CalPERS Defends Newly Approved Risk-Reduction Strategy

On Friday, CalPERS defended its new risk-reduction investment strategy after Gov. Jerry Brown (D) called the plan "irresponsible," the Sacramento Bee's "Capitol Alert" reports (Kasler, "Capitol Alert," Sacramento Bee, 11/20).

Background

On Nov. 18, the full CalPERS board voted 7-3 to approve a new investment strategy to help mitigate financial risk amid cash shortfalls.

Under the plan, CalPERS will start shifting more money into safer investments, such as bonds.

The plan will incrementally reduce the fund's annual investment forecast from 7.5% to 6.5%. The "discount rate" will drop each year in which CalPERS beats its forecasts by at least four percentage points.

The full reduction could take longer than 20 years.

The more conservative investments will shrink CalPERS' future returns. As a result, taxpayers likely will need to cover more of the cost.

In response to the vote, Brown (D) in a statement said, "I am deeply disappointed that the CalPERS Board reversed course and adopted an irresponsible plan that will only keep the system dependent on unrealistic investment returns." Brown added, "This approach will expose the fund to an unacceptable level of risk in the coming years" (California Healthline, 11/19).

According to "Capitol Alert," Brown previously had introduced a plan that aimed to accomplish the same goals as CalPERS' strategy but in just five years.

CalPERS Responds

In a statement, CalPERS' Board President Rob Feckner said Brown's alternative plan "would have caused financial strain on many of California's local municipalities [that] are still recovering from the financial crisis."

Feckner added that the approved plan "is a measured and balanced approach" (Capitol Alert," Sacramento Bee, 11/20).