California’s unfunded pension liability is over $500 billion

Victor Joecks

Alternative headline: Why I’ll never live in California. Have fun paying that off.

California’s three major public pension funds are underfunded by more than half a trillion dollars, according to a report released Monday, the San Jose Mercury News reports.

Gov. Arnold Schwarzenegger (R) commissioned the study, which was prepared by graduate students at the Stanford Institute for Economic Policy Research…

Researchers tallied CalPERS’ unfunded liabilities at $239.7 billion and CalSTRS’ liabilities at $156.7 billion.

The new figures are significantly higher than previous estimates from the pension funds. In July 2008, CalPERS estimated its unfunded liabilities at $38.6 billion and CalSTRS estimated its liabilities at $16.2 billion (AP/Ventura County Star, 4/5).
The Stanford report suggests that California would need to put $360 billion into its pension and health benefit systems immediately to have an 80% chance of meeting 80% of the obligations within 16 years (Contra Costa Times, 4/5).

I wish I could say Nevada’s pension system is in tip-top shape, but as NPRI’s Geoffrey Lawrence wrote early this week, Nevada’s facing a substantial unfunded liability in its pension system as well.

[Andrew] Biggs [of the American Enterprise Institute] determined that a market valuation of Nevada PERS assets using an economically sound “options pricing” method of accounting for risk reveals a total unfunded liability of $33.5 billion. At current levels, that would amount to roughly 10 years’ worth of state General Fund spending! To put it another way, market-priced unfunded pension liabilities amount to 32 percent of state Gross Domestic Product.

According to Biggs’ analysis, the probability that PERS’ assets will be sufficient to cover accrued liabilities is only 6 percent for police and firefighters and 10 percent for regular employees.

With a $33 billion liability staring it in the face, Nevada needs a defined-contribution pension system immediately. Let’s not wait until our problems are as large as California’s before we reform this broken and outdated system.