Unbelievable as it may seem, the California State Teachers’ Retirement System (CalSTRS), the sixth largest public pension fund in the country, now has a pension shortfall of $56 billion, up $15.5 billion from last fiscal year. That’s an increase of almost 25% in one year. Worse, given the stranglehold the public pensions have over the state, this means California must pay CalSTRS $688 million this year, up from the $573 million it paid the previous year.
Most funds, whether they are private, hedge, or otherwise, are run on a Darwinian basis. If a fund manager doesn’t perform within a given period of time, he’s gone. They certainly don’t have the option of demanding money from elsewhere to make up for their investment errors. But California public pensions can. If you know someone else will be forced by law to clean up your mess, then there’s no incentive to avoid making a mess.
CalSTRS deputy CEO Ed Derman says that while the fund can only cover 71% of accrued liabilities, down 78% from last year, this should not be cause for concern. Well gosh, many observers would say that it absolutely is. And then one might ponder why CalSTRS and its big brother CalPERS routinely make such opaque and apparently incomprehensive statements about the health of their funds, especially when they present no plan to restore the funds back to solvency.
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