Pension Security

Myths vs. Facts

Fact:
Funded status is an important long-term indicator, and it will ebb and flow along with the conditions in the financial markets. The average funded ratio of CalPERS plans stood at over 100 percent on a market value basis at the height of the stock market boom, through fiscal year 2000-01. About 20 percent of that surplus was spent on benefit changes, which left 80 percent of the surplus to reduce future employer contributions. Then came one of the deepest and longest declines in stock market history. CalPERS experienced two fiscal years in a row of negative returns, which dropped the funded ratio to 80 percent. Then the markets rebounded to 103 percent as of June 30, 2007. The 2008-09 fiscal year again lowered the market value of assets, and the funded status is expected to be lower when we complete our accounting for the fiscal year. All plans are similarly situated, and this may be the “new normal” until markets turn around in the years ahead. For example, a funded status of 66 percent means if everyone were to retire today, CalPERS would have 66 percent of what is needed. However, CalPERS is made up of workers who will work full careers and retire 20 to 30 years from now. It is not necessary to keep the system 100 percent funded at all times. It is wise, however, to identify where the System is on this scale and monitor the funded status to ensure continued soundness of the system.