California's public employee pensions face $500 billion funding gap

By Chris Rizo | Apr 6, 2010

Arnold Schwarzenegger (R)

SACRAMENTO, Calif. (Legal Newsline)-California's public pension systems are facing a shortfall of more than $500 billion, a new study says.

The report by a group of five Stanford University graduate students says unfunded liability at California's three largest public pension systems will likely swell to more than half a trillion dollars over the next decade and a half.

The report issued Monday said the three funds -- the California Public Employees' Retirement System, California State Teachers' Retirement System and the University of California Retirement System -- sustained losses of $109.7 billion in the current recession.

Together, the three funds administer pensions for approximately 2.6 million Californians.

"This is a really dire situation," public policy graduate student Howard Bornstein said. "If we don't do something now, we're going to have major issues in just a few years."

To reduce the amount of unfunded liability, which will ultimately have to be paid for by taxpayers, the report suggested that state officials could, among other possible measures, raise annual contributions and reducing benefits for new employees.

The research team said they relied on computer models to determine the unfunded liabilities of the pension funds over the next 16 years.

"The simulation shows that the state would need to invest more than $200 billion, and possibly as much as $350 billion, today to return the fund to a minimum responsible level of funding," Bornstein said.

The report published by the Stanford Institute for Economic Research was prepared for Gov. Arnold Schwarzenegger. The policy brief -- "Going for Broke: Reforming California's Public Employee Pension Systems" -- was released Monday.

"This study reinforces the immediate need to address our staggering pension debt," the Republican governor said in a statement. "The consequences are clear: increasingly large portions of state funding for programs Californians hold dear such as schools, parks and health care will be diverted to pay for this debt."

The Stanford study was supervised by the institute's Joe Nation, a longtime former Democratic state legislator.

From Legal Newsline: Reach staff reporter Chris Rizo at

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