Stanford researchers find that pension funds for California state workers are still in peril - action needed now

December 15, 2011 By Dan Stober

Almost two years ago, a Stanford study stirred up discussion statewide with the prediction that the pension funds of California's state workers were headed for a train wreck. The retirement system would eventually not have enough money to pay all that it owes to its retirees.

Since then, the picture has not improved, Joe Nation, a public policy expert at the Stanford Institute for Economic Policy Research, said Tuesday as he released a report on his latest research. "Perhaps surprisingly, the situation is even worse." The unfunded liabilities of the pension funds have increased by 15 to 20 percent.

All this could have a direct effect on state services as money is diverted to pay the pensioners. "That increased spending on pensions is virtually certain to continue to crowd out non-pension spending, including education and social services," the report warned.

The big state pension funds at the center of the huge financial problem are the California Public Employees' Retirement System (CalPERS), the California State Teachers' Retirement System (CalSTRS), and the University of California Retirement Plan (UCRP).

The combined unfunded liability for the three funds is  $290.6 billion, presuming that the funds earn a 6.2 percent return from investments. That figure represents an unfunded amount per California household of nearly $24,000, Nation said.

 Even if the retirement funds yield 7.75 percent, the situation would remain dangerous, he said.

The crisis was driven by pension funds that understated the costs of pension payouts and over-estimated the amount of money the funds would have in future years, Nation said. The strategy was, "If you can push costs off to the future, do it."

Board members of pension funds were typically not required to have any technical expertise. Contribution rates for employees were set too low – zero for some.

Any solution, Nation said, will have to involve current state workers: "There's just no way to solve this problem if that's not there." The cost to delay a solution for another year is $1.247 billion, or $3.4 million each day. The hope, he said, is that policymakers will step up and actually address the problem.

More information on the pension crisis will be released this week on the SIEPR website.

Explore further: California state pension funds going broke, study finds

Related Stories

California state pension funds going broke, study finds

April 6, 2010

( -- California public employee pension systems are worse off than anyone previously projected, according to a new report generated by five graduate students in Stanford's Graduate Public Policy Program. The result ...

Bigger is better in pension funds, researchers find

September 12, 2011

The health of the pension system is front page news in countries around the world with an ongoing debate on required contribution rates or minimum retirement ages. An equally relevant issue is how efficiently savings invested ...

NIU's Peters says pension reform must be fair to all

June 22, 2011

Efforts to repair the state’s failing pension system should not punish those who have faithfully paid into that system, Northern Illinois University President John Peters said today in his keynote address at the State ...

Research may help states address unfunded retiree liabilities

January 13, 2010

Research shows that, nationally, states are facing more than $550 billion in unfunded liabilities associated with health care and other non-pension benefits for retired state employees, a situation many states are now struggling ...

'Credit Crunch' Will Hit Retirees in Unequal Ways

October 9, 2008

( -- How severely retirees will be affected by the continuing financial crisis and subsequent "credit crunch" depends to a considerable extent on the kinds of retirement plans they rely on for retirement income, ...

Recommended for you

New paper answers causation conundrum

November 17, 2017

In a new paper published in a special issue of the Philosophical Transactions of the Royal Society A, SFI Professor Jessica Flack offers a practical answer to one of the most significant, and most confused questions in evolutionary ...

Chance discovery of forgotten 1960s 'preprint' experiment

November 16, 2017

For years, scientists have complained that it can take months or even years for a scientific discovery to be published, because of the slowness of peer review. To cut through this problem, researchers in physics and mathematics ...


Adjust slider to filter visible comments by rank

Display comments: newest first

3 / 5 (2) Dec 15, 2011
The strategy was, "If you can push costs off to the future, do it."

What else is new?

That's what baby boomers have always done. It's why the federal government is broke too.

The whole "retire with 90% income" thing didn't seem too much maybe?

Anybody under 25 or 30 should leave california asap, so as to not become a permanent slave to the previous generation.
1 / 5 (1) Dec 16, 2011
Not baby boomers but government is the problem. The "CEO" of the government acts to maximize votes not profit.
1 / 5 (1) Dec 16, 2011
Nano is correct. As usual.

The failure is the direct result of the "Me Me Me generation of Neo-Conservatvies" who have screwed up virtually everything they have got their hands on.

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.