Have you ever wondered where does calpers money come from? If you aren’t quite sure, don’t worry, you are not alone. The California Public Employees’ Retirement System or CalPERS for short, is one of the largest pension funds in the world, it has over 2 million members and manages an asset portfolio worth over $400 billion. It’s safe to say that this pension fund plays a huge role in the retirement plans for many Californians.
But the question remains – where does CalPERS money come from? Well, the majority of the money comes from three main sources: employer contributions, employee contributions, and investment earnings. Employers contribute a certain percentage of payroll, which varies depending on the employee’s pension formula and the collective bargaining agreement. Employees also make a contribution towards their pensions, generally around 8% of their salary. As for investment earnings, CalPERS is known for making savvy investment decisions that have led to high returns over the years.
Overall, it’s good news for CalPERS members that their pension fund is healthy and continues to grow. However, there is a growing concern over the system’s sustainability in the long run, with some experts suggesting that the contribution rates may need to be increased. For now, though, it’s reassuring to know that CalPERS members can count on their pension fund to provide for them in their retirement years.
Sources of Funding for CalPERS
CalPERS, or the California Public Employees’ Retirement System, is the largest public pension fund in the United States, with over $300 billion in assets under management. But where does all this money come from? Below are the main sources of funding for CalPERS:
- Employee contributions: CalPERS members, which include state and local government employees in California, pay a percentage of their salaries into the fund. As of 2021, most employees contribute 8% of their salary, with some public safety members contributing up to 12%.
- Employer contributions: In addition to employee contributions, CalPERS’ participating employers also make contributions to the fund. These employers can include state agencies, cities, counties, school districts, and other government entities. The employer contribution rate varies depending on a number of factors, such as the employee’s retirement plan, salary level, and age.
- Investment returns: As an investment fund, CalPERS also generates income through its investment portfolio. The fund invests in a wide range of assets, including stocks, bonds, real estate, and private equity. The goal is to earn a return on these investments that exceeds the fund’s liabilities, such as pension payments to retirees.
Overall, the majority of CalPERS’ funding comes from employee and employer contributions, with investment returns serving as a supplemental source of income. However, as CalPERS’ investment strategy has come under scrutiny in recent years due to underperformance, the reliance on investment returns may be changing.
CalPERS Investment Portfolio
CalPERS, or the California Public Employees’ Retirement System, is the largest public pension fund in the United States. It covers more than 1.9 million members and retirees, including state employees, teachers, and local government workers. The fund was established in 1932 and is responsible for managing the retirement and healthcare benefits of its members.
The CalPERS Investment Portfolio is the pool of funds that the systems invests to earn returns and grow the assets of the fund. The portfolio is made up of a diverse mix of investments across various asset classes, including stocks, bonds, and real estate. As of June 30, 2020, the CalPERS Investment Portfolio had a total value of $401.4 billion.
What Assets Make Up the CalPERS Investment Portfolio?
- Global Equity: This asset class includes investments in publicly traded stocks and exchange-traded funds (ETFs) around the world.
- Fixed Income: This asset class includes investments in bonds, including US Treasuries, corporate bonds, and municipal bonds.
- Private Equity: This asset class includes investments in privately held companies and buyouts.
- Real Assets: This asset class includes investments in real estate, infrastructure, and other tangible assets that have the potential to provide long-term value.
- Liquidity: This asset class includes short-term investments that can provide immediate access to cash if needed, such as money market funds and cash reserves.
How Does CalPERS Allocate its Assets?
CalPERS aims to achieve its long-term investment objectives by strategically allocating its assets across different asset classes. The percentage allocation for each asset class is determined by the Investment Committee of the Board of Administration, based on factors such as risk tolerance, return expectations, and market trends. As of June 30, 2020, the allocation of the CalPERS Investment Portfolio was as follows:
| Asset Class | Percentage Allocation |
|---|---|
| Global Equity | 52.8% |
| Fixed Income | 24.0% |
| Private Equity | 8.6% |
| Real Assets | 9.8% |
| Liquidity | 4.7% |
It’s worth noting that these asset allocation percentages can change over time, depending on various factors that might influence the market performance of different asset classes. For example, economic conditions or market trends might prompt the Investment Committee to shift the allocation towards a particular asset class to maximize returns or minimize risk.
Investment Return on CalPERS Funds
CalPERS is one of the largest pension funds in the world, providing retirement benefits to more than 2 million California public employees, retirees, and their families. The fund’s assets come from employee and employer contributions, and investment returns on those contributions.
Investment returns on CalPERS funds have historically been a significant driver of the fund’s growth. The fund invests in a diversified portfolio of assets, including stocks, bonds, real estate, private equity, and more. The investment team aims to generate returns that help to fund the pension benefits promised to CalPERS members.
Factors Affecting Investment Returns
- Market Performance: The overall performance of the financial markets can significantly impact CalPERS’ investment returns.
- Asset Allocation: The fund’s asset allocation strategy, which determines the mix of investments in the portfolio, can also impact investment returns.
- Risk Management: The investment team’s ability to manage and mitigate risk is crucial in preserving and growing the fund’s assets over time.
Historical Investment Returns
CalPERS’ investment returns have varied over time, depending on market conditions and the fund’s investment decisions. Here are the annual returns for CalPERS’ largest asset class, Global Equity:
| Year | Annual Return (%) |
|---|---|
| 2019 | 21.3 |
| 2018 | -3.5 |
| 2017 | 18.4 |
| 2016 | 9.5 |
| 2015 | 0.6 |
While investment returns are not guaranteed, the CalPERS investment team works tirelessly to optimize returns on the fund’s assets within the constraints of an appropriate level of risk for the organization. Ultimately, these investment returns are critical in ensuring that the fund can meet its pension obligations to its members over the long term.
CalPERS Pension Plan
The California Public Employees’ Retirement System (CalPERS) is one of the largest pension systems in the world, providing retirement and health benefits to over 2 million public employees, retirees, and their families. The funds for the CalPERS Pension Plan come from various sources, including:
- Employee Contributions: Public employees who are members of the CalPERS Pension Plan contribute a portion of their salary towards their retirement benefits. The contribution rate for most members is currently 8% of their salary, although it can vary based on their job classification and other factors.
- Employer Contributions: The majority of the funds for the CalPERS Pension Plan come from employer contributions, which are paid by the various public agencies and departments that participate in the plan. Employers are required to contribute a certain percentage of their employees’ salaries towards their retirement benefits, based on actuarial calculations.
- Investment Earnings: CalPERS also generates income through investments in various financial markets, including stocks, bonds, real estate, and private equity. The pension system’s investment earnings make up a significant portion of its revenue, and are an important factor in its overall financial health.
In recent years, CalPERS has faced numerous challenges, including significant investment losses during the 2008 financial crisis, and rising pension costs due to longer life expectancies and other factors. To address these challenges, the pension system has implemented various reforms, including changes to retirement age and benefit formulas, as well as increased transparency and accountability measures.
Types of CalPERS Retirement Plans
CalPERS offers several different types of retirement plans, depending on an employee’s job classification and other factors. Some of the most common types of CalPERS retirement plans include:
- Defined Benefit Plans: These are traditional pension plans, in which employees receive a guaranteed monthly payment for life, based on their years of service and salary history. Defined benefit plans are the most common type of retirement plan offered by CalPERS.
- Defined Contribution Plans: These plans allow employees to contribute a portion of their salary towards a retirement account, which is then invested in various financial markets. The amount of retirement income that a defined contribution plan generates depends on the performance of the underlying investments.
- Hybrid Plans: These plans combine elements of both defined benefit and defined contribution plans, providing employees with a guaranteed retirement benefit, as well as the ability to contribute to a retirement account.
CalPERS Pension Fund Investments
As mentioned earlier, CalPERS generates income through investments in various financial markets. The pension system’s investment portfolio is one of the largest in the world, with assets totaling over $400 billion. Some of the major asset classes in which CalPERS invests include:
| Asset Class | Allocation |
|---|---|
| Global Equities | 50% |
| Fixed Income | 24% |
| Real Assets | 14% |
| Private Equity | 9% |
| Liquidity | 3% |
CalPERS’ investment strategy is designed to generate long-term returns that are sufficient to fund future pension obligations. However, the pension system’s investment performance can be affected by a variety of factors, including market conditions, economic trends, and geopolitical events.
CalPERS Asset Allocation
CalPERS, or the California Public Employees’ Retirement System, is one of the largest pension funds in the world, managing assets worth over $400 billion. As a pension fund, CalPERS invests money that it has collected from public employees and their employers, along with the returns earned on those investments, to pay out retirement benefits to its members.
One of the key factors in CalPERS’ ability to pay out these benefits is its asset allocation strategy. The fund invests across a range of asset classes, including equities, fixed income securities, real estate, and alternative assets. Here’s a breakdown of the current asset allocation of CalPERS:
- Public equities: 49.6%
- Fixed income: 27.2%
- Real assets: 13.8%
- Private equity: 8.5%
- Liquidity: 0.9%
As you can see, public equities make up nearly half of the fund’s holdings. This includes investments in publicly traded companies from around the world. Fixed income securities, such as bonds, make up the next largest holding, followed by real assets like infrastructure and real estate.
Alternative investments like private equity, hedge funds, and other non-traditional assets make up a smaller portion of the portfolio, but can provide diversification and potentially higher returns than traditional investments.
To see how the fund’s asset allocation has changed over time, take a look at the table below:
| Asset Class | 2010 Allocation | 2020 Allocation |
|---|---|---|
| Public Equities | 50.0% | 49.6% |
| Fixed Income | 25.0% | 27.2% |
| Real Assets | 11.0% | 13.8% |
| Private Equity | 12.0% | 8.5% |
| Liquidity | 2.0% | 0.9% |
As you can see, the fund has made some adjustments to its holdings over the past decade, with a slight increase in fixed income holdings and a decrease in private equity. Real assets and public equities have remained relatively steady over time.
Risk Management Strategies of CalPERS
CalPERS, or California Public Employees’ Retirement System, is responsible for managing the retirement benefits and investments of more than 1.9 million California public employees, retirees, and their families. With over $400 billion in assets under management, CalPERS has developed a number of risk management strategies to ensure the long-term sustainability of the pension fund.
- Asset Allocation: CalPERS has a diversified asset allocation strategy that spreads investments across various asset classes, including stocks, bonds, real estate, and private equity. This approach helps to protect against market volatility and reduce overall risk.
- Active Management: CalPERS employs active management strategies to take advantage of market opportunities and manage risk. This includes rigorous research and analysis of potential investments, as well as ongoing monitoring and adjustments to the investment portfolio.
- Hedging: CalPERS uses hedging strategies, such as options, futures, and swaps, to reduce the risk of losses in certain investments. This allows the pension fund to maintain exposure to potentially profitable investments while minimizing downside risk.
In addition to these strategies, CalPERS also has a dedicated risk management team that works to identify and mitigate potential risks to the pension fund. This team is responsible for monitoring market trends, assessing potential risks, and developing strategies to manage those risks.
CalPERS also regularly conducts stress tests to assess the potential impact of various market scenarios on the pension fund’s investments. This helps the risk management team to identify potential weaknesses in the investment portfolio and take action to mitigate those risks.
| Risk | Potential Impact | CalPERS Response |
|---|---|---|
| Market Volatility | Reduced investment returns | Asset allocation and active management |
| Interest Rate Risk | Decline in bond values | Hedging strategies |
| Liquidity Risk | Difficulty accessing funds when needed | Regular stress testing and contingency planning |
Overall, CalPERS employs a range of risk management strategies to ensure the long-term sustainability of the pension fund. This includes a diversified asset allocation, active management strategies, hedging, a dedicated risk management team, and regular stress testing.
CalPERS Funding Status
CalPERS, or the California Public Employees’ Retirement System, is one of the largest pension funds in the United States. It provides retirement benefits to over 2 million active and retired public employees in California, including state workers, teachers, and local government employees. As of June 30, 2020, CalPERS had assets worth $402.6 billion, making it one of the most significant institutional investors in the world.
- CalPERS Funding Sources
- The primary sources of funding for CalPERS are:
- Contributions from employees (typically made through payroll deductions)
- Contributions from employers (typically made on behalf of employees)
- Investment returns on CalPERS’ assets
- CalPERS Funding Status
- The funding status of CalPERS refers to the ratio of its assets to its liabilities. In other words, it measures whether the pension fund has enough money on hand to meet its future obligations to retirees. As of June 30, 2020, CalPERS’ funding status was 70.8%, meaning that it had 70.8 cents in assets for every dollar in liabilities.
This funding status is a concern because it suggests that CalPERS may not have enough money to pay the retirement benefits promised to its members over the long term. While CalPERS’ investment returns have been strong in recent years, concerns about the fund’s future funding status have led to calls for changes to the pension system, such as increased employee and employer contributions, changes to retirement ages, and reduced benefits.
In response to these concerns, CalPERS has taken steps to improve its funding status by reducing its assumed rate of return (the expected rate of return on its investments), increasing contributions from employers and employees, and exploring new asset classes such as private equity and real estate. These efforts are intended to ensure that CalPERS can continue to provide retirement benefits to its members for generations to come.
| Year | Funding Percentage |
|---|---|
| 2000 | 137.5% |
| 2005 | 104.1% |
| 2010 | 77.4% |
| 2015 | 77.0% |
| 2020 | 70.8% |
As the table shows, CalPERS’ funding status has declined in recent years due to a combination of factors, including insufficient contributions, lower investment returns, and longer life expectancies for retirees. While the pension fund remains a valuable pillar of retirement security for public employees in California, its long-term financial health will depend on continued efforts to maintain its funding status and adapt to changing economic and demographic conditions.
6 FAQs About Where Does CalPERS Money Come From
1. What is CalPERS?
CalPERS stands for California Public Employees’ Retirement System, one of the largest public pension funds in the United States.
2. Where does CalPERS money come from?
CalPERS money comes from several sources, including contributions from employees and employers, investment returns, and contributions from the State of California.
3. How much money does CalPERS manage?
As of September 2021, CalPERS manages approximately $476 billion in assets.
4. What kind of investments does CalPERS make?
CalPERS invests in a range of assets, including stocks, bonds, real estate, private equity, and infrastructure.
5. Who benefits from CalPERS investments?
CalPERS investments benefit over 2 million current and former public employees in California, including teachers, firefighters, and police officers.
6. How is CalPERS accountable for its investments?
CalPERS has a board of trustees that oversees its investments and operations. The board is made up of elected and appointed representatives who are accountable to the public.
Closing Thoughts
Thanks for reading about where CalPERS money comes from! We hope this article has helped you understand the sources of funding for one of the largest public pension funds in the U.S. Be sure to check back for more informative articles on finance and investment.