A new era dawns at CalPERS

July 13, 2010 | By Jim Kim

CalPERS, the giant California pension, stands as an apt symbol for the entire public pension fund system (pension fund news), which will soon face some stark decisions on its inability to keep assets in line with future obligations. The recent 40 percent loss at CalPERS throws these issues into severe relief.

Beyond the pay-to-play scandals, management issues and other sideshows, the fact remains that there is no reason to think many pensions will be able to honor future obligations. They are sorely underfunded, and unlike private pensions, there is no federal help waiting for them. Another sad truth is the industry has been chasing super-high returns for years, and many, like CalPERS, have been burned.

Now may strike some pension managers as a good time to continue to plough into alternatives, as it's tempting to think now is the time to buy low. But there is no guarantee this will work out for future pensioners. Perhaps more legislatures ought to think about some bitter medicine that seems inevitable, that is, a reduction or delay in benefits. It's a mini-social security debate tailored to every pension.

For more:
- here's a sobering article in Fortune about CalPERS