Morals… The Biggest Risk to Your Retirement?

Here’s a slap in the face compliments of letting your politics get in the way of your investment decisions.

Most of you are aware that many public pensions are in deep kimchi. A lot of them overestimated returns during the collapse and recovery, and they overpromised benefits. The result has been a big gap between public pensions’ obligations and actual funding.

Some are making a good effort to turn this situation around by lowering benefit packages offered to new employees. And the big turnarounds in the stock market and interest rates have gone a long way toward making things better – not right yet, but better.

Enter CalPERS (the California Public Employees’ Retirement System) – an agency that manages pension and health benefits. Its public pension fund is, as of October this year, able to fund about 68% of its obligations.

That’s a big shortfall, but you’d think based on how it’s handling its members’ money that it has cash to spare. Obviously, it doesn’t.

Many California cities estimate they’ll have to increase their contributions to the fund by 92% by 2024. And some will be spending as much as 21% of their general fund just to pay their pension obligations.

The person who had been managing the California pension fund gave up $3 billion between 2011 and 2014 because of her political beliefs and socially conscious investing. Specifically, she would not invest in anything related to tobacco.

The fund was facing a 32% shortfall, and she put her political goals ahead of her fiduciary responsibility to 2 million members – 2 million people who rely on her to take care of their money, not her ideals!

As you might expect, the members voted her out of office recently and elected a new president who ran on the idea of performance over politics.

Really, you’re in the hole to the tune of almost one-third of your obligations, and someone has to run on the idea of putting gains ahead of others’ political goals?

Only in California.

The takeaway here? Never let your politics get in between you and your money.

Good investing,

Steve