STUMP » Articles » Calpers Myths vs. Facts: Page is Gone But The Internet is Forever » 29 March 2017, 11:05

Where Stu & MP spout off about everything.

Calpers Myths vs. Facts: Page is Gone But The Internet is Forever  


29 March 2017, 11:05

Well, well, well. What have we here?

CalPERS’ Pension ‘Myths’ Busted

CalPERS has quietly removed the controversial “Myths vs. Facts” page from its website, abruptly ending one of the agency’s efforts to soothe public anxiety about the cost rising pension benefits to public employees.

The page disappeared March 7.

A spokesperson for CalPERS, the state agency that manages public employee retirement funds, said “Myths vs. Facts” was removed following the agency’s December decision to reduce its discount rate.

“There are just a lot of changes going on, so we’re updating the page,” CalPERS’ Amy Morgan told California Policy Center.

Morgan could not immediately identify changes other than the discount rate that would require the agency to remove the page. She said she could not predict when the page might return.

Several sources close to the agency said the page was ditched because an independent oversight board demanded corrections.

But none of that appears in CalPERS internal documents released to CPC under the California Public Records Act. Indeed there appears to have been remarkably little internal discussion before the decision to pull the plug on “Myths vs. Facts.”

Shortly after the site disappeared, CPC asked the agency for “copies of all CalPERS communications among employees regarding removal of this page.” In response, CalPERS offered just a few emails, the earliest of which were dated March 6. In one (subject line: “Myths vs. Facts”), an employee in CalPERS’ digital department asked another, “Would you like us to move forward on this? It won’t be too difficult.”

Not too difficult at all, apparently: A day later, the CalPERS internal documents show, “Myths vs. Facts” was gone – and gone so abruptly that all that’s left is an error message.

Now, the author, Will Swaim, has a PDF of a prior version of the Myths v. Facts page, which indeed provides a 404 error now.

I decided to take a look at the history of this particular link, which I can find going back to 2015, using the very handy Wayback Machine.


Here’s the first page capture I can find, from September 8, 2015. All of the items in this capture indicate the information was posted May 9, 2014.

I’m going to focus on the investment-related aspects to this FAQ, partly because this seems to be one of the driving reasons that the Myths v. Facts page was removed (more evidence of that later.)

Will Swaim’s own analysis hits several points in the FAQ, such as on what the “average benefit” is, and you should read what he writes there.

September 2015 snapshot:

Myth: CalPERS 7.5 percent assumed annual rate of investment return is too high and cannot be achieved.


CalPERS investments have earned an average 7.6 percent annual return over the past 20 years and 9.4 percent over the past 30 years.

CalPERS investments earned 13.2 percent in Fiscal Year 2012-13.

CalPERS assumed rate of investment return is a long-term (20 years or more) average. Any given year is likely to be higher or lower than the assumed rate.

May 9, 2014

The next few snapshots maintain this text.

October 25, 2016 snapshot:

Myth: CalPERS 7.5 percent assumed annual rate of investment return is too high and cannot be achieved.


CalPERS investments earned 13.2 percent in Fiscal Year 2012-13, 18.4 percent in Fiscal Year 2013-14, 2.4 percent in Fiscal Year 2014-15, and 0.6 percent in Fiscal Year 2015-16.

CalPERS assumed rate of investment return is a long-term average. Any given year is likely to be higher or lower than the assumed rate.

CalPERS investments have earned an average annual return of 6.8 percent over the last five years, 5.1 percent over the past 10 years, and 7 percent over the past 20 years. Since 1988, when CalPERS began using the external custodian, the Fund has earned 8.3 percent annually.

The date of posting the info was removed, as you can see. Up to December 20, 2016, the text remained the same.

On December 21, 2016, Calpers announced it was reducing its discount rate:

The discount rate changes approved by the Board for the next three Fiscal Years (FY) are as follows:

FY 2017-2018: 7.375%
FY 2018-2019: 7.25%
FY 2019-2020: 7.00%

The next snapshot I have of the FAQ is from February 24, 2017. There is no section on the discount rate/assumed return on investments: [collapsed all the rebuttals so you can see the topics]

Myth: Most police and firefighters retire at age 50 with 90 percent of pay.
Myth: Pensions are among the highest costs of state government.
Myth: Increasing pension costs “crowd out” government services like police and libraries.
Myth: Public pension benefits are excessive.
Senate Bill 400 (1999), which increased pension benefits for state, school, and public safety employees, caused employer costs to soar over the next 10 years.
Myth: CalPERS Long-Term Care Program is financially unsustainable.
Myth: Spending health care dollars on prevention and wellness programs does little to affect the overall cost of health care in our nation, our state, and our communities.
Myth: Taxpayers pay 100 percent of retiree health care costs.
Myth: CalPERS refuses to release public equity data.
Myth: The State of California and taxpayers pay the total cost of public pensions.

That’s the last snapshot, unsurprisingly, given that we have a 404 error now.


Well, obviously, they are reducing the discount rate over three years, so mentioning the 7.5% is not really pertinent. And that 7.5% was a reduction from the prior 7.75%, which was itself a reduction from earlier rates.

If you check the Calpers page at the Public Pensions Database, the assumed rate was 8.25% for FY 2001. It was reduced to 7.75% in FY 2003. It was reduced again to 7.5% in 2011.

Let’s check what others have said about the investment return stuff:

Yves Smith at Naked Capitalism:

Wow, I took my eyes off CalPERS and managed to miss them trying to pull a fast one about their long-term returns. Fortunately, blogger W.C Varones caught it and Michael Shedlock promoted his find. And in an admission that Varones and Shedlock were correct, CalPERS removed the claims they deemed to be misleading…and substituted a different on that is just as deceptive.

And what has CalPERS done? Quickly edited its site to try to maintain the pretense that its return targets are achievable, when in fact we are in a “new normal” that is punitive to long term investors, be they pension funds, insurers, or individuals.

CalPERS has been on the defensive since it reported preliminary returns for its fiscal year just ended of 0.6%, when its target is 7.5%. Even though the final return is certain to be a smidge higher thanks to private equity doing well in the quarter where the data is not yet in, it’s clearly not going to change the overall dismal picture. Moreover, this result is particularly disturbing that governor Jerry Brown pushed CalPERS, to no avail, to lower its target to a somewhat more realistic 6.5%. The giant pension fund responded by creating a Rube Goldberg formula that (in crude form) will lower the target in years where performance exceeds 7.5%. With central banks locked in super low, and tending to negative rates, and any exit from those rates leading inevitably to large losses on assets unless one is heavily in cash (which CalPERS will never do), pray tell where where does this outperformance fantasy come from? For instance, fiscal year 2015-16 looks to be a last hurrah for bonds, with CalPERS having earned 9.29% in fixed income. But none other than bond maven Bill Gross has since warned that record-low bond yields “aren’t worth the risk.”

That’s from August 2016.

W.C. Varones:

CalPERS deliberately deceives public by cherry-picking dates

You probably know that CalPERS recently reported yet another year of investment results that fell far short of its absurd promises.

But did you know that CalPERS is actively, deliberately deceiving the public about its investment promises and results?

CalPERS has a section called “Myths vs. Facts” on its website where it tries to debunk critics of its rosy expected returns, which experts nearly universally believe are too high. Here’s what the site showed until mid-July:

[the May 9, 2014 info]

This is a recurring theme of CalPERS propaganda: pay no attention to expert opinion, zero percent interest rates, or historically high valuations. CalPERS can always expect high returns because CalPERS earned high returns in the past.

After a second consecutive year of dismal returns, the statements above about 20- and 30-year returns are no longer true. This spreadsheet shows the past 21 years of returns, taken from CalPERS annual reports (we could not find data prior to 1996). CalPERS’ 20-year annualized return is now just 6.57%… and it’s about to go a lot lower because it is rolling off four more consecutive years of double digit returns from the tech/internet bubble.

Last year, CalPERS semi-acknowledged that it needed slightly less crazy assumptions, promising to eventually lower expected return… but only after it has a really good investment year first. That’s like a heroin addict promising to quit after just one more fix.

Given that the CalPERS “Myths vs. facts” statement was no longer true, we were curious to see what CalPERS would do after 2016’s bad results came in. And CalPERS did not disappoint:

Look what they did here. In mid-July 2016, after they had already reported 2016 results, they went back and cherry-picked time periods ending June 30, 2015. If we don’t cherry-pick the data, the truth is that CalPERS has missed its annual return targets for all of these time periods: 1-year, 3-year, 5-year, 10-year, 15-year, and 20-year — and the long-term returns are even worse than the recent years! CalPERS is deliberately misleading the public!

Well, well. That particular snapshot wasn’t captured by the Internet Archive. There was an April 2016 snapshot, then an October 2016 snapshot. They missed the in-between shenanigans.

After being called out by various onlookers, they changed to the text you see in the October 2016 snapshot. I want to note how misleading the post was in October:

CalPERS investments have earned an average annual return of 6.8 percent over the last five years, 5.1 percent over the past 10 years, and 7 percent over the past 20 years. Since 1988, when CalPERS began using the external custodian, the Fund has earned 8.3 percent annually.

According to W.C. Varones’s calculations, the 20-year return was 6.57%

Did they really round that up to 7%?!


Then they removed that part entirely.

And now the page has been entirely removed.


Back to Will Swaim’s piece:

“Some critics have deemed it propaganda,” Steven Greenhut, a longtime CalPERS observer and Western Region Director for R Street Institute, said of the late “Myths vs. Facts” page. “I wouldn’t go that far, but it always seemed highly inappropriate for a government agency to try to debunk media reports and spin the numbers and facts in its own direction. That’s the role of a PR agency, not a pension fund that is supposed to mainly be a good public steward.”

The problem is, of course, that if you have no standardized report to give (in terms of what years to report returns on), you can pick-and-choose the particular time periods to make things look good. This happens all the time in public pensions, where they keep changing the time period to look at to say “Hey, it’s okay!” because there are no standards.

They didn’t even have the standards to quote average returns to the basis point, but rounded 6.57% to 7%.

Man, that’s bad. I mean, I expect to have to tell my college students not to deceptively round their GPAs on their resumes. I didn’t think I’d have to tell a pension plan not to round a 6.6% 20-year return to 7%.

Let me show you how bad that is: Assume you had $1 billion dollars, and it grows 6.57%/year for 20 years versus 7%/year for 20 years.

Here is the difference:

6.57%/yr accumulates to: $3.57 billion
7.00%/yr accumulates to: $3.87 billion

The second is 8% higher than the first. Those “small differences” really accumulate over the decades.

When your funded ratio is only 76.3%, 8 percentage points boost would be really nice.

It is best if Calpers doesn’t revive the Myths vs. Facts page at all. It definitely didn’t help their credibility.

Related Posts
Catch-Up Week: Dallas and Houston Pensions - Still A-Roar
Nevada Pensions: Liability Trends
Pension Assets: Investment Returns are in for FY 2017 and They're GREAT!