U.S. Pension Benefit Guaranty Loses at Least $3 Billion
By CRAIG KARMIN and JENNIFER LEVITZ, Wall Street Journal
The California Public Employees' Retirement System, the nation's largest public pension fund, said recent investment losses from the financial crisis could cause cities, counties and other state employers to pay more money to the pension fund, starting for some in July 2010.
Calpers said that assets have declined by more than 20% from the end of the June 30 fiscal year through Oct. 10; total assets as of Oct. 20 were about $193 billion. It would lead to an estimated increase in employer contributions to the fund of 2% to 4% starting in July 2010 for some employers, and for the rest in July 2011, unless those losses are reversed, according to a Calpers memo.
The increased contributions would be greater if the fund's assets decline further by the end of the fiscal year of June 2009. However, the contributions would be smaller, or even nothing, if the fund reverses those losses.
The declines are taking a toll on Calpers funding status, which is the fund's assets divided by its liabilities. That ratio would be down to 68%, based on the market value of its assets, unless Calpers reverses the current level of declines. Analysts suggest that the ratio for healthy pension funds should be at least 80%. At the end of the June 2008 fiscal year, Calpers was 92% funded. It was at 102% funded at the end of June 2007.
A spokeswoman said that Calpers now puts aside 14% of the fund's assets to serve as a cushion during bad times, and as a result any employer contribution increases will be less than they were during previous downturns.
Calpers said employer pension rates for fiscal 2008-09 won't be affected by recent market losses. The rates were based on investment returns from earlier periods, so the effect of this month's market downturn won't be known until investment returns are determined for the fiscal year ending June 30.
"No large change in investment performance in one year will directly translate into the same level of change in employer rates in a single year" because losses or gains are applied over a 15-year period, said Kurato Shimada, chair of Calpers's benefits and program administration committee.
Separately, a House committee said the U.S. Pension Benefit Guaranty Corporation lost at least $3 billion in stock investments in the 11 months through August.
Documents obtained by the House's Education and Labor Committee show the agency invested a "significant portion of its funds in mortgage-backed securities," according to a statement by the committee.
It is likely that losses will be "substantially worse" after September results are reported, the committee said.
PBGC is a government agency that insures private pension plans, manages failed pension plans, and pays benefits to workers in those plans.
The committee says the losses came in the agency's "trust fund," which holds the assets of terminated plans that have been turned over to the PBGC. The agency, acting as trustee, then pays out benefits to workers.
Charles Millard, head of the PBGC will testify before the House Education and Labor Committee Friday regarding the "agency's financial problems that may threaten the retirement security of millions of Americans," according to a statement by the committee.
The committee said Mr. Millard "rebuffed a committee subpoena in July that demanded the agency to turn over documents regarding a report into the agency's mismanagement and lax governance practices."
Write to Craig Karmin at firstname.lastname@example.org and Jennifer Levitz at email@example.com