1. Last year may be remembered as one of the
toughest the financial world has ever faced.
As we respond to today’s market realities, our
focus is on safeguarding
the future health and retirement security
for California’s public employees.
Comprehensive Annual Financial Report
Fiscal Year Ended June 30, 2009
California Public Employees’ Retirement System
A Component Unit of the State of California
2.
3. Comprehensive Annual Financial Report
Fiscal Year Ended June 30, 2009
Prepared by the Fiscal Services Division, the Investment Office, the
Actuarial and Employer Services Branch, the Office of Public Affairs,
and several additional divisions and branches of the California Public
Employees’ Retirement System.
Available online at www.calpers.ca.gov
California Public Employees’ Retirement System
A Component Unit of the State of California
6. Professional awards
certificAte of Achievement of Public PenSion StAndArdS AwArd
excellence in finAnciAl rePorting The Public Pension Coordinating Council (PPCC)
The Government Finance Officers Association of the awarded a Public Pension Standards Award for Funding
United States and Canada (GFOA) awarded a Certificate and Administration to CalPERS for our Comprehensive
of Achievement for Excellence in Financial Reporting to Annual Financial Report for the fiscal year ended
CalPERS for our Comprehensive Annual Financial Report June 30, 2008 . This is the 8th consecutive year that
for the fiscal year ended June 30, 2008 . This was the CalPERS has achieved this prestigious award . CalPERS
13th consecutive year that CalPERS has achieved this also received this award in 1997, 1998, and 2000 . In order
prestigious award . In order to be awarded a Certificate to be awarded a Public Pension Standards Award, a public
of Achievement, a government must publish an easily pension program must meet professional standards for
readable and efficiently organized comprehensive annual plan design and administration as set forth in the Public
financial report that satisfies both generally accepted Pension Standards . A Public Pension Standards Award
accounting principles and applicable legal requirements . is valid for a period of one year .
We believe our current comprehensive annual report
continues to meet the Certificate of Achievement
Program’s requirements .
7. Introductory Section
2 Chief Executive Officer’s Letter of Transmittal
6 about CalPErS
8 Board of administration
9 Executive Staff
10 Organizational Chart
11 Consultant & Professional Services
8. Chief Executive Officer’s Letter of Transmittal
During the year, our call centers and regional offices
fielded member inquiries about the impact of the market
downturn . Our staff let members know that we are strong
and resilient and that they can depend on us to meet our
health and retirement benefit obligations . We generate
sufficient cash income from investments and contributions
Anne Stausboll to cover our monthly benefit roll . In fiscal year 2008-09,
Chief Executive Officer we paid more than $11 billion to retirees and beneficiaries,
and spend more than $5 .7 billion on health care .
We appointed new Deputy Executive Officers to help
guide our organization into the next decade . Steve Kessler
was named our new Deputy Executive Officer of
December 17, 2009 Operations . Prior to coming to CalPERS, Mr . Kessler
served as the Chief Deputy Director of Operations for
Members of the CalPERS Board of Administration: the California Department of Public Health . Our new
I am pleased to present the CalPERS Comprehensive Deputy Executive Officer of Benefits is Kathleen
Annual Financial Report (CAFR) and accompanying Hamilton . She joined CalPERS from the Office of
Operations Summary for the year ended June 30, 2009 . California Assemblyman Dave Jones where she served
Fiscal year 2008-09 was one of unprecedented as Legislative Director . Patricia Macht was appointed
challenges . Both large and small investors experienced as our new Director of External Affairs . Pat previously
significant declines in asset values . As the global economic served as Assistant Executive Officer of CalPERS Public
recession took hold, no asset class or industrial or geo- Affairs, and worked at CalPERS for nearly 15 years .
graphic sector was unaffected, and worldwide equity In response to concerns about how the decline in
declined 39 percent . our investment portfolio will affect employer rates, the
Like most investors, CalPERS experienced a decline CalPERS Board modified our employer rate smoothing
in our investment portfolio, with the market value of our process for State, schools, and local public agencies . The
assets declining 24 .8 percent for the fiscal year ending one year of extraordinary declines will be phased into
June 30, 2009 . Although this was the largest one year employer rates over three years and be paid off over a
decline in our history, our long-term 20-year investment fixed 30-year amortization period . These actions will
return remains positive at 7 .75 percent . moderate employer rate increases in the short term while
As the depth of the market crisis became clear, our strengthening CalPERS long-term financial health .
Board and investment staff took a deliberative and proactive During the year, the CalPERS Environmental
approach that has assured our resiliency throughout our Technology Program made significant progress toward
history . To minimize losses and position our fund for a full meeting our environmental goals . Our real estate partners
recovery, we employed short-term tactics and long-term achieved a 13 .3 percent reduction in energy use in just one
strategies . We revised our asset allocation to provide year . Eleven of our partners investing in 79 private compa-
flexibility in our day-to-day management and to enable us nies through our Alternative Investment Management
to harness new investment opportunities . We also began to Program (AIM) reduced greenhouse gas emissions by the
analyze our real estate holdings, restructuring debt, and amount produced annually by 39,000 Americans .
reducing leverage . And finally, we sought better alignment Our internal commitment to the environment is
of interests, terms and fees with our private equity, hedge demonstrated daily by our aggressive recycling efforts .
fund and real estate partners . This year, we are taking another “green” step by limiting
2 | introductory Section | CalPERS Comprehensive Annual Financial Report, Fiscal Year Ended June 30, 2009
9. Chief Executive Officer’s Letter of Transmittal (continued)
the printed distribution of this Comprehensive Annual of employers . PERT will continue to work with employers
Financial Report as well as the accompanying Operations to train their staff on how to use the new my|CalPERS .
Summary . Many of the individuals who normally receive a Providing members and employers the best possible
printed copy will instead receive information about how to value is a key goal of our Health Benefits Program . The
access and review the documents through our Web site . 2010 health benefits package raises overall premiums by
an average of 2 .9 percent — the lowest average
rate increase in 14 years . The low premium
This year, we are taking another “green” step by limiting the increase illustrates the effectiveness of many
printed distribution of this Comprehensive Annual Financial of the cost-saving and member education
initiatives we have implemented over the past
Report as well as the accompanying Operations Summary. several years .
To educate members and employers about
CalPERS health care trends and costs, during
Just as smart investors diversify their portfolios, they the fiscal year we implemented the Be Well, and Well Informed
must also diversify their workplace . Taking advantage of campaign . The campaign shows members how they can
the broadest possible investment talent contributes to our help control health care costs, and offers information about
overall success while creating new opportunities in under- the impact of federal national health care reform proposals .
served markets . As part of our commitment to encouraging As part of our commitment to reducing health care
diversity in investing, in 2009, we joined with CalSTRS costs, in early 2009, we launched an electronic prescription
and the California Legislative Women’s Caucus to sponsor (e-Prescribing) pilot program with Anthem Blue Cross,
a conference focused on women who work in the invest- Blue Shield of California, and Medco Health Solutions .
ment industry . The conference provided attendees infor- Evidence shows that e-Prescribing improves patient safety
mation about how to position their firms to expand or and reduces overall health care costs .
create a successful business partnership with CalPERS .
During the fiscal year, the primary focus of many of Management Responsibility
our internal divisions was on meeting a key goal of our for Financial Reporting
Business Plan — implementation of the new my|CalPERS . Our system management prepared the CalPERS financial
my|CalPERS is an integrated database platform that will statements included in this CAFR for the 2008-09 fiscal
provide members 24/7 access to information about their year . Management is responsible for the integrity and
retirement and health benefits . The system will facilitate fairness of the information presented, including data that,
the exchange of information between employers and out of necessity, is based on estimates and judgments . The
CalPERS as well as expediting interactions with CalPERS accounting policies used to prepare these financial state-
for other business partners . my|CalPERS will increase data ments conform to accounting principles generally accepted
integrity; reduce time required for completing routine in the United States . Financial information presented
tasks; lower technology maintenance costs; and simplify throughout this Annual Report is consistent with these
business processes . It will also allow CalPERS staff to close financial statements .
out most customer requests during the initial contact . CalPERS maintains a system of internal controls
As we prepare for the implementation of the new designed to provide reasonable assurance that assets are
my|CalPERS, we ramped up the activities of our Public properly safeguarded, transactions are properly executed,
Employer Readiness Team (PERT) . The team conducted and financial statements are reliable . In addition, internal
employer workshops throughout the State and held a series of audit personnel provide a continuing review of the internal
Web conferences with modules designed for different types controls and operations of CalPERS, and the Chief of the
CalPERS Comprehensive Annual Financial Report, Fiscal Year Ended June 30, 2009 | introductory Section | 3
10. Chief Executive Officer’s Letter of Transmittal (continued)
Office of Audit Services regularly reports to the CalPERS meet professional standards for plan design and adminis-
Board of Administration’s Finance Committee . The tration as set forth in the Public Pension Standards . A
Committee reviews the audit findings and recommenda- Public Pension Standards Award is valid for a period of
tions for improvements in internal control and operational one year .
efficiency and the actions of management to implement
such recommendations . Accounting System & Reports
Our independent external auditors, Macias Gini & Management is responsible for establishing and maintaining
O’Connell, have conducted an audit of the basic financial an internal control structure designed to ensure that CalPERS
statements in accordance with auditing standards generally assets are protected from loss, theft, or misuse, and income
accepted in the United States of America, performing such is equally distributed . Responsibility for the accuracy,
tests and other procedures as they deem necessary to express completeness, and fair presentation of the information, and
an opinion in their report to the Board . The external all disclosures, rests with CalPERS . The basic financial
auditors also have full and unrestricted access to the Board statements have been prepared in accordance with account-
to discuss their audit and related findings as to the integ- ing principles generally accepted in the United States of
rity of the financial reporting and adequacy of internal America . The basic financial statements are presented in
control systems . accordance with pronouncements of the Governmental
Accounting Standards Board (GASB), including standards
Awards established by GASB Statement No . 25, Financial Reporting
The Government Finance Officers Association of the for Defined Benefit Plans; GASB Statement No . 34, Basic
United States and Canada (GFOA) awarded a Certificate Financial Statements — and Management’s Discussion
of Achievement for Excellence in Financial Reporting and Analysis — for State and Local Governments; GASB
to CalPERS for our Comprehensive Annual Financial Statement No . 43, Financial Reporting for Post-Employment
Report for the fiscal year ended June 30, 2008 . This was Benefit Plans Other Than Pension Plans; and other GASB
the 13th consecutive year that CalPERS has achieved this statements as appropriate . GASB Statement No . 34 requires
prestigious award . In order to be awarded a Certificate of that management provide a narrative introduction,
Achievement, a government must publish an easily readable overview, and analysis to accompany the basic financial
and efficiently organized comprehensive annual financial statements in the form of a Management’s Discussion
report . This report must satisfy both generally accepted and Analysis (MD&A) .
accounting principles and applicable legal requirements . This Letter of Transmittal is designed to complement
A Certificate of Achievement is valid for a period of one the MD&A and should be read in conjunction with it .
year . We believe our current comprehensive annual The CalPERS MD&A can be found immediately following
report continues to meet the Certificate of Achievement the report of the independent auditors .
Program’s requirements, and we are submitting it to
GFOA to determine its eligibility for another certificate . Investments
The Public Pension Coordinating Council (PPCC) Proper funding and healthy long-term investment returns
awarded a Public Pension Standards Award for Funding and are essential to the financial soundness of CalPERS .
Administration to CalPERS for our Comprehensive Annual The ratio of investment earnings to total revenue during
Financial Report for the fiscal year ended June 30, 2009 . the last 10 years is evidence of the System’s continued
This is the 8th consecutive year that CalPERS has achieved solid financial management . See the Chief Investment
this prestigious award . CalPERS also received this award Officer’s letter, page 82, for a summary of our investment
in 1997, 1998, and 2000 . In order to be awarded a Public performance .
Pension Standards Award, a public pension program must
4 | introductory Section | CalPERS Comprehensive Annual Financial Report, Fiscal Year Ended June 30, 2009
11. Chief Executive Officer’s Letter of Transmittal (continued)
Asset Allocation benefits, and employees and taxpayers can minimize their
An integral part of the overall investment policy is the contributions in support of defined benefits . The Required
strategic asset allocation policy . This policy is designed to Supplemental Schedules to the Basic Financial Statements
provide an optimal mix of asset class investments which can and the Actuarial Section contain a summary of CalPERS
best meet future pension obligations with the lowest risk unfunded actuarial accrued liabilities .
possible and the lowest cost to taxpayers, employers, and Investment returns are used to generate additional
employees . This approach emphasizes strong diversification revenues and, ultimately, this allows CalPERS to reduce
among a range of investments, each of which offers the employer contribution rates, reducing pension costs to
employers and taxpayers .
The resiliency of our organization has been forged over a 77-year In Closing…
history during which we have faithfully kept our commitment to It has been an exciting and challenging
time in the last year that I have served as
provide public employees the secure retirement and health benefits CalPERS CEO . I am encouraged by the
they expect. dedication of our staff to maintaining our
high standards of excellence even during
these uncertain times . They have done so
prospect of compelling, long-term returns . These invest- while working reduced hours due to imposed furloughs and
ments include allocations to listed markets (money mar- facing personal challenges of their own . I am proud to serve
kets, bonds, global stocks, and commodities) as well as as CalPERS CEO and to lead this exceptional team .
private markets (real estate, private equity, hedge funds, The resiliency of our organization has been forged
forestland, and infrastructure) . over a 77-year history during which we have faithfully kept
our commitment to provide public employees the secure
Funding retirement and health benefits they expect . As we move
The bottom line for a retirement system is its level of forward, we will continue to do everything we can to keep
funding . If the funding level is adequate, the ratio of total health care premiums low and quality of care high . We will
accumulated assets to total liabilities will be larger and the continue to fine-tune our investment strategies to make every
need for contributions will be reduced . Also, an adequate investment dollar count and to minimize public employer
funding level gives participants assurance that their contributions . And, we will look to develop innovative
pension benefits are secure . programs to improve the value of the products and services
The historical level of funding for the Public Employees’ we provide to all that we serve .
Retirement Fund (PERF) is good . As of June 30, 2008,
the PERF is 86 .9 percent funded . The advantages of a
well-funded plan are that participants can see assets that Anne Stausboll
are irrevocably committed to the payment of promised Chief Executive Officer
CalPERS Comprehensive Annual Financial Report, Fiscal Year Ended June 30, 2009 | introductory Section | 5
12. About CalPERS
The California Public Employees’ Retirement System COre ValueS
(CalPERS) is the nation’s largest public pension fund with Quality
total net assets of $181.1 billion as of June 30, 2009. Strive to meet internal and external customer’s needs
Headquartered in Sacramento, CalPERS provides through innovation, competence, and teamwork. Seek
retirement and health benefit services to more than to “do it right” the first time.
1.6 million people and 3,026 school and public employers.
The System also operates eight Regional Offices located Respect
in Fresno, Glendale, Orange County, Sacramento, Sensitive to the needs of others, both within and outside
San Diego, San Bernardino, San Jose, and Walnut Creek. the organization. Courteous, considerate, responsive and
Led by a 13-member Board of Administration, consisting professional.
of member-elected, appointed, and ex officio members,
CalPERS membership consists of 1,134,397 active and Integrity
inactive members and 492,513 retirees, beneficiaries, and In all endeavors, act in an ethical, honest and professional
survivors from State, school, and public agencies. manner.
Established by legislation in 1931, the System became
operational in 1932 for the purpose of providing a secure Openness
retirement to State employees. In 1939, new legislation Willing to listen to, and share information with others.
allowed public agency and classified school employees to Receptive to new ideas. Trusting.
join the System for retirement benefits. CalPERS began
administering health benefits for State employees in 1962, Accountability
and five years later, public agencies joined the Health Take ownership and responsibility for actions and their
Program on a contract basis. results. Accept both risks and rewards, trusting that good
A defined benefit retirement plan, CalPERS provides faith risks will not be punished.
benefits based on a member’s years of service, age, and
highest compensation. In addition, benefits are provided
for disability and death. Today CalPERS offers additional GOalS and ObjeCtIVeS
programs, including long-term care insurance, a member • We will be mission driven.
home loan program, a deferred compensation retirement • We will sustain a high-performance work culture.
savings plan, and member education services. • We will make our programs, processes and strategic
decisions understandable to our stakeholders and highly
valued by our internal and external customers.
Our MISSIOn • We will use our resources effectively.
To advance the financial and health security for all who • We will continuously meet or exceed internal and
participate in the System. We will fulfill this mission by external customer quality-of-service expectations.
creating and maintaining an environment that produces • We will design, develop and deliver our programs and
responsiveness to all those we serve. benefits to be innovative and market sensitive.
• We will have a positive public identity and relationship
with our external customers and stakeholders.
• We will effectively organize and focus resources to
primarily assure that sufficient funds are available to
pay benefits and, secondarily, minimize and stabilize
employer contributions.
6 | Introductory Section | CalPERS Comprehensive Annual Financial Report, Fiscal Year Ended June 30, 2009
13. About CalPERS (continued)
guiding PrinciPleS • Obtaining the highest return on our investment
We perform our daily functions under the following: portfolio to survive, prosper and grow in a safe and
• Designing and administering the highest quality, prudent manner .
secure and innovative programs . • Ensuring that all benefits are appropriately funded .
• Delivering retirement, health and other benefits and • Maintaining public trust by being an ethical, sensitive,
services in an equal, accurate, courteous, professional effective and cost-efficient organization in service to
and prompt manner . employers and employees alike .
• Providing meaningful information and education to • Sustaining our role as a respected leader in the public
all System constituents in a timely manner . pension and benefits industry .
• Attracting, developing and retaining a competent,
creative and highly motivated workforce .
CalPERS Comprehensive Annual Financial Report, Fiscal Year Ended June 30, 2009 | introductory Section | 7
14. Board of administration
Rob Feckner, President Henry Jones
Employer Member (elected by school members) Retired Member (elected by retirees)
Glazing Specialist, Retired, Chief Financial Officer,
Napa Valley Unified School District Los Angeles Unified School District
Term Ends: January 15, 2011 Term Ends: January 15, 2012
George Diehr, Vice President Bill Lockyer
Employer Member (elected by State members) State Treasurer
Professor, CSU San Mateo Ex Officio Member
Term Ends: January 15, 2011
Priya Mathur
Kurato Shimada Employee Member (elected by public agency members)
Employee Member (elected by all members) Economist, Bay Area Rapid transit
Retired, Supervisor of Operations, Term Ends: January 15, 2011
Oak Grove School District
Term Ends: January 15, 2014 Louis F. Moret
Public Representative 2
John Chiang Term Ends: January 15, 2012
State Controller
Ex Officio Member Tony Oliveira
Elected Official of Local Government 1
Maeley L. Tom (Patricia Clarey through October 2009) Term Ends: January 15, 2011
State Personnel Board Member (designated by
the State Personnel Board) Charles P. Valdes
Term Ends: Serves at the pleasure of the SPB Employee Member (elected by all members)
Retired Counsel,
Dan Dunmoyer (Marjorie Berte through May 2009) Department of Transportation
Official of Life Insurer 1 Term Ends: January 15, 2010
Senior Vice President,
Legislative and Regulatory Affairs
Farmers Insurance Groups of Companies and
Zurich Financial Services
Term Ends: January 15, 2013
Debbie Endsley (David Gilb through August 2009)
Director,
Department of Personnel Administration
1
Governor appointee
2
Appointed jointly by the Speaker of the Assembly and
Ex Officio Member the Senate Rules Committee
8 | introductory Section | CalPERS Comprehensive Annual Financial Report, Fiscal Year Ended June 30, 2009
15. Executive Staff
Anne Stausboll Larry Jensen
Chief Executive Officer Assistant Executive Officer (Interim),
(Ken Marzion, Interim, through January 2009) Administrative Services
(John Hiber through May 2009)
Stephen W. Kessler
Deputy Executive Officer, Donna Lum
Operations Assistant Executive Officer,
(Gloria Moore Andrews through December 2008) Member & Benefit Services
(Kathie Vaughn through December 2008)
Kathleen Hamilton
Deputy Executive Officer, Patricia K. Macht
Benefits Administration Director,
(Jarvio A. Grevious through November 2008) External Affairs
(Assistant Executive Officer, Office of Public Affairs,
Teri Bennett through July 2009)
Assistant Executive Officer,
Information Technology Services Ken Marzion
Chief Operating Investment Officer (Interim),
Joseph Dear Investment Operations
Chief Investment Officer (Anne Stausboll through January 2009)
(Anne Stausboll, Interim, through January 2009)
Peter H. Mixon
Robert David General Counsel
Assistant Executive Officer,
Health Benefits Ron Seeling
(Gregory Franklin through September 2009) Chief Actuary,
Actuarial & Employer Services
Sheri Hofer
Privacy and Security Officer,
Enterprise Privacy & Security Office
CalPERS Comprehensive Annual Financial Report, Fiscal Year Ended June 30, 2009 | introductory Section | 9
16. Organizational Chart
Board of administration
Chief Executive Officer
deputy Executive
deputy Executive director/ Chief Investment
Officer/Benefits Chief actuary General Counsel
Officer/Operations External affairs Officer
administration
Office of Employer Services
assistant Executive assistant Executive Legal Office
Public Affairs Chief Operating Division
Officer/administrative Officer/Health
Investment Officer
Services Branch Benefits Branch
Office of PSR Employer Readiness Office of Audit
Governmental Affairs Project (PERT) Services
Fiscal Services Office of Employer & Supplemental
Division Member Health Services Income Plans
Stakeholder Outreach/ Office of Enterprise
Actuarial Office
Conference Services Compliance
Human Resources Office of Health Plan Investment Policy &
Division Administration Business Support
Strategic Management Office of Health Policy Performance &
Services Division & Program Support Technology Division
Operations Support Division of Operations
Services Division & Infrastructure Support
Global Equity
assistant Executive assistant Executive
Fixed Income
Officer/Information Officer/Member &
Technology Services Benefit Services
Branch Branch
Real Estate
Pension System Member Services
Resumption Project Division
Alternative Investment
Management Program
Enterprise Transition Benefit Services
Management Division
Asset Allocation &
Risk Management
Technology Services & Customer Services &
Support Division Education Division
Investment Diversity
Innovation & Officer
Implementation
Services Division
Information Technology
Administration Division
Diversity Outreach
Program
Enterprise Privacy &
Protection Office
Information Security
Office
10 | introductory Section | CalPERS Comprehensive Annual Financial Report, Fiscal Year Ended June 30, 2009
17. Consultant & Professional Services
Individual or Firm Individual or Firm
Aastra USA, Inc. Eagle Management Group
Accenture, LLP Eaton Interpreting Services
Adcom Media EFI Actuaries
ADSI, Inc. Enclipse Corporation
Advanced Systems Group, LLC Ennis, Knupp & Associates
Alom Technologies Corporation Entisys Solutions, Inc.
Altshuler Berzon, LLP Equanim Technologies
Altura Capital Group, LLC Ergonomics & Injury Prevention Services
Ambire Consulting, Inc. Evergreen Systems, Inc.
ATV Video Center, Inc. Evolve Technology Group
Ballard Group, The Expressworks International, Inc.
Base 3 Consulting Felderstein, Willoughby & Pascuzzi, LLP
Bedrosian & Associates Fiderion Financial Services Group, LLC
Berman Devalerio Pease Tabacco Burt & Pucillo Financial Finesse
Berwyn Group, The Fitch Training
Blackstone Technology Group Forrester Research, Inc.
Bongo Post & Music Foster, Pepper & Shefelman, PLLC
Brandlogic Corporation Gabriel, Roeder, Smith Co.
Buck Consultants, LLC Girard Gibbs, LLP
Business Advantage Consulting Global Access, LLC
California Department of Health Services Gordon Hewitt Consultancy
California Department of Justice Grant Thornton, LLP
California Franchise Tax Board H & R Interpreting Associates
California Highway Patrol Hamilton Lane Advisors, LLC
California Secretary Of State Hawkins Delafied & Wood, LLP
California State Compensation Insurance Fund Heidricks & Struggles
California State Controller's Office Hewlett-Packard
California State Personnel Highlands Consulting Group
California State Personnel Board Human Factors International, Inc.
California State Teachers' Retirement System Independent Fiduciary Services
California State Treasurer's Office Information Technology Software Professionals
Celer Systems, Inc. Informatix, Inc.
Chapman and Cutler, LLP Innovative Software Technologies, Inc.
Chisoft Consultant Services, LLC Insight Technologies, Inc.
Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP Interaction Associates
Christina Marks, CPht International Foundation for Retirement Education (InFRE)
Class Act Alliance, Inc. International Network Services
Cloverleaf Solutions Intraform
Coach Source Intuit Real Estate Solutions
Comsys Investor Responsibility Support Services, Inc.
Conference Plus Iron Mountain Fulfillment Services, Inc.
Consortium of Business Continuity Professonals, Inc. Ivy Planning Group, LLC
Cooperative Personnel Services Jam Media, LLC
Covington & Burling Jannice Salas Tan
Cox, Castle & Nicholson, LLP Jeffrey F. Moy
CSUS, College of Continuing Education Jlynnconsulting, Inc.
Davis Wright Tremaine, LLP Kaleidoscope Group, LLC
Dee Hansford Consulting Kearnford Application Systems Design
Delegata Kiefer Consulting, Inc.
DLS Enterprises, LLC Kirkpatrick and Lockhart Preston Gates Ellis, LLP
DLT Solutions Kleinfelder, Inc.
Dolamont Consulting, Inc. Kong Consulting, Inc.
Douglas W. Dixon and Associates Korn/Ferry
DSS Research, Inc. KPC Legal Audit Services, Inc.
CalPERS Comprehensive Annual Financial Report, Fiscal Year Ended June 30, 2009 | introductory Section | 11
18. Consultant & Professional Services (continued)
Individual or Firm Individual or Firm
KPMG, LLP Prosci, Inc.
Lan Do & Associates, LLC Public Sector Consultants, Inc.
Legislative Intent Service Pyramid Technical Consultants, LLC
Liberty Consulting Team R. W. Davis & Co., Inc. DBA, RWD – Executive Search
Lincoln Crow, LLC Reed Smith, LLP
Logic House Ltd. RG & Associates
Los Rios Community College Ridgeway Partners, LLC
Lussier, Vienna, Gregor & Associates Robert Half International, Inc.
Macias & Gini O'Connell, LLP Roberta Almeida
Manatt, Phelps, & Phillips, LLP Ropes & Gray, LLP
Maximus/Center for Health Dispute Resolution Runyon, Saltzman & Einhorn, Inc.
McDonough, Holland & Allen Russbo, Inc.
Medstat Group Saba Software, Inc.
Mercer Health and Benefits Saber Consulting, Inc.
Method Sapphire Technologies, Inc.
Michael Strategic Analysis Segula Technologies
Mindstorm Seisint, Inc. dba Lexis Nexis Risk Management, Inc.
Moore Wallace Business Communications Services Senn-Delaney Leadership
Morgan, Lewis & Bockius, LLP Setka, Inc.
Mosaic Investment Advisors, Inc. Sextant Search Partners
Mukai & Kussin, LLP Shooting Star Solutions, LLC
Mullan, Randall P. Siemens Communications, Inc.
Murphy Austin Adams Schoenfeld, LLP Sign Language Interpreting Service Agency
National Data Services Softsol Resources, Inc.
Natoma Technologies Softsol Technologies, Inc.
Nexlevel Information Technology, Inc. SOL Design Group
Niki Frederick Design Spherion Pacific Enterprises, LLC
North Highland Company Sri Infotech, Inc.
Office Workouts Staff Tech, Inc.
Ogilvy Public Relations Stanfield Systems, Inc.
Online Video Service, Inc. Stealth Network Communication
Pacific Business Group on Health Steptoe & Johnson, LLP
Pacific Satellite Connection, Inc. Suzanne Stone Freelance Services
Page Design Group Take 1 Productions
Parent – PAOF Pool Contracts The Robert Toigo Foundation
Parent Invt. Diversity Consultant Pool Thomson Reuters
Parent Invt./HRD Executive Search – SPRPool TMD Group, Inc.
Parent OFAS, RE Investment Audits Services Torys, LLP
Parent PAOF/Communications Support Services Trinity Technology Group, Inc.
Parent PAOF/Graphic Design Two Shea Consulting, Inc.
Parent SMSD Vantage Consulting Group, Inc.
Parent Video Production Pool – PAOF Viaspire
Paul, Hastings, Janofsky, Walker, LLP Visionary Integration, LLC (VIP)
PC Techs Wallrich Landi Integrated Marketing Communications
Performance Technology Partners, LLC Watson Wyatt Worldwide
Peters Shorthand Reporting Corporation Weintraub Genshlea Chediak Sproul
Pillsbury Winthrop Shaw Pittman, LLP Western Blue
Pitney Bowes Wiley Price & Radulovich, LLP
PM/CM Services, Inc. Wolcott & Associates, Inc.
Princeton Solutions Group, Inc. Wright On-Line Systems
Prism Zyncor Consulting
Propoint Technology, Inc.
12 | introductory Section | CalPERS Comprehensive Annual Financial Report, Fiscal Year Ended June 30, 2009
19. Financial Section
14 Independent Auditor’s Report
16 Management’s Discussion & Analysis
16 Introduction
16 Financial Highlights
17 Overview of the Financial Statements
19 Financial Overview of CalPERS Funds
20 Financial Analysis of CalPERS Funds
23 Other Defined Benefit Pension Plans
27 Defined Contribution Pension Plans
29 Other Post-Employment Benefit Fund
30 Enterprise Funds
32 Requests for Information
20. Independent Auditor’s Report
Sacramento
3000 S Street, Suite 300
Sacramento, CA 95816
916.928.4600
Walnut Creek
Oakland
Los Angeles
Newport Beach
San Diego
To the Board of Administration
California Public Employees’ Retirement System
Sacramento, California
Independent AudItor’S report
We have audited the accompanying statement of fiduciary net assets of the fiduciary funds and the statement
of net assets of the proprietary funds of the California Public Employees’ Retirement System (the System or
CalPERS), a component unit of the State of California, as of June 30, 2009, and the related statement of
changes in fiduciary net assets of the fiduciary funds, and the statements of revenues, expenses and changes
in net assets and cash flows of the proprietary funds for the year then ended. These financial statements are
the responsibility of the System’s management. Our responsibility is to express an opinion on these finan-
cial statements based on our audit. The prior year summarized comparative information has been derived
from the System’s 2008 financial statements on which our report dated November 20, 2008, expressed an
unqualified opinion.
We conducted our audit in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes consideration of internal
control over financial reporting as a basis for designing audit procedures that are appropriate in the circum-
stances, but not for the purpose of expressing an opinion on the effectiveness of the System’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
fiduciary net assets of the fiduciary funds and the net assets of proprietary funds of the California Public
Employees’ Retirement System as of June 30, 2009, and the changes in fiduciary net assets of the fiduciary
funds and the changes in net assets and cash flows of the proprietary funds for the year then ended in
conformity with the accounting principles generally accepted in the United States of America.
14 | Financial Section | CalPERS Comprehensive Annual Financial Report, Fiscal Year Ended June 30, 2009
21. Independent Auditor’s Report (continued)
As discussed in Note 5, actuarial data presented for the California Employers’ Retirement Benefit Trust
Fund was derived from actuarial valuations performed by actuarial firms engaged by participating employers.
Actuarial valuations must comply with the CalPERS OPEB Assumption Model, which requires the use of
specified actuarial methods and assumptions.
As also discussed in Note 5 to the financial statements, actual contributions made by the State of California
to the Judges Retirement Fund were significantly less than the actuarially determined annual required
contribution. State of California contributions were used to fund benefit payments of the current period.
As such, the Judges Retirement Fund does not retain the accumulated contributions of active members.
Management and legal counsel believe the State of California is legally required to provide contributions
to fund benefits when due.
The California Employers’ Long-Term Care Fund’s net assets deficit totaled approximately $811.6 million.
As discussed in Note 9, the determination of the estimated liability for future policy benefits is very
sensitive to the underlying actuarial assumptions.
As described in Note 10, based on the most recent actuarial valuation of the Public Employees’ Retirement
Fund as of June 30, 2008, the System’s actuaries determined that, at June 30, 2008, the actuarial accrued
obligation exceeded the actuarial value of its assets by $35.1 billion. The most recent actuarial valuation
does not reflect significant fiscal year 2009 investment losses.
The Management’s Discussion and Analysis on pages 16 through 32, the Schedules of Funding Progress
and the Schedules of Employer Contributions on pages 64 through 65 are not a required part of the basic
financial statements, but are supplementary information required by accounting principles generally accepted
in the United States of America. We have applied certain limited procedures, which consisted principally of
inquiries of management regarding the methods of measurement and presentation of the required supple-
mentary information. However, we did not audit the information and express no opinion on it.
Our audit was conducted for the purpose of forming an opinion on the basic financial statements. The
supporting schedules listed in the table of contents are presented for purposes of additional analysis and
are not a required part of the basic financial statements. Such information has been subjected to auditing
procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a whole.
Certified Public Accountants
Sacramento, California
November 19, 2009
CalPERS Comprehensive Annual Financial Report, Fiscal Year Ended June 30, 2009 | Financial Section | 15
22. Management’s Discussion & Analysis
IntroductIon investment losses incurred in the 2008-09 fiscal year. As
This section presents Management’s Discussion and Analysis of June 30, 2007, the asset smoothing method set aside
of the California Public Employees’ Retirement System about 14 percent of the CalPERS fund as a “rainy day”
(CalPERS or the System) financial performance during the fund. The negative 5.1 percent return for fiscal year
fiscal year ended June 30, 2009. It is a narrative overview 2007-08 used up about 13 percent of the 14 percent “rainy
and analysis that we present in conjunction with the Chief day” fund, leaving about 1 percent. On June 15, 2009,
Executive Officer’s Letter of Transmittal, included in the the CalPERS Board of Administration adopted a modifi-
Introductory Section of this Comprehensive Annual Financial cation to the rate smoothing policy. This new policy will
Report. It should also be read in conjunction with the basic phase in the short term impact of the 2008-09 investment
financial statements of CalPERS, as presented in this report. loss over three fiscal years, beginning in the 2010-11
In addition to historical information, the Management’s fiscal year for State and Schools and in the 2011-12 fiscal
Discussion and Analysis includes certain forward-looking year for Public Agencies.
statements which involve certain risks and uncertainties. An important aspect of this proposed change in
CalPERS actual results, performance, and achievements the smoothing method is that it would prevent employer
may differ materially from the results, performance, and rates from increasing dramatically in subsequent fiscal
achievements expressed or implied in such forward-looking years were the investment markets to rebound in fiscal
statements, due to a wide range of factors, including year 2009-10 or 2010-11. To the extent CalPERS earns
changes in interest rates, changes in the securities markets, its assumed 7.75 percent investment return in the next
general economic conditions, and legislative changes, as two years, the employer rates will increase to levels one
well as other factors. might see under the current methods but two years later.
CalPERS is primarily responsible for administering It is important to note that unless the investment markets
retirement benefits, health benefits, and supplemental recover, delaying increases in contribution rates only
retirement savings plans. CalPERS comprises a total of means that more money will have to be collected in
15 funds, including four defined benefit pension funds, the future.
one other post-employment benefit fund, three defined • As of June 30, 2008, the date of the most recent actu-
contribution pension funds, four proprietary funds, and arial valuation, the PERF was funded at 86.9 percent,
three agency funds. The Public Employees’ Retirement based on the actuarial value of assets. A better measure
Fund (PERF) is the primary fund administered by CalPERS. of benefit security is the funded status on a market value
of assets basis. On that basis, as a result of the negative
FInAncIAl HIgHlIgHtS 5.1 percent investment return in 2007-08, the funded
public employees’ retirement Fund (perF) status declined from 101.2 percent at June 30, 2007, to
• The net assets of the PERF decreased by $59.0 billion, 88.7 percent at June 30, 2008. Additionally, as a result
or 24.8 percent. The decrease was primarily due to the of investment losses incurred in the 2008-09 fiscal year,
negative global equity market returns. CalPERS, as a it is likely that the funded status will decline into the
long-term investor, must view investment performance 60 percent range.
across a multi-year horizon. • The PERF paid $11.8 billion in retirement benefits to
• The PERF net rate of return on investments was 484,955 annuitants during the 2008-09 fiscal year,
negative 24.0 percent on a fair value basis, approximately compared to $10.9 billion paid to 468,898 annuitants
31.8 percentage points less than the actuarially assumed during the 2007-08 fiscal year. Benefit payments
7.75 percent investment return. increased primarily due to an increase in the number
• Through CalPERS 15 year smoothing of investment of retirees and the average benefit amount, including
returns, previous positive returns will cushion the impact cost-of-living adjustments (COLA).
of the 2008-09 fiscal year investment losses on employer • The total active and inactive membership was 1,134,397
contribution rates. However, employer contribution rates at June 30, 2009. The PERF received $3.9 billion in
established for the 2008-09 fiscal year do not include employee contributions from 821,113 active members and
16 | Financial Section | CalPERS Comprehensive Annual Financial Report, Fiscal Year Ended June 30, 2009
23. Management’s Discussion & Analysis (continued)
$6.9 billion in employer contributions from 1,569 employers • The unrestricted net assets of the CalPERS Long-Term
during the 2008-09 fiscal year, compared with Care Program amounted to a deficit of $811.6 million at
$3.5 billion and $7.2 billion in employee and employer June 30, 2009. This amounts to an average deficit of $4,918
contributions respectively, in fiscal year 2007-08. for each of the 165,023 enrollees. The Long-Term Care
• The Federal Reserve created the Term Asset-Backed Program collected $296.5 million in premiums, and the
Securities Loan Facility (TALF), to help market partici- approximate average annual premium per person was $1,797.
pants meet the credit needs of households and small The deficit of $811.6 million is an increase of $676.9 million
businesses by supporting the issuance of asset-backed from the deficit of $134.7 million of June 30, 2008. The
securities (ABS) collateralized by auto loans, student primary reasons for the increase in fund deficit were due
loans, credit card loans, equipment loans, floorplan loans, to the increase in investment losses and the increase in
insurance premium finance loans, loans guaranteed by estimated liability.
the Small Business Administration, residential mortgage
servicing advances or commercial mortgage loans. Investments
CalPERS participated in two auctions of the Federal During the 2008-09 fiscal year, the PERF net assets fell
Reserve (the Fed) TALF program. Total investments from a high of $239.5 billion to a low of $164.9 billion
purchased were $5.8 billion using $5.4 billion borrowed but rebounded to end the year at $178.9 billion. The drop
from the Fed and CalPERS contributing cash of in assets was largely felt by our global equity investments
$0.4 billion. which started the fiscal year with $122.4 billion in assets
The $5.8 billion of assets is being reported as fixed and hit a low of $58.4 billion. The 34.4 percent decrease
income investments at estimated fair value and the in global equity investments was due to stress on the global
$5.4 billion is being reported as Loans Payable – TALF financial market which dropped 51.4 percent during the
on the statement of fiduciary net assets. period of July 1, 2008 to March 9, 2009. The U.S. and
global market stress came from the failure of major banks,
Additional financial information related to the other failure of large investment firms, investors selling securities
pension funds administered by CalPERS is included in for cash and uncertainty in the global financial markets.
the Financial Analysis of CalPERS Funds section of the However, the markets rebounded as a result of a coordinated
Management’s Discussion and Analysis. global stimulus provided by governments. This rebound
is reflected by our global equity investments increasing
Health, other post-employment Benefits in value by $20.6 billion from February 28, 2009 to
& long-term care programs June 30, 2009.
• CalPERS administers the PERSCare, PERS Choice,
and PERS Select self-funded health care programs. overvIew oF tHe FInAncIAl StAtementS
Financial activity for these programs is accounted for The Management’s Discussion and Analysis provides
through the Public Employees’ System Health Care an introduction to and overview of the CalPERS basic
Fund. The CalPERS self-funded health care program financial statements, which comprise the following
earned $39.8 million from operations, and unrestricted components: Fund Financial Statements, Notes to the
net assets increased by $61.6 million to $660.2 million. Basic Financial Statements, Required Supplementary
This increase can be attributed to an increase in self- Information, and Other Supplementary Schedules.
insurance premiums and continuing strong rebates Collectively, this information presents the combined
from the pharmacy contract. net assets held in trust for pension benefits, other post-
• Contributions to the California Employers’ Retiree employment benefits, and the combined unrestricted
Benefit Trust Fund (CERBTF) were $595.6 million, net assets for each of the other funds administered by
with investment losses of $143.8 million. The net CalPERS as of June 30, 2009. It also summarizes the
asset value of the CERBTF at June 30, 2009 was combined changes in net assets held in trust for pension
$848.9 million. and other post-employment benefits, the combined
CalPERS Comprehensive Annual Financial Report, Fiscal Year Ended June 30, 2009 | Financial Section | 17
24. Management’s Discussion & Analysis (continued)
changes in unrestricted net assets, and the cash flows of CalPERS business-type activities, where fees are charged
the proprietary funds for the year then ended, along with to cover the costs of certain services, including long-term
an actuarial view on the funding status of the defined care, health care, and other benefits. A statement of net
benefit pension and other post-employment plans. The assets, a statement of revenues, expenses, and changes in
information available in each of these sections is briefly fund net assets, and a statement of cash flows are presented
summarized as follows. for the proprietary funds as of June 30, 2009, and for the
year then ended, along with comparative total information
Fund Financial Statements as of and for the year ended June 30, 2008. These financial
At June 30, 2009, financial statements are presented for the statements reflect the net assets, changes in net assets, and
two types of funds administered by CalPERS: fiduciary cash flows resulting from CalPERS business-type activities.
funds, where CalPERS acts in a fiduciary capacity as a
trustee or agent for others and is responsible for handling notes to the Basic Financial Statements
the assets placed under its control; and proprietary funds, The Notes to the Basic Financial Statements (which begin
where fees are charged for services provided and the focus on page 41) provide additional information that is essential
is on determining financial position, operating and non- to a full understanding of the information provided in the
operating income, cash flows and changes in net assets. fund financial statements. Information available in the
Fiduciary Funds — include pension trust funds, one notes to the financial statements is described below.
other post-employment defined benefit fund, and agency Note 1 — provides a general description of CalPERS, as
funds. The defined benefit plans administered by CalPERS well as a concise description of each of the funds adminis-
include the PERF, LRF, JRF, JRF II, and the CERBTF. tered by CalPERS. Information regarding employer and
The defined contribution plans administered by CalPERS member participation in the pension plans administered
include the State Peace Officers’ and Firefighters’ Defined by CalPERS is also provided.
Contribution Plan Fund (SPOFF), the Public Agency Note 2 — provides a summary of significant accounting
Deferred Compensation Program (IRC 457), and the policies, including the basis of accounting for each of the
Supplemental Contributions Program Fund (SCPF). The fund types: investment accounting policies, management’s
remaining fiduciary funds are the Old Age & Survivors’ use of estimates, and other significant accounting policies.
Insurance Revolving Fund (OASI), the Contingency Reserve Note 3 — provides information on cash and cash
Agency Fund (CRF), and the Replacement Benefit Fund equivalents.
(RBF). The fiduciary funds are used to account for resources Note 4 — describes investments, including investing
held for the benefit of CalPERS participants. A statement authority, investment risk categorizations, and additional
of fiduciary net assets and a statement of changes in information about cash, securities lending, and derivatives.
fiduciary net assets are presented for the fiduciary funds Note 5 — provides information about employer
as of and for the year ended June 30, 2009, along with contributions to the pension and other post-employment
comparative total information as of and for the year ended benefit funds administered by CalPERS.
June 30, 2008. These financial statements reflect the Note 6 — provides information on commitments.
resources available to pay benefits to retirees and other Note 7 — provides information on potential contin-
beneficiaries as of year end, as well as the changes in those gencies of CalPERS.
resources during the year. Note 8 — provides detailed information on the estimated
Proprietary Funds — include the following enterprise claims liability of the HCF.
funds: the Public Employees’ Health Care Fund (HCF), Note 9 — provides information regarding the LTCF
the Public Employees’ Contingency Reserve Fund (CRF), June 30, 2009 actuarial valuation.
the Public Employees’ Long-Term Care Fund (LTCF), Note 10 — provides information regarding the funded
and the Public Employees’ Deferred Compensation Fund status and actuarial assumptions for the PERF, LRF, JRF,
(DCF). Proprietary funds are used to account for JRF II, and CERBTF.
18 | Financial Section | CalPERS Comprehensive Annual Financial Report, Fiscal Year Ended June 30, 2009
