In March, I blogged about how public pension plans were taking on riskier investments in an attempt to offset lower than expected rates of return. I posed this question: "After bailing out Wall Street and the auto industry, are taxpayers now looking at bailing out government retirees?" In California, the answer appears to be "yes."
In 1999, the California Public Employee's Retirement System (CalPERS) assumed that the Dow would be at 25,000 in 2009. As of this writing, the Dow is at 10,226.87. Consequently, CalPERS needs $600 million from taxpayers to fund benefits for 700,000 state retirees. However, CalPERS might wait until next year to ask for the money -- ask is perhaps not the right word. According to KGO-TV in San Francisco, "CalPERS has unilateral authority to tell the state how much it has to hand over, and the state has no choice but to follow the order." The delay, however, might add $50 million to the pricetag, according to the Governor's office. One way or another, CalPERS will get its money.
Unless public pension plans find a way to turn lead into gold, it seems that taxpayers are destined to bailout the funds -- it's just a question of when and how much.
UPDATE: The Financial Times also has a piece about public employee pension funds. It's a troubling read.