CalPERS considers ways to bolster assets

The California Public Employees’ Retirement System (CalPERS), the largest U.S. public pension fund, said it may need to tap California public employers for more money if heavy investment losses it suffered in recent months do not reverse.

CalPERS said in a statement on its website last week that its assets have declined by more than 20%, or around $50 billion, from the beginning of this fiscal year through Oct. 10, to stand at $190 billion.

The state pension fund was estimated to be worth about $240 billion by asset size as of February.

If returns do not improve, CalPERS said, it may require that employers increase contributions by an estimated 2% to 4% of payroll. Such an increase could take effect in July 2010 for about two-thirds of the fund’s state-employer members, and for the remaining one-third in July 2011.

Any decision will be made after CalPERS knows its returns for the 2008 fiscal year, the state pension fund told the Wall Street Journal. The current average employer contribution rate for public agencies including cities and counties is 13% of payroll, it said.

Increases in contributions could be greater than 4% if losses continue, while they would be less if the fund recovers in the months ahead.

While CalPERS may end up among the first public pension funds to pass on the costs of investment losses to employer members, it may not be the last. Almost every public pension fund is grappling with losses, Keith Brainard, research director at the National Association of State Retirement Administrators told the Wall Street Journal. Sooner or later the money coming in has to equal the money going out, he said.

Calls to CalPERS seeking comment were not immediately returned.

In a prepared statement, Ron Seeling, chief actuary, said that double-digit gains in the four years leading up to the 2007-2008 fiscal year will help blunt the impact of the current losses.

“We had saved 14% of the fund for cushioning the blow of a future market downturn, and our smoothing policy is working as it should,” he said.

CalPERS losses come at a time of extreme financial market turmoil. California has been among the hardest hit states as it endures sharply sliding real estate prices and declining tax revenues.

Gov. Arnold Schwarzenegger earlier this month said the state may need a $7 billion federal loan because frozen credit markets had made it impossible to meet the state’s short-term cash needs.

Separately, CalPERS is searching to replace its chief executive and chief investment officers who stepped down earlier this year. —Reuters