by Dan Amerman
– The reported shortfall for the California Public Employees Retirement System (Calpers) is $139 billion – but that is based upon investment assumptions that may be unlikely in current markets.
– As developed using a 40 year financial model and recent actual results, the real present value shortfall could be in the $500 billion to $1 trillion range, which is 4X to 7X as great as reported.
– Calpers is used as a real world example to explore nationwide issues that could change our financial futures – and our choices – as investors, taxpayers and pension beneficiaries.
[…] The California Public Employees Retirement System is the largest public pension in the United States. It is considered to be the bellwether for pensions nationwide, and among the most sophisticated of long-term investors.
Calpers also faces an extraordinary dilemma. It is drastically underfunded, even using relatively aggressive assumptions about future long-term investment returns. These assumptions do not take into account the current policies of the Federal Reserve and other central banks. As analyzed herein, when lower returns are taken into account, there can be a multiplying of the shortfalls – and a multiplying of taxpayer burdens.