Pension Reform

Issues Update

A recent report that predicted that many state pension funds, including CalPERS, will be insolvent within two decades is fatally flawed. The report "How California's Public Pension System Broke (and How to Fix it)", authored by Joshua Rauh an associate professor of finance at Northwestern University's Kellogg School of Management, is yet another reckless attempt to mischaracterize the health of California's public pensions.  Here's a round-up of the reports shortcomings:

• It relies on outdated data and methodologies that are inconsistent with governmental accounting standards.
• It conjures up a half trillion dollar liability and makes the falsehood that CalPERS and other pension funds are hiding trillions of dollars of liabilities.
• The report claims that CalPERS has underperformed for the 1, 3, 5 and 10 year periods ignoring the fact that we have earned a 7.9 percent return over the last 20 years, above the 7.75 percent rate of return that we assume to pay retirement benefits.
• It goes so far as to call for the dismantling of defined benefit plans like CalPERS altogether that have provided reasonable retirement benefits and saved taxpayers millions of dollars over our 78-year history.  It also fans the flames of pension equity between public and private sector workers for no reason than to stir the pot among haves and have nots instead of considering the broader picture of retirement security for all Americans.
• It does not meet the academic standards and rigor one would expect from an associate  professor of Northwestern University.

Additional Resources
Analysis of Joshua Rauh’s “Are State Public Pensions Sustainable?”