(The Center Square) — A strong stock market pushed California’s primary state retirement fund to near-record returns, but the system still faces a $166 billion shortfall, according to the Reason Foundation. As the taxpayer-funded Legislative Analyst’s Office warns the state to prepare for a potential market peak and downturn amid weak economic conditions, the massive pension gap could widen again and leave taxpayers responsible.
Amid these concerns and several high-profile issues involving the California Public Employees’ Retirement System uncovered by The Center Square, one California assemblyman is questioning why the state continues to rely on the current system.
After The Center Square reported that CalPERS lost 71% of its $468 million investment in a clean energy and technology private equity fund, Assemblyman Carl DeMaio, R-San Diego, a government finance expert and former San Diego city councilman, requested a U.S. Department of Justice investigation. DeMaio’s office remains in discussions with the department, which has confirmed receiving the request but previously declined to comment.
In an interview with The Center Square, DeMaio renewed calls for increased transparency, stronger management, and potential reform of the state’s pension system.
Addressing CalPERS’ $282 million commitment to HongShan, a Chinese venture capital firm under investigation for alleged human rights abuses, DeMaio warned against future investments in China. He cited the close relationship between the Chinese Communist Party and private corporations through the country’s military-civil fusion strategy.
“Why is CalPERS investing in the Chinese Communist Party?” DeMaio said. “This is not a private economy. The Chinese Communist Party is deeply involved in nearly every investment and operation.”
As of filings reflecting March 31, 2025, CalPERS’ investment in HongShan showed a $7.7 million loss.
“This is high-risk management with very little return,” DeMaio said. “Every day without returns means taxpayers must cover the assumed rate of return, and that cost compounds. This is a major financial risk for taxpayers and another example of mismanagement by Gov. Gavin Newsom and California Democrats.”
California’s pension deficit has shifted over time, but historically the system was fully funded. Before the dot-com bubble burst in the late 1990s, CalPERS funded 137% of promised benefits. After the bubble collapsed, the system fell into deficit, later rebounding to 101% funding before the late-2000s financial crisis.
During the worst of that crisis, CalPERS funded just 61% of promised benefits. Since then, the system has remained underfunded.
Even with near-record returns over the past year, CalPERS reached only 81% funding as of Sept. 30, 2025.
Financial experts at the Legislative Analyst’s Office cautioned that the stock market may now be overheated, suggesting the recent recovery to 81% funding could represent a high point before a potential downturn.
CalPERS’ SEC filing dated Sept. 30, 2025, showed the fund held nearly $144 million in Strategy Inc., formerly MicroStrategy. Shares of the highly leveraged, Bitcoin-linked company fell from $322.21 on Sept. 30 to $158.24 by Dec. 18, a drop of more than 50% in less than three months.
In response, DeMaio suggested structural reforms, including shifting toward index-based investments instead of actively managed funds.
“Newsom needs to take responsibility for the state’s pension systems,” DeMaio said. “Actively managed funds with expensive consultants don’t appear to outperform index funds. Why not eliminate those costs and move to basic index investing?”
DeMaio also proposed more sweeping reforms, including transitioning state employees to a 401(k)-style system.
“Why not move to 401(k)s so workers know the money belongs to them and they control it?” he said. “I don’t trust politicians to manage investments responsibly. A 401(k) provides more security for employees and protects taxpayers from future bailouts once contributions are made.”
Under California Supreme Court rulings, the so-called California Rule prevents reducing or impairing vested pension benefits, making taxpayers ultimately responsible for covering pension shortfalls.
This article has been carefully fact-checked by our editorial team to ensure accuracy and eliminate any misleading information. We are committed to maintaining the highest standards of integrity in our content.
Leave a Reply