The average credit card debt in 2016 was $16,048 per household that carries a balance. Paying off this debt is an important financial goal. Obviously, this beneficial goal would be more difficult to meet if the Legislature imposed arbitrary restrictions on the types of jobs households with credit card debts can have. Yet, for some reason, California state lawmakers are applying this perverse logic to the state’s public pension systems.
CalPERS, CalSTRS and all public pension systems in California have an important responsibility — effectively managing the money entrusted to them on behalf of the current public employees, retirees and their families, and taxpayers. CalPERS alone manages the pension and health benefits for 1.6 million people in California.
Without properly accounting for risk, California’s public pension systems are currently underfunded by $170 billion, or around 7 percent of total state GDP. This is a tremendous burden that, if not properly addressed, will either result in large future tax increases, large future spending cuts, or significant reductions in promised pension benefits to future retirees.
The size of the unfunded liabilities of California’s public pension systems are inter-twined with the pension funds’ returns. The higher the investment returns, the lower the unfunded liability. And, the reverse is true as well — the lower the investment returns, the higher the unfunded liability.
This is where the potential impact from Assembly Bill 20 is problematic. Just passed by the state Assembly and working its way through the state Senate, AB20 would require CalPERS and CalSTRS to divest of its holdings related to the Dakota Access Pipeline. It continues a trend of politicians imposing unwarranted restrictions on the investment decisions of the managers at CalPERS and CalSTRS.
These investment restrictions impose real costs that are borne by current public employees and retirees. In the near-term, CalPERS and CalSTRS must…