Undue optimism will not pay for California's public pension costs. The state instead needs retirement benefits that are sustainable long-term, and not an increasing drag on public budgets. Pension officials should base financial planning on cautious projections, and not rosy assumptions.
Reports this week from the state's two big public pension funds raised new questions about the accuracy of their projections. The California Public Employees Retirement System announced that it earned 1.1 percent on investments in 2011. The California State Teachers' Retirement System put its 2011 earnings at 2.3 percent. Both numbers are well below the 7.75 percent return the pension funds' financial plans require. Nor is that underperformance the result of one bad year. The public employees system says that as of October 2011, its 10-year investment return was 5.7 percent. The teachers' pension system listed a 5.4 percent return over 10 years.
Still, the pension funds insist that 7.75 percent rates of return are sustainable. Great, then take the taxpayer out of the equation and all will be well.
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