California Public Employees’ Retirement System (CalPERS)

CalPERS focuses on investments to make most of its revenue. The fund has been criticized for “incredibly concerning” investments which include shares worth approximately $3.1 billion in around 300 Chinese companies, some of which include military contractors such as China Shipbuilding Industry Corporation and companies blacklisted by the United States for creating surveillance and internment camps in Xinjiang province, including Hikvision. ⁴

The agency has also been criticized for its mandatory payment plans aimed at employers and client agencies, which have increased The plans were one of the reasons that multiple California cities have been in bankruptcy cases. ⁵ CalPERS has used state laws it implemented with the help of politically powerful government worker unions to ensure a city is unable to cancel payments to CalPERS if it is going through bankruptcy and to place a lien on property in a city if said city choses to use a different fund to provide retirement benefits. ⁵

Background

The California Public Employees’ Retirement System is a California state-government agency. As of 2026, it managed the largest government worker pension fund in the United States, serving just under two million retired members. It provides approximately 1.5 million members with health benefits. ¹ The agency pays for its member benefits through a mixture of employer and employee contributions but acquires most its funding through its investments. ⁶

CalPERS was founded in 1932 as “the State Employees’ Retirement System (SERS)” but changed its name to “the California Public Employees’ Retirement System” in 1992 to differentiate itself from retirement systems in other states. ¹

Investment Portfolio

According to the the California Public Employees’ Retirement System’s 2024 to 2025 report, the fund closed the year with $563 billion in assets, an 11.1 percent increase over the previous year. The fund’s rate of return was 11.6 percent, compared to an expected rate of 6.8 percent. ²

CalPERS ended 2025 with a 79 percent funded status. This meant that only 79 percent of its promised pension outlays to 2.4 million California workers were backed by assets, while the agency had $179 billion in unfunded pension liabilities. In the previous year, the CalPERS funded status was under 74 percent. ²

That year, CalPERS paid out $34.6 billion in pension benefits to more than 825,000 retirees and beneficiaries. ²

CalPERS and its CEO, Marcie Frost, have been criticized for having low investment returns. CalPERS has historically underperformed compared to the S&P 500 market index, which represents the general stock market. From 2016 to 2025, the return of CalPERS only beat the S&P 500 once. ^{7 8 9}

CalPERS and Frost have also been criticized for their alleged efforts to obscure the fund’s low investment returns. NBC News has described CalPERS as “plagued by secrecy and underperformance.” ¹⁰ In February 2026, Cal Matters reported that Frost used misleading private equity valuations to artificially prop up CalPERS returns; for instance, when the stock market falls, private equity firms often have a lag period before their valuation falls, and Frost has used this lag to claim that CalPERS has outperformed the market. At other times, Frost has compared the returns of CalPERS favorably to returns of private market funds while ignoring less-favorable comparisons to the S&P 500, which better represents the general stock market. ⁷

In May 2026, the Retired Public Employees’ Association of California (RPEA) released a highly critical report of CalPERS conducted by independent auditors. The report found that CalPERS’ returns on investment put the fund in the bottom 15 percent of all 230 U.S. public pension funds for five- and 10-year periods. Despite this, CalPERS executive staff receive what the report contended was “excess compensation,” including four executives making more than $1 million per year, another four making more than $900,000 annually, and 26 earning between $500,000 and $900,000. Margaret Brown, the president of RPEA, summarized: “Between chronic underperformance, potentially hidden costs and fees, we are extremely concerned by the risks in the fund.” ^{11 10}

ESG-Related Investing

The California Public Employees’ Retirement System’s main focus is managing pension and health benefits for public workers, retirees, and their families, but to fund those benefits, CalPERS also engages in left-of-center-activist environmental social, and governance (ESG)-related investing and “sustainable investment.” ¹ CalPERS managed $372.6 billion in assets as of 2019, with more than 1,300 school districts and 1,500 public agencies in California participating in the system, ⁶ and attributes ESG investments as a core theme across its investment portfolio. ³

ESG Institutional Connections

CalPERS launched the Sustainable Investment Research Initiative (SIRI) in 2013, intending to improve the agency’s understanding of “sustainability factors and the impact they may have on companies, markets, and investment intermediaries.” This led to CalPERS adopting a heavier ESG approach as a paper selected and debated at the SIRI Symposium in 2013 claimed that “successful corporate social responsibility (CSR) engagements give rise to a positive one-year abnormal return of 4 4 percent,” and that positive returns are more noticeable with “engagements on the themes of corporate governance and climate change.” ³

CalPERS helped found the nonprofit Ceres in 1989 and partnered with the organization to launch the Investor Network on Climate Risk (INCR) in 2003. The agency also vowed to “reduce energy consumption” in its Real Estate unit’s core portfolio by “20 percent over a five-year period,” and created the Environmental Technology Investment Program in 2004.  ³

ESG Activities

CalPERS also revised its Forestland Policy to include ESG principles in 2007, created its Sustainable Operations Program in 2009, assisted in developing the Mercer Report “Climate Change Scenarios– Implications for Strategic Asset Allocation” in 2010, and approved an implementation plan for its Total Fund ESG Integration in 2012.  ³

CalPERS engages in shareholder activism by using proxy voting. According to its 2014 “Towards Sustainable Investment & Operations” report, CalPERS used proxy voting to change the inner workings of companies such as Walmart, Apple, JPMorgan, Nabors Industries, Chesapeake Energy, BHP Billiton, and Hewlett-Packard.  ³

CalPERS is also actively engaging in the Carbon Asset Risk Initiative, which in 2014 called on “45 major oil, gas, coal, and electric power companies to stress-test financial risks that climate change poses to corporate business plans.” The agency then requested that these companies review how they would manage these risks, and to reduce greenhouse gas emissions by 80 percent by 2050. Companies contacted include BHP Billiton, Rio Tinto, Vale, American Electric Power, Royal Dutch Shell, and ExxonMobil.  ³

CalPERS highlighted in 2019 that it would focus highly on ESG-related issues when using proxy voting, naming climate change, corporate board diversity, and the compensation of top executives as its main focus issues. Both BP and Shell committed to reducing carbon emissions, with Shell announcing that the reductions target would be linked to compensation of its top 150 executives. Another part of the agency’s 2019 ESG plan involves investment officials pushing for more diverse corporate boards, including an increase in female members. ¹²

Climate Action Plan

In 2023, CalPERS announced the start of its $100 billion Climate Action Plan, constituting more than a doubling of its allocation to climate-related investments. The plan initiated investments into weather-dependent energy, CO2 capture technology, water management systems, disaster risk reduction, and agricultural adaptations. ¹³

The CalPERS Climate Action Plan has been frequently criticized by California Common Good (CCG), a left-of-center corporate watchdog, for being insufficiently environmentalist. For instance, in March 2025, CalPERS responded to a critique from CCG that the pension fund was allegedly misleading its members with its claims of committing to fighting climate change because of its investments in seven oil and gas companies. CalPERS argued that these investments constituted a small part of the investment plan and were oriented toward low-carbon initiatives from these companies. ^{14 15}

In March 2026, CCG released an updated report on the CalPERS Climate Action Plan that reiterated many of its criticisms. The report identified 12 oil and gas companies in which CalPERS has invested, including BP, Exxon Mobil, and the state-run oil companies of Saudi Arabia and Brazil. The Climate Action Plan also invested in 52 of the 100 largest polluters in the United States, including Berkshire Hathaway and Vistra Corp. CCG also criticized CalPERS for having a lack of transparency in its investment process, and demanded a full public accounting of the Climate Action Plan’s portfolio. ¹⁵

Funding

Due to the fears of the COVID-19 pandemic and the related drop in the stock market, funding for the California Public Employees’ Retirement System dropped significantly in February 2020. In January of the same year, the agency’s investment portfolio managed to reach a $400 billion milestone before dropping down to $385 billion at the end of February. ¹⁶ Since then, the agency has lost even more of its investment value, which has fallen by an approximate total of $69 billion between mid-February and early April of 2020. Even at its peak of $404 billion in investment value, CalPERS was still short of the amount it is required to pay for all the benefits it will owe. ¹⁷

CalPERS, which before the recession in October 2007 hit a record high value for the time of $260 billion, saw a large drop when the recession became worse, and its value hit a record low of $165 billion in 2009. ¹⁶

According to the CalPERS website, for every dollar that the agency pays for in pensions; 58 cents comes from investment earnings, 29 cents from employer contributions, and 13 cents from employee contributions. ¹⁸ Despite this, and despite a large amount of money the agency has in terms of asset value, CalPERS is approximately 70 percent funded, meaning that it only has enough money to pay for around 70 percent of its short-term and long-term liabilities. ¹⁶

CalPERS’ target for its annual return-on-investment percentage in 2019 was seven percent, however; it managed to achieve 6.7 percent, which was down from the 8.6 percent return it achieved in 2018. CalPERS also has private equity, which is an investment class that includes funds and investors that directly invest in private companies. The agency’s private equity returns in 2019 amounted to 7.7 percent, a huge drop from 2018, which saw a return of 16.1 percent. ¹⁹

Controversies

Impact on Public Services

The California Public Employees’ Retirement System has received criticism for its mandatory payment plans aimed at employers and client agencies. Due to pension promises being virtually impossible to change or cut completely once promised, and the fact that CalPERS is a government agency, any shortfall the agency receives will be paid by the state or local governments through taxpayer dollars. ²⁰

The agency is receiving increasingly large amounts of money from local governments around California. In the 2015 to 2016 financial year, the agency received $330,858 from the Stanislaus Consolidated Fire Protection District. CalPERS took the money from the district to help fund its pension benefits for police officers and firefighters, who have the most generous benefits and incur the highest costs for employers. ²¹

CalPERS then received $397,981 in the 2016 to 2017 financial year, $517,834 in 2017 to 2018, and budgeted for $842,404 in 2019 to 2020. Due to the increasing costs, the district was forced to cut staff and operations as smaller communities in the surrounding area could not continue to pay for its services, leading to a reduction in income. Despite the loss of income, the retirement costs continued to rise, reaching 46 percent of the district’s payroll in 2019.  ²¹

The Stanislaus Consolidated Fire Protection District’s chief closed a fire station in October 2019 due to an operational deficit of $925,000 in the district’s budget. Despite this, CalPERS announced that its mandatory payment will exceed $1 million by 2021 to 2022.  ²¹

Municipal Bankruptcies

CalPERS also received criticism for its pension plans from other cities in 2015 after the agency spent millions of dollars defending itself in bankruptcy cases of two California cities. One case involved the city of Stockton, which received the approval of a recovery plan from U.S. Bankruptcy Court Judge Christopher M. Klein who labeled CalPERS as a “bully” for wrongly insisting that Stockton had no other choice but to pay workers the full pensions they were promised. ⁵ San Bernardino was the second bankruptcy case, which faced legal challenges from two companies that were owed $50 million by the city. The companies asserted that it was illegal for the city to pay CalPERS to fund workers’ pensions, while they received nothing. Both Stockton and San Bernardino noted that increasing payments to the agency was one of the reasons the cities were forced to file for bankruptcy.  ⁵

CalPERS, with the help of politically powerful government worker unions, had introduced two state laws that force cities to continue payments to the agency despite the financial situation the city is in. The first law ensures a city is unable to cancel payments to CalPERS if it is going through bankruptcy, and the second law allowed CalPERS to place a lien on property in a city if the said city chose to use a different fund to provide retirement benefits. In the case of Stockton, the lien would have cost the city $1.6 billion.  ⁵

CalPERS, despite local governments already struggling to pay the large mandatory fees, also changed a policy in 2018 which reduced the amount of time it would take for the recuperation of future investment losses the agency obtained, from 30 years to 20 years, meaning that the California state government, and thousands of local governments, will have to increase their mandatory payments to the agency. ²²

Investments in the People’s Republic of China

Then-Trump administration National Security Advisor Robert C. O’Brien previously called some CalPERS investment policies “incredibly concerning” in March 2020, adding that the agency is directing taxpayer money into Chinese companies that are connected to military expansion. ⁴ CalPERS holds shares worth approximately $3.1 billion in around 300 Chinese companies, some of which include military contractors such as China Shipbuilding Industry Corporation and companies blacklisted by the United States for creating surveillance and internment camps in Xinjiang province, including Hikvision.  ⁴

Then-U.S. Representative Jim Banks (R-IN) alleged that CalPERS Chief Investment Officer Yu Ben Meng should be investigated due to a “long and cozy” relationship with Beijing and his “relationship to the Chinese Communist Party and a comparison of CalPERS investments in Chinese companies” before and after his hiring in 2008. ²³

Meng worked as deputy CIO with China’s State Administration of Foreign Exchange (SAFE) for three years, which is confirmed in a 2017 article in the Chinese Communist Party-controlled media outlet People’s Daily. The article asserted that Meng was recruited to SAFE by the Thousand Talents Program which provides monetary compensation to American citizens for information. ²⁴ Meng told People’s Daily that “In a person’s life, if there is an opportunity to serve the motherland, this kind of responsibility and honor can not be matched by anything,” and added that he has a “deep attachment to the motherland.” ²⁵

Loss of Funds in ESG Investments

As of October 2025, California state records claimed that CalPERS lost roughly 71 percent of $468 million it had invested in the CalPERS Clean Energy & Technology Fund (CETF), a “clean energy and technology private equity fund” focusing on environmental, social, and governance (ESG) investments. Records show that since the $468 million was invested in 2007, as of March 2025 cash taken out and remaining investments declined to a little over $138 million (a loss of 71 percent or over $330 million). In an October 2025 interview with the Center Square, public finance expert and California Policy Center visiting fellow Marc Joffe argued the losses show “the combined dangers of private equity and ESG investment — you have a very opaque investment choice that appears to have been chosen because of its green credentials, and yet it’s now generated a huge loss for taxpayers and retirees…CalPERS would be better off focusing on a diverse portfolio of publicly-traded equities to get better long-term returns.” ²⁶

Transparency Concerns

In February 2026, the Private Equity Sunshine Act was introduced in the California Senate with support from major labor unions and labor coalitions. The bill would increase public financial and investment reporting requirements for state funds, including CalPERS. According to media outlet Cal Matters, CalPERS “mounted an aggressive misinformation campaign to kill the bill,” including claiming that the bill would cause losses for the fund Although, as of May 2026, the bill was still in committee, it had stalled. ⁷

Corruption

In 2020, CalPERS chief investment officer Ben Meng resigned after filing incomplete disclosures and failing to comply with conflict-of-interest rules. Subsequently, one CalPERS board member called for a pause in all new private equity investments until a full investigation into Meng could be completed. ²⁷

In 2016, the U.S. Attorney’s Office of the Northern District of California sentenced Fred Buenrostro, the former CEO of CalPERS, for corruption and fraud charges. Buenrostro was found to have received benefits from a placement agent (an agent who assists funds in acquiring capital) and subsequently adjusted CalPERS investment policy. ²⁸

Long-Term Care Insurance

In March 2023, CalPERS agreed to pay $800 million to settle claims that it misled retirees invested in its long-term care insurance plans. When the plans were started in the 1990s, CalPERS promised recipients that rates would not rise, but in 2012, rates increased by 85 percent. ²⁹

Diversity, Equity, and Inclusion

In 2007, the California Public Employees’ Retirement System became the first California State agency to implement a “Diversity & Inclusion” program. In 2021, the group developed a diversity, equity, and inclusion (DEI) framework to guide its internal management, investment priorities, and impact. Since then, CalPERS has published annual reports on the group’s progress in its commitment to DEI principles. ³⁰

CalPERS’ 2024 to 2025 Commitment to Diversity, Equity & Inclusion Report tracked demographics of CalPERS’ employees, including their race, gender, disability status, and veteran status. The report also gave the results of its annual survey of employees with their satisfaction that the organization has embraced DEI principles, with 75 percent of employees responding favorably in 2024. The report describes various other practices of the company to promote DEI, including an annual Diversity and Inclusion Day for employees, a program for developing racial minority leaders, and “health equity” promotion measures. ³¹

CalPERS maintains a Diversity and Inclusion Group to “educate” employees through monthly meetings on DEI-related topics, including Pride Month and Mental Health Awareness Day. ³¹

Leadership

As of May 2026, Marcie Frost was the chief executive officer (CEO) of the California Public Employees’ Retirement System, a position she had held since October 2016. Throughout her term, the CalPERS funded status has increased from 68.3 percent to 79 percent. At the time, Frost was a member of the steering committee for the Council for Inclusive Capitalism at the Vatican and serves on the United Nations Global Investors for Sustainable Development Alliance. Frost previously worked as the executive director of Washington State’s Department of Retirement Systems and on the Washington State Investment Board. ³²