Public Pensions. Invest in CA Constitutional Amendment




Michael Lee Madsen, Sr. has just submitted an Initiative to the Attorney General with a request that it appears on the November 2012 Ballot.The office of the AG just assigned #11-0018 to this application.

Pension challenge

Michael Lee Madsen, Sr

His wish list target date presents problems before getting Title and Summary approvals. Statewide Ballot Measures, that are citizen initiated, require perhaps close to one million signatures to assure their validity.

What he is proposing is that our Constitution be amended stating “California’s public employee retirement systems need to focusing on investing within the state in order to create employment opportunities and new revenue sources within this state.”

Page 4 reads in part as follows: (d) (1). The members of the retirement board of a public pension or retirement system shall, on and after January 1, 2016, invest and maintain at least 85 percent of the system’s assets in California-based businesses and shall diversify the investments of the system so as to minimize the risk of loss and to maximize the rate of return, unless the circumstances it is so clearly not prudent to do so.

(2) As used in this subdivision, the term “California-based businesses” shall mean a business in which at least 70 percent of its employees are employed within California.

Gilbert comments. What percentage of the public agency pension funds are invested in our state today?
According to their web site CalPERS claims that $23.4 billion, or 9 % of their $231 billion (market value) funds, are in “California Investments and Committments.”  Note: I could not find similasr data from CalSTRS.
What’s the risk of giving up national and international investments that may generate a higher rate of return, especially as the DOW has only earned 3 percent YTD.

With Defined Benefits rather than 401 K plans representing the lions share of this huge number there is a need to meet a guaranteed sum for each retired, current and future pension plan participant. CalPERS assumes a 7.75% rate while Warren Buffet has been quoted saying that 6% is a reasonable ROI.

It was reported that the 10 largest funds in our state have a combined shortfall of $240 billion dollars. California has 85 DB Plans covering 4.4 million current and retired workers.
Cal PERS, the largest pension plan in America, has1.6 million participants. Following right behind them, as the second largest pension plan in America, is Cal STRS, California State Teachers Retirement System, whose fund is at $154.6 billion of which 54% is in Global Equity.

For a huge wake up call let me suggest reading the Little Hoover Commission report on California pensions.

About Larry Gilbert