California must keep its promise to our public servants, says CalPERS CEO Marcie Frost
I watched my grandparents, children of the Great Depression and diligent, determined savers, exhaust their retirement funds following a devastating crisis. Their final years were not lived with the dignity they so very much deserved.
I don’t want to see that happen to anyone else, and that’s why my commitment to financial security in retirement is more than just a job. It’s why I work every day to strengthen the California Public Employees’ Retirement System, on behalf of all Californians.
Today and each day, 70 public servants–firefighters, police officers, custodians, clerks, bus drivers, school secretaries, nurses, engineers–will say goodbye to co-workers and leave government service.
Every year, about 25,000 California Public Employees’ Retirement System members retire. Their average monthly income in retirement will be $2,876. These professionals dedicated their careers to the public good. In return, they deserve the same commitment from California. That comes in the form of security in retirement.
That’s where 2,800 CalPERS professionals come in, with the help of our Board of Administration, 2,900 state and local employers, labor unions, retirees, and legislators.
The California Public Employees’ Retirement System fund sits at $350 billion, the largest in the nation. Protecting that fund shapes every decision we make. We know we are safeguarding people’s retirement.
It’s their money.
I have had the high privilege of serving CalPERS for the last two years, and am proud to have helped make the retirement system more secure. Four actions illustrate our commitment to support retirees and showcase the growing strength of our fund:
- We set new goals for what we expect to earn on investments and lowered our target return from 7.5 percent to a more realistic 7 percent.
We’re sensitive that this means larger contributions from the school districts, special districts, cities, and counties that contract with us to administer to their pension plans. We know this puts pressure on their budgets.
But the decision reflects our shared responsibility and commitment to ensure that we can fund the pensions these employers have promised their retirees. Combined with an additional state contribution of $6 billion, we are in a much stronger financial position.
- We reduced the amortization period for employers to pay off their unfunded actuarial liability, beginning in 2019.
This is like a homeowner increasing the monthly mortgage payment. The quicker you pay it, the less interest you owe. These increased payments will help public agencies more quickly eliminate their unfunded liabilities. The ultimate savings will be in the millions of dollars.
- Our investment experts are exploring new models to increase investment returns.
Private equity, for example, is our highest returning asset class, averaging 10.5 percent over the last 20 years. It’s also our most expensive asset class. That means we need to look for ways to increase performance and, over time, reduce fees. This is critical, because the higher our return on investment, the more quickly we can become fully funded.
- We invest in California industry, workers and in its future. That is a stabilizing force for the state’s economy.
We invested $30 billion locally during the fiscal year 2016-17, spanning the state from Del Norte to Imperial counties. Thanks to CalPERS’ investments, more than 266,000 jobs are supported in California.
During my time in Sacramento, the California Public Employees’ Retirement System has worked hard to build relationships with employers, labor representatives, retiree groups, and legislators, knowing the ability to make tough choices is only as strong as the trust among our partners. They’ve all contributed.
We have a way to go, but we are building for the future. And we will stay true to our mission: to provide retirement security to public sector workers while respecting the taxpayers who benefit from their dedicated service. Everyone’s grandparents who depend on us should be able to retire in dignity.
Marcie Frost is the chief executive officer of the California Public Employees’ Retirement System, Marcie.Frost@calpers.ca.gov. She wrote this commentary for CALmatters.