February 7, 2011 / 2:13 PM / in 8 years

Pension politics "red hot," says Calpers official

STANFORD, California (Reuters) - The chief investment officer of Calpers, California’s $226 billion pension fund for its government workers, said on Friday that public pension benefits will remain front and center in the state’s politics, fueling efforts to pare them.

“Public pension benefits are a red hot issue,” Joseph Dear of Calpers, the California Public Employees’ Retirement System, said at a forum hosted by the Stanford Institute for Economic Policy Research and Stanford University’s Bill Lane Center for the American West.

On the sidelines of the event, Dear told Reuters he expects public pension benefits in the most populous U.S. state to be targeted in an effort led by Governor Jerry Brown, who took office last month, and through a referendum.

“We’re waiting for one from Governor Brown and it’s expected there will be an initiative,” said Dear, who took the helm of Calpers’ investment office in March 2009.

“The pension debate is alive in California,” he added.

Under Dear, Calpers’ has been steadily recovering from a steep dive in the value of its assets.

Calpers, the biggest U.S. public pension fund, last month said it earned a 12.5 percent return last year, lifting the value of its assets by more than $65 billion from a March 2009 low of $160 billion in the wake of Lehman Brothers’ bankruptcy. Its assets had been valued at a peak of $260 billion in 2007.

As Calpers struggled with the dive in financial markets, Californians become increasingly aware of financial details about public pensions — in no small part because a group of activists calling for an overhaul of public pensions had created a website disclosing retired public employees with six-figure pensions.

A study overseen by a former California lawmaker at the Stanford Institute for Economic Policy Research also put the state’s public pensions under public scrutiny.

The study last year by graduate students under Joe Nation’s wing estimated that Calpers, the California State Teachers’ Retirement System and the University of California Retirement System faced unfunded liabilities of more than $425 billion.

Calpers alone faces unfunded liabilities of nearly $240 billion, according the study.

Calpers disputes the study’s methods but it resonated with state leaders, helping former Republican Governor Arnold Schwarzenegger win pension concession from a number of bargaining units for unionized state workers late last year.

The concessions included older retirement ages, less generous formulas for pension payouts and requiring increased contributions from workers toward their retirement accounts.

The concessions were significant as they provide a potential template for state leaders for another effort aimed at cutting the state’s pension expenses, Dear said.

“The tide has turned,” he told the Stanford event’s audience.

Brown in his state of the state speech on Monday told lawmakers that California’s pensions should be fair to public employees and taxpayers alike, a nod to rising concern about how the pensions are calculated, how much they currently cost and how much they are may cost in the future.

California’s government already is slated to spend more on pensions this year than on its public universities.

Political analysts say Brown, a 72-year-old Democrat, could use pension reform to win votes from the legislature’s Republican minority for his state budget plan.

Brown needs to close a state budget gap of more than $25 billion. He has proposed more than $12 billion in cuts and is urging lawmakers to help him put a measure to voters in June to extend temporary tax increases set to expire this year.

That could raise $12 billion. Democrats, who control the legislature, are likely to back a measure. Republicans have said they won’t but some analysts say Brown may win enough votes from them for a measure if he sides with them on pension reforms.

Reporting by Jim Christie; Editing by Gary Hill

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