CalPERS Joins Big US Pensions in Urging Obama, Congress to Act Swiftly on Federal Deficit

(July 26, 2011) — The California Public Employees’ Retirement System (CalPERS) — the nation’s largest public pension — has joined other pension schemes in urging a fix to the issue of sustained Federal deficits, warning of the risk of long-term damage to the country’s retirement savings.

In a joint letter to President Obama and America’s elected leaders, Chief Executive Officers, Treasurers and Chief Investment Officers from 10 pension funds wrote that the nation’s deficit poses a threat to the US economy. The pensions serve 7.7 million active and retired workers in California, Florida, Colorado, New York City, Maryland, Ohio and North Carolina. Along with CalPERS, the signatories included the $154.2 billion California State Teachers’ Retirement System; the $146.5 billion New York State Common Retirement Fund; the $119 billion New York City Retirement Systems; the $76.5 billion Ohio Public Employees Retirement System; the $41.4 billion Colorado Public Employees’ Retirement Association; and the Florida State Board of Administration. The total of 10 pensions joined a group including asset managers, such as BlackRock and Legg Mason, that previously voiced a similar aim to ward of a US default.

“America is now a debtor nation and it must show the world that the nation’s word is its bond. It is critical that the debt ceiling be raised to avoid a default. But raising the debt ceiling just addresses the immediate problem of default. The huge budget deficit, both current and long-range, is the real problem,” the letter stated.

“‘Deficit’ (federal budget) and ‘debt’ (U.S. federal debt) are short- and long-term issues,” CalPERS spokesman Clark McKinley confirmed with aiCIO. “The debt ceiling with the problem of immediate default is short-term. The debt issue with the threat of the credit rating downgrade is long-term.”

“We work on behalf of millions of Americans – firefighters, teachers, nurses, policeman, government workers and others, who save for their retirement through our pension funds,” the letter from the pension chiefs including CalPERS said. “Our country faces threats to its economic well-being that will inflict pain and hardship on all our citizens for many years to come if we fail to act – and act now.”

The funds warned that a downgrade from America’s AAA rating would leave it behind six countries on the credit scale, the consequences of which would be “very real and very serious.”

Additionally, the letter indicated concern among investors over inflation risk, highlighting that the US inflation rate has been much lower than that of other countries because of the fact that the US dollar is a reserve currency for investors worldwide. “If we are no longer among the highest rated government borrowers, investors will seek other currencies to store their wealth. The decline in the value of the dollar will intensify inflation risk in the future, which will further erode our standard of living.”

Last week, amid bond-focused corporate and public pension funds grow increasingly concerned over the federal government’s inability to come to an agreement on raising America’s self-imposed debt ceiling, ratings agency Moody’s suggested that the US eliminate its limit on government debt altogether to lower uncertainty among bondholders. “We would reduce our assessment of event risk if the government changed its framework for managing government debt to lessen or eliminate that uncertainty,” Moody’s analyst Steven Hess wrote in a report.