CalPERS 1% Annual Return Adds to California Ills

With three California cities electing to file for bankruptcy in the past month, in large part due to underfunded pension obligations, the last thing California needs right now is more bad pension news. Which is unfortunate, because the California Public Employees’ Retirement System, the nation’s biggest public pension fund, delivered a jolt of bad news this week when it reported a paltry 1% return on its investments in the fiscal year ended  June 30.

“The last twelve months were a challenging period for all investors as the ongoing European debt crisis and slowing global economic growth increased market volatility and reduced equity returns,” said Joe Dear, CalPERS chief investment officer, in a statement “It’s a clear reminder that we must remain focused on performance, risk and internal controls in today’s financial environment.”

CalPERS’ 1 percent return is well below the fund’s discount rate of 7.5%, a long-term target that CalPERS lowered recently as it re-evaluated its economic assumptions in the current investing environment. Other pension plans have made similar adjustments recently. The rate is significant in that it determines the amount of money such funds need to invest now in order to meet future pension obligation needs.