CalPERS earnings fall flat

The nation's largest public pension fund got just a one percent annual return on its investments, well below the 7.5 percent the California Public Employees' Retirement System had projected for the fiscal year that ended June 30.

Kai Ryssdal: Today's Congressional testimony from the chairman of the Federal Reserve was fairly unremarkable, to be honest.

Except for two things. One: Members of the Senate Banking Committee seem to have taken a sudden interest in LIBOR. Many questions to Mr. Bernanke about the manipulated interest rate that was in the news a couple of weeks ago.

And two, a couple of members of the panel actually asked him what they should do to get the economy going again. He wasn't gonna touch that.

Ben Bernanke: I've been assigned to do, to focus on maximum employment and price stability, not to hold threats over Congress' head. Congress is in charge here, not the Federal Reserve.

Boom.

Something the Fed Chairman didn't say today could be seen as good news, if your future is tied to a 401(k) or a pension plan. Bernanke offered no hints the central bank will be buying more government bonds as it has been. That in turn sent Treasury yields just slightly higher, and every little bit helps when it comes to retirement investing these days.

Take, for example, the country's biggest pension fund -- the California Public Employees Retirement System. In the fiscal year just ended, CalPERS managed to eke out -- get this -- a measly 1 percent return on its investments.

Our senior business correspondent Bob Moon has the story.


Bob Moon: Given inflation, 1 percent is barely standing in place, but that hasn't changed the rosy outlook from CalPERS. It needs to reach 7.5 percent to afford retirement benefits for more than 1.3 million government workers in California.

Chief investment officer Joseph Dear told us today he remains confident of meeting that obligation -- in the long term. He notes that just two years ago, the fund enjoyed a 20 percent return.

Joseph Dear: One of the genuine attributes of a market system is cycles. Sometimes things go really well, and there's a lot of exuberance; sometimes you're in tough periods and there's a lot of pessimism. And what you know is, the cycle will turn and things will change.

Dear says as bleak as things look -- for the biggest of pension plans down to individual 401(k) investors -- the same rule applies.

Dear: One of the keys to success is understanding what your risk tolerance is, developing an investment plan that you have a high degree of conviction in, and then sticking with that plan. You can be happy when it's performing well, but you can't abandon it when it begins to under perform.

But a growing chorus of critics argues state and local pension plans do need to change, to recognize today's realities and risks. Andrew Biggs is a pension analyst for the American Enterprise Institute.

Andrew Biggs: These guys are not running a 401(k) plan, where if the returns aren't there, you know, it's somebody else's problem. If the returns don't materialize, it's CalPERS problem, it's the taxpayers' problem.

Biggs says rather than taking on more risk in the quest for elusive returns, the CalPERS numbers illustrate that government and employees will need to pay in more to make up the shortfall.

I'm Bob Moon for Marketplace.

About the author

Bob Moon is Marketplace’s senior business correspondent, based in Los Angeles.

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