Following S&P's Downgrade, CalPERS Boasts AAA Rating; CalSTRS Trails Behind

(August 15, 2011) — Just over a week after Standard & Poor’s downgraded the US’ credit rating one notch below AAA, the California Public Employees’ Retirement System (CalPERS) has kept its pristine rating, with the California State Teachers’ Retirement System (CalSTRS) following close behind.

Fitch Ratings, a global credit-rating agency based in New York, has rated the credit enhancement programmes (CEP) offered by CalPERS and CalSTRS “AAA” and “AA+”, respectively. The programmes allow the nation’s two largest public pensions to attract additional fees by lending their strong credit ratings to national municipalities wanting to sell bonds.

CalPERS’ exceptionally strong rating was due to its high liquidity funding, underwriting guidelines, and financial condition, the agency noted. “This rating validates the financial strength of CalPERS,” chief investment officer Joseph Dear said in a statement. “Our members and employers can be proud to be part of such a sound organization.”

Dear continued: “Our program provides support for California municipalities and others across the nation while adding value to our investment portfolio.”

In regards to CalSTRS, the scheme maintained its AA+ rating. The fund was downgraded from AAA to AA+ in August 2009 after its funding ratio declined due to investment losses. In rating CalSTRS, Fitch asserted: “As of the latest actuarial valuation (June 30, 2010), CalSTRS’ pension plan was 71% funded. Using Fitch’s more conservative 7% liability discount rate assumption, the plan is funded at 66%. Fitch also considered the plan’s funded ratio using an adjusted asset value based on the rolling five-year average of market value, which removes the impact of the system’s three year smoothing period. Under this adjusted scenario, the plan’s funded ratio is 74%.”