The investment portfolio for California's Public Employees Retirement System, known as CalPERS, is off by 25 percent and now tax payers may have to make up for the loss.
Battered by the recession, CalPERS needs $600 million more from the state to cover pension benefits for 700,000 retirees, bringing the total obligation to nearly $4 billion a year.
"It's market losses, it's an actuarial study that shows that people are living longer than they used to live, they are retiring earlier and they're making higher wages when they retire," CalPERS Board President Rob Feckner said.
The shortfall intensifies the debate over the increasing burden of public pensions to taxpayers -- especially since workers in the private sector are seeing their 401Ks on a roller coaster.
State Senator Dennis Hollingsworth,R-Murrieta, has a pension reform proposal pending in the Legislature.
"In the private sector, you don't have a back-up source, where you can go to the taxpayers to refill the pension fund," he said.
But CalPERS has unilateral authority to tell the state how much it has to hand over, and the state has no choice but to follow the order.
The timing comes as the state is struggling with a $19 billion deficit in which key social programs face elimination.
"Which means that $600 million, we're going to have to take away from all the other programs: education, healthcare, public safety," the governor's press secretary Aaron McLear said.
The CalPERS Board, though, decided to delay for another month whether to demand the money, given the budget circumstances and public sentiment.
Members are even thinking they should ask for the money next year, which could make the problem worse because the state's finances probably won't be any better then.
"By delaying this action, they're only going to compound the problem and cost us another $50 million for next year," McLear said.
CalPERS said cutting benefits is not an option because it's part of a state worker's compensation package.
"That's not something we would recommend anyway. These people work their entire lives as public servants. They deserve a retirement," Feckner said.
Pension reform has been slow because Democrats, whose core constituents include employee unions, are resisting the change, but this year Governor Arnold Schwarzenegger has threatened not to sign the new state budget until pension reform is on his desk.