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Wednesday, December 17, 2008 12:03 AM

Calpers To Report Losses of 103% on its Residential Investments

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CalPERS, the California Public Employees' Retirement System announced a new milestone in pension plan incompetence today by admitting losses in Risky, Ill-Timed Land Deals.

At the height of the property bubble, California's giant pension fund, Calpers, made a fateful decision: It aggressively poured money into real estate. As a result, today it's one of the biggest owners of undeveloped residential land in America.

Partly because of these investments, California Public Employees' Retirement System is struggling to avoid one of its worst annual declines since its 1932 inception. Calpers has lost almost a quarter of its assets since July 1, the start of the current fiscal year.

The problems come at a time of uncertainty for the nation's largest public pension fund, which has been without its top two executives for nearly half a year. Calpers is poised to appoint a new chief executive as early as this week, people familiar with the matter said.

Calpers is now warning California's cities, towns and schools that they may have to cough up more money to cover the retirement and other benefits the fund provides for 1.6 million state workers. Some towns are already cutting municipal services, and at least one is partly blaming the Calpers fees.

Calpers in recent weeks said it expects to report paper losses of 103% on its residential investments in the fiscal year ended June 30. That's because Calpers invested not only its own money, but billions of dollars of borrowed money that must be repaid even if the investment fails. In some deals, as much as 80% of the money invested by Calpers was borrowed. ... Rest by Subscription
For some strange reason this news is not listed under the news category on the CalPERS Website.

Instead I see an article that says "CalPERS is Resilient in Market Downturns"
The news in the financial markets can be alarming for our members, but it is important for you to know that the current credit crisis does not affect our ability to pay benefits. It is also important to note that your retirement benefits are protected by law. The pension system is designed to withstand market fluctuations.
The Calpers website fails to point out just just how it guarantees those benefits. The WSJ article spells it out nicely: "California's cities, towns and schools may have to cough up more money to cover the retirement and other benefits the fund provides for 1.6 million state workers."

Here's the deal. CalPERS can and clearly does gamble with pension money. If it loses, California taxpayers will have to pick up the tab.

Is this a great system or what?

Mike "Mish" Shedlock
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