Public pension funds feel the squeeze

CalPERS headquarters in Sacramento

TEXT OF STORY

Kai Ryssdal: It's been, I dunno, maybe three months since I've had the guts to take a peek at my retirement account statement. Maybe today in the markets got us all just a little bit of money back for our golden years. But otherwise, boy it's been bad. Much of the blame goes to corporate and public pension funds. They invested heavily in the real estate market. Really heavily.

The California Public Employees Retirement System, better known as CalPERS, says its real estate portfolio lost more than a third of its value. Marketplace's Stacey Vanek-Smith reports public pension funds all over the country are feeling the squeeze.


Stacey Vanek-Smith: CalPERS lost nearly $70 billion between June of last year and June of this year, much of it in real estate. CalPERS' Pat Macht says the fund got blindsided along with everybody else.

Pat Macht: You know, no one, not the Federal Reserve, the U.S. Treasury, nobody believed that the market change would be as severe or as swift.

Macht says the fund still hold more than $180 billion, plenty to pay out its obligations for many years to come. But if the markets don't recover soon, funds like CalPERS could be in a lot of trouble says Olivia Mitchell, director of the pension research council at the Wharton School of Business.

Olivia Mitchell: There's a huge controversy in pension-land about how pension money should be invested.

Mitchell says, over the past decade, pensions started taking more risks to cover the rising cost of benefits. They put money into real estate, hedge funds and private equity firms. Mitchell says many of the funds still don't know how bad their losses will be. But she says, if CalPERS and funds like it don't recover in the next few years, they'll have to start scrounging for money.

Mitchell: The taxpayers will have to pay more. Potentially, even the employees will have to pay more.

That could mean bigger employee contributions to health care coverage and smaller payouts to retirees. Those changes could have a major impact on the 13 million Americans on public pension plans, like retired Teacher Gene Wohlsdorf.

Gene Wohlsdorf: We need the money. It is very important when you get older, you need that support.

Wohlsdorf, who is 56, says he has a child starting college next year. He says, if his benefits get cut, it would be devastating to his family.

I'm Stacey Vanek-Smith for Marketplace.

About the author

Stacey Vanek Smith is a senior reporter for Marketplace, where she covers banking, consumer finance, housing and advertising.

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