The State Worker

Chronicling civil-service life for California state workers

December 13, 2011
Stanford study pegs California pensions' shortfall at $500 billion

California's three largest pension systems have promised $500 billion beyond their current ability to make those payments to retirees, according to a study released to today by Stanford University Professor and former Democratic Assemblyman Joe Nation and a student researcher.

The Stanford Institute for Economic Policy Research issued the report, documenting what it claims is the state's deepening pension crisis. California Common Sense, an organization dedicated to engaging the public in "data-driven discourse" is also behind the report.

Among the report's findings for CalPERS, CalSTRS and the University of California Retirement Plan:

Using a "risk-free" or low-risk discount rate -- a method that is debated when experts talk about figuring out a pension system's obligations -- the total unfunded liability for CalPERS, CalSTRS, and the UC system is $498 billion. That's up 17 percent higher than the $425 billion shortfall Stanford estimated in April 2010.

If you assume an investment rate of return of 6.2 percent for CalPERS, CalSTRS, and UCRP, the shortfall is nearly $300 billion, assuming future investment rates of return of 6.2 percent. Even if the three systems earn 7.75 percent (CalPERS, CalSTRS) and 7.5 percent (UCRP) per year, the shortfall is $142.6 billion, or nearly $12,000 per California household.

Public agency contribution rates will probably double or even triple, crowding out education and social services spending. The state's general fund pension costs will probably likely to rise from its current 5.7 percent share than 17 percent.

The annual cost to the state of delaying pension solutions is $3.4 million per day.

The June 2011 funded ratio, the measure of assets to liabilities, is only 74 percent for CalPERS, using the 7.75 rate of return the fund anticipates on its investments. At a 6.2 percent rate of return, the ratio drops to 58 percent.

Using the same 6.2 percent rate of return assumption, the June 2011 funded status for CalSTRS is 60 percent. For UCRP, the funded status is 72 percent.

Nation and the Stanford institute have been at the center of the public employee pension debate since issuing a paper in April 2010 that concluded CalPERS, CalSTRS and the UC pension system were carrying a collective $500 billion in unfunded liabilities. Then-Gov. Arnold Schwarzenegger -- who had commissioned the study -- frequently cited it as proof the systems needed to be changed.

The pension systems and public employee unions blasted the 2010 study. CalPERS and CalSTRS has disputed its assumptions, methodology and conclusions. Labor took the criticism a step further, hammering it as a partisan hit piece aimed at fueling the anti-public pension agenda.

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About The State Worker

Jon Ortiz The Author

Jon Ortiz launched The State Worker blog and a companion column in 2008 to cover state government from the perspective of California government employees. Every day he filters the news through a single question: "What does this mean for state workers?" Join Ortiz for updates and debate on state pay, benefits, pensions, contracts and jobs. Contact him at (916) 321-1043 and at jortiz@sacbee.com.

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