PBS: CalPERS is severely underfunded, has horrible investment performance, and has overly optimistic future return assumptions. And they've got a brilliant idea: take on more risk and hope they don't screw up so badly next time.
ROBINSON: Well, Joe Dear was running the Washington state investment board up until the end of 2008. And he has come into really clean up Calpers. There have been some influence peddling scandals that have affected it. But more seriously for him is dealing with the under performance of the fund. Calpers lost $70 billion in the crash of '08 and '09. And Dear's job is to rejuvenate Calpers so that it never loses that much again.
HUDSON: Let's take a look at this under performance because Calpers benchmark is 7 3/4 percent return per year, but over the past decade, it is under 3 percent return and that's even less than the median state retirement plan which is closer to 3.5 percent. So are the funds beginning to question these assumptions of trying to get close to 8 percent a year?
ROBINSON: Yes, they are. There is enormous pressure on Calpers and other public pension funds to lower their investment return assumption to what critics say is a more realistic level, perhaps around 6 percent, perhaps even lower. The difficulty for Calpers though in doing that is if they lower their investment return assumption, they are going to have to increase the contributions that public workers and the agencies that employ them have to put on the table. And that creates a lot of political ramifications for the state. And as you could imagine, that is not an easy situation.
In other words, if they told the truth, it would be a political disaster as the fiscal black hole is revealed. So they're going to keep lying to us.
But don't worry -- when they eventually blow up, cities like Encinitas will have to raise taxes and cut services to bail them out!
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