| SAN FRANCISCO
SAN FRANCISCO Nov 18 California Public
Employees' Retirement System on Wednesday adopted a policy to
gradually reduce the amount that the pension fund expects from
its investments, a decision that came under fire from
California's governor for not going far enough.
The move by the nation's largest public pension fund is
controversial because lower investment returns must be offset by
higher contributions from the state's cities and public workers.
Calpers will reduce its expected rate of investment returns
in years after the fund outperforms its 7.5 percent target by 4
percentage points. The goal is to ultimately reduce the rate to
6.5 percent, although that could take decades under the new
Rob Feckner, president of the Calpers board of
administration, said the policy "makes significant strides in
lowering risk and volatility in the system, and helps lessen the
impacts of another financial downturn."
But Governor Jerry Brown, a proponent of a sharper reduction
in the expected rate of return, was quick to criticize the move,
arguing the pension fund should move faster to cut risk from its
"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 said
in a statement on Wednesday. "This approach will expose the fund
to an unacceptable level of risk in the coming years."
Calpers, whose total assets are now approximately $300
billion, lost roughly 39 percent of its value during the 2008
Jeff Snyder, a New York-based consultant at Cammack
Retirement Group, said there is a national trend by pensions
funds to remove risk from investment portfolios by ridding
themselves of private equity and hedge fund holdings that could
come at a cost to funds if the market surges.
"By reducing to lower risk, you protect the portfolio from
downside but you're also going to prevent upside potential," he
In July, CalPers announced that after years of steady
returns it missed the 7.5 percent target, returning just 2.4
percent for the fiscal year ended June 30.
Calpers is expected to have a negative cash flow - meaning
it will be paying out more in benefits than it receives in
contributions - for at least the next 15 years, mostly due to a
CalPers paid $18 billion in pension benefits in the
2014-2015 fiscal year, compared to $13 billion in contributions.
(Reporting by Rory Carroll, additional reporting by Robin
Respaut; Editing by Bernard Orr)