Last year, 24,558 California public employees retired and this year the number is sure to be greater. With more and more employees retiring in California every year and just under 500,000 retired employees currently receiving monthly allowances, recent questions over the financial stability of the fund which manages these pensions, California Public Employees’ Retirement System or CalPERS, has led to trepidation.

In a comprehensive study released by the Milken Institute this month authors Perry Wong and I-Ling Shen concluded that, “California simply lacks the fiscal capacity to guarantee public-pension payments, particularly given the wave of state employees set to retire in future years.” According to the authors, the only sustainable solution appears to be, “concurrently raising retirement age and increasing employee contributions.” The Milken Institute’s report will find no objections from the governor’s desk.

Although Governor Arnold Schwarzenegger has been battling to keep CalPERS out of the recently drafted 2010-2011 state budget, California will contribute 3.9 billion dollars into the fund over the course of the next physical year. Schwarzenegger has been at odds with CalPERS for years in his quest to reduce government overhead. His economic advisor, David Crane, has called CalPERS willingness to be forthcoming with their financial records a, “flagrant case of nondisclosure.”

CalPERS has not taken this criticism lying down. Earlier this year, a report compiled by the Stanford Institute for Economic Policy Research stated that the fund was facing a109.7 billion dollar deficit and should expect future financial windfalls of up to half a trillion dollars.

In response, CalPERS issued a statement which stated that the Stanford University, “research relies on outdated data and methodologies out of sync with governmental accounting rules.” Going on to state, “CalPERS assets are valued at $206 billion – a gain of more than $45 billion since the market downturn.”

Dr. Anthony Lima of the CSU East Bay Economics Department is not so optimistic. “CalPERS is being run by clowns,” said Lima who believes that, “the taxpayers are on the hook,” for the bad management.

Lima sited the lawsuit filed by the California Attorney General in May against two CalPERS executives as proof of the fund’s misdoings.

Executives Fred Buenrostro and Leon Shahinian have been accused of accepting gifts which according to The Wall Street Journal included trips on private jets and parties in Lake Tahoe and at the Academy Awards in return for secured investments in a number of large corporations. This type of scandal, known as “pay for play,” is especially alarming because CalPERS derives most of its general funds from an investment portfolio which is reported to top 204.9 billion dollars as of August.

Therefore, retirement and health benefits of over 1.6 million California employees are tied into the volatility of the stock market. Dr. Lima, who has also invested in the Teachers Insurance and Annuity Association – College Retirement Equities Fund (TIAA-CREF) which he feels is better managed, does not believe that employees should be forced to contribute to a system which appears to be failing, stating “they’re going to have to give employees a choice.”

There are signs that CalPERS is attempting to clean house. Earlier this month the pension fund cut ties with the Pacific Corporation which managed over a billion dollars worth of its investments. Although no official explanation has been given, many believe that the separation was brought on because the Pacific Corporation has been financially linked to Alfred Villalobos, a Nevada based business man accused of bribing CalPERS officials in the “pay to play” scandal.

Retired CSUEB history professor Dr. Henry Reichman is not overtly worried about CalPERS, pointing out that local city and county pension funds will fold long before those of the state. “The claim that the state’s economic problems are due to public employee pensions are simply not true,” said Reichman. He went on to assert that all Californians are interconnected in the financial stability of the state, “if CalPERS fails we are in more trouble than just CalPERS failing.”