If you live or work in California, you’ve probably heard of the California Public Employees Retirement System, known as ‘CalPERS’. It is the largest public pension fund in the U.S. with combined assets of approximately $307 billion.1 It serves nearly 2 million ‘members’, mostly current or former employees of the State of California.2
This retirement system was created by California law back in 1932, arguably the worst point in the Great Depression following the stock market Crash of 1929. People were scared for their financial future so this law, which bolstered retirement benefits for public sector employees, alleviated some of those fears.
The system is still in force today and run by approximately 2,872 employees.3 There are a number of CalPERS careers available for the right applicants.
Beginning CalPERS Careers
CalPERS has a different application process than most companies (especially most private sector financial companies). For some people it can be confusing but it’s actually not that bad.
There are only two steps, and if you get through them both you will be contacted by a CalPERS representative to continue with the interview process.
Step One: Take the Exam
The first thing an applicant needs to is to log on to calpers.ca.gov and type ‘exams’ in the search box. Here you will see a number of different areas of the system. The exams cover areas related to the position you’re applying for. For example, if you are trying to land a job as an actuary, there will be a specific exam just for aspiring actuaries.
The exams are taken right on the website and the results come immediately upon completion. CalPERS jobs are very competitive, and they look for applicants that score in the top 3 overall on each exam.4
Step Two: Apply for the Job
Even if you passed, but didn’t rank in the Top 3, you can move on to Step Two, the application. After searching for available job openings on the CalPERS site, complete the application form with the required information and hope you hear from them. Try using the services of an executive recruiter if you aren’t making any progress on your own.
How Does CalPERS Work?
Member’s retirement benefits are covered by investment returns, employer contributions and member contributions.
As far as weightings goes, returns account for 65% of funding while employer and member contributions account for 22% and 13%, respectively.5 Here is a brief description of how each component works.
Investment returns are the most crucial source considering they account for almost two-thirds of funding needs.
CalPERS manages this massive investment portfolio to help cover promised retirement benefits of the millions of California public sector workers and their families.
But there are plenty of future liabilities, $164 billion by conservative estimates.6 And if we hit a deflationary environment, these liabilities will be understated.
This insecurity can also be seen by CalPERS managers as they recently ratcheted down their rate of return assumptions to 7% from 7.5%. This move was not surprising considering investment returns aren’t near that level. In fiscal 2014-15, the investment portfolio returned just 2.4% and last year it was a paltry 0.61%.7
Also, there is a question about the liquidity of many pension funds if they are forced to raise cash. Most of the illiquid investments (private placements, real estate development projects, private equity interests, etc.) are long term in nature.
But the CalPERS investment team is up to the task. Heading the fund is Chief Investment Officer John Eliodid, who was ranked #13 in CIO Magazine’s list of Top 100 managers globally. Assisting the in-house staff at CalPERS are investment consulting firms such as Towers Watson and Mercer who provide investment advice and vet performance record of prospective managers tracking measures. They help keep the pension funds abreast of the newest strategies and hottest fund managers.
The next funding source comes from the employers (22%)-the local municipalities and cities themselves. Pensions are a “recruitment and retention tool” for these local entities and part of employee’s compensation package.
The cities make these contributions to CalPERS from taxpayers who essentially have a ‘contract’ with the city employees for their services.
If the city is unable to make its payment to CalPERS, it violates a contract with the system. The city’s options aren’t pleasant if they want to make the payments-raise taxes or initiate asset sales. If these don’t materialize and the city fails to make their contribution, CalPERS can start cutting benefits to that entity’s beneficiaries-retirees.
This recently occurred in Loyalton, California, where some former city employees saw a 60% reduction in their monthly pension checks.8 This is an unfortunate occurrence and hopefully an anomaly for Californians.
The final funding source is the member’s contributions (13%). This is pretty stable coming directly out of the employee’s paychecks, as long as there aren’t mass layoffs. Employees must put in at least 5 years of service to be eligible for a pension (another way of saying this is they must have contributed to the plan for five years) and be 50 years of age when they retire.
You can expect both the employer and employee contribution levels to increase over time. When the CalPERS board voted to lower the discount rate, that meant that both employer and employee contributions will have to increase going forward to make up for the shortfall. Others fear that the incoming Trump administration could tighten federal funding-again increasing required contributions.
Recent CalPERS News
CalPERS made headlines when they publicly announced they are scaling back their allocation to alternative investments like hedge funds. This is in response to fee reduction initiatives. Still, we are talking about a rather small overall percentage of the portfolio.
There could be a number of positions opening up at CalPERS given the recent plan to manage roughly $30 billion in-house.9
This is yet another step to keeping cost and complexity in check. Managing $30 billion dollars will require a good deal of hiring in the investment division. And we could easily see further increases in assets run in-house.
Working at CalPERS
When talking about compensation, you must remember that CalPERS is a public institution, so you aren’t going to get really high salaries unless you are in the upper management. You need to assess the total compensation package, including an on-site gym, health care insurance and continuing education opportunities.
CalPERS employees also enjoy a defined benefit pension plan and, of course, living in sunny California.10 Incidentally, there are also flex jobs located nationwide in case the organization sounds intriguing but you don’t live near California. Landing a job at CalPERS isn’t going to be easy, but if you can get in you’ll enjoy significant job security and benefits.
CalPERS Job Openings
There are currently a number of openings for a wide variety of finance positions at CalPERS. These range from pension actuary and accountant to program auditor and investment officer.
CalPERS Investment Officer I
One open position at CalPERS is Investment Officer, similar to an Investment Analyst. This investment management position at CalPERS which has three levels- I, II and III.
The mean monthly salary for Level I Officer is $4,827 (roughly $58,000 annually) but can vary for each employee.11 Compensation increases with seniority-Investment Officer II earns $84,962 on average while Investment Officer III makes $106,002 according to employee responses on Glassdoor.12
After this level, you may be in line for a portfolio manager spot, where pay increases substantially. For example, an infrastructure portfolio manager reportedly earns about $178,564 while a senior portfolio manager earns an impressive $254,229.13 But let’s focus on getting a foot in the door at CalPERS and look at the hiring process for Investment Officer I:
The requirements to become an Investment Officer include six months of professional experience performing investment analysis for a public agency or private institution such as insurance company, pension fund, endowment fund, investment firm, real estate development firm or any company with a major investment program.14
Or, completion of a student internship involving at least 500 hours of investment analysis work involving the management of large equity, fixed income, real estate and/or private equity portfolio. So if you are still in undergrad, try and intern at your university’s endowment fund. This will allow you to gain some industry experience and enhance your resume.15
Or, a Master’s degree with major emphasis in business, economics, finance or mathematics.16 So, an online Masters in Economics, MBA or Masters in Finance are great options if you’re looking to land this Calpers job. In addition, a Master’s degree may be substituted for one year of required experience in one of the options for all three officer levels.17 Similar to USAA, this position gives ‘Veterans’ Preference’ so this is something to consider, if applicable. Many also pursue the CFA or CIPM designation.
Officer II and III are similar in nature but involve increasing responsibility for selecting and vetting investments and communicating with sell-side institutions for products (often syndicated deals such as IPOs) that fit CalPERS investment criteria. One of the requirements for Officer III is completion of the Chartered Financial Analyst program.
While CalPERS careers are highly competitive, they can also be very rewarding-knowing you are helping secure the retirements for those who have spent their working years serving the public well-being.