are being made to pay down the UAL. For the State Miscellaneous plan alone, the UAL payment was about $1.5 billion in the year. This was still not enough to fully offset the interest on the UAL so the UAL would still have grown even if we had achieved a 7.5% return. But the required return would have been much closer to 7.5% than the 9.7% that Mr. Crane calculated. Crane overstates the additional return needed by four times.

Read Crane’s Email