Bitcoin can save California’s largest pension fund.

This is an opinion piece by Dom Bei, who is a former president of the Santa Monica Firefighters Union.

The author has over a decade of experience as an executive board member for their local firefighter’s union and sat on their municipality’s pension advisory board. They have written this article to discuss pension issues, which have been in the media for decades. They believe that this issue is complex, but it is significant in the global financial system and the lives of many workers.

The author suggests that the largest pension fund in the United States, the California Public Employees’ Retirement System (CalPERS), could be rescued by Bitcoin. They propose incorporating bitcoin into the California Employers Pension Prefunding Trust Fund (CEPPT) or creating a “Bitcoin Municipal Employers Pension Prefunding Trust (MEPPT)” to escape unfunded liability payments.

• Expect mundane outcomes initially as AI and Blockchain merge.
• Banks in the Metaverse.
• Bitcoin reacts calmly to Binance accusations.

The author explains that unlike other assets, Bitcoin has no risk of liquidation. They suggest that pension funds can use bitcoin to bolster their returns without making risky bets, perpetuating the culture of moral hazard and socialized losses.

The CalPERS Crisis

The article discusses CalPERS, which is the largest “defined benefit” public pension in the United States, with a total value of roughly $440 billion dollars as of 2022. The article explains that CalPERS’ main priority is to grow and maintain its fund to deliver on its commitments to pay retirees, which includes public employees, municipalities, and public agencies in California.

The article notes that CalPERS currently has a funded status of 72%, which is below the traditionally accepted “healthy” funded status of at least 80%. This means that 28% of its overall liabilities are unfunded. California has a larger unfunded pension liability than any other state in the nation, with unfunded pension liabilities nationwide climbing to $8.28 trillion, according to a report released by the American Legislative Exchange Council (ALEC).

Despite major pension reform in 2013, which extended the retirement age of new employees and increased employee contributions into the fund, and a massive injection of liquidity in recent years, CalPERS’ funded status has not improved. The article notes that all eyes are on the funded status and unfunded liability report that should arrive in June 2023.

Unfunded Liabilities And Their Impacts

An unfunded liability is simply the amount of money owed to keep a pension fund on track to meet its obligations. Unfunded liabilities result in additional payments made by municipalities and public agencies, on top of the regular annual payments to the pension fund. Pensions are complex and have many variables that affect them, such as the number of active employees and retirees, predicted life expectancy of retirees, cost-of-living adjustments, portfolio performance, and more.

Unfunded liabilities cannot be ignored and force CalPERS to request extra payments from municipalities and public agencies, on top of the regular payments made by those cities and agencies, as well as the contributions made by employees into the pension fund.

These extra payments can be a significant burden on cities. If they are not paid, they accrue interest and become looming financial obligations. A dedicated public workforce is essential for the citizens of a city and visitors who receive city services. In the field of emergency services, the level of service provided can make a difference between life and death.

When municipalities have to pay unfunded liabilities on top of their normal pension payments, they must either be extremely well off or cut services from other areas to make the payments.

Fortunately, there is an opportunity to avoid this dilemma.

How Bitcoin Can Fill The Unfunded Gap

Bitcoin is an innovation with increasing global adoption, use, and value. Despite its volatility, its network and community trajectory has outpaced many comparable technological revolutions in their early years. Additionally, as an asset, its long-term performance trends upward.

CalPERS could add bitcoin to its balance sheets, but an easier course of action would be to utilize a tool it already created: the CEPPT.

The CEPPT is a separate trust fund dedicated to prefunding employer contributions to defined benefit pension systems for eligible California public agencies. Implementing a Bitcoin MEPPT is a better course of action than the non-Bitcoin CEPPT. The long-term returns of Bitcoin represent the only asset class that can fill the holes in the CalPERS pension fund.

Bitcoin CEPPT Or MEPPT: Easy First Step And Added Benefits

With a Bitcoin CEPPT or MEPPT, public employers, cities, employees, and CalPERS can safely enter the world of Bitcoin without moving funds out of its portfolio. A Bitcoin CEPPT run by the state could free California from its value-based investment dichotomy. The largest public fund investor of fossil fuels in the U.S. is CalPERS. It truly has one foot into the future while propping up the past.

The article discusses the potential benefits of a Bitcoin Clean Energy Production and Consumption Taskforce (CEPPT) for California’s renewable energy goals. The structure of such a taskforce could allow Bitcoin miners to use abundant and steady renewable energy sources, making the mining process even more environmentally friendly. Bitcoin mining often captures wasted or renewable energy and can be used as a grid-balancing partner during times when power is shut off to households due to red-flag warnings or fire-weather days. Bitcoin could be a better partner for California’s renewable energy goals than the big oil and fossil fuel industry, which currently captures a significant portion of CalPERS invested money. Other states facing similar issues could also benefit from a Bitcoin CEPPT or MEPPT, and a tool called “Nakamoto Portfolio” allows funds to explore different configurations of how Bitcoin could positively affect their portfolios. Despite its volatility, many financial institutions predict the long-term value of Bitcoin will continue to rise, with some even calling for it to reach $1 million per coin by 2038. The article argues that a Bitcoin CEPPT could be a responsible way for CalPERS to enter into the world of Bitcoin and support its core values while providing options for investing in a promising future. The author is willing to work with unions, cities, and elected officials to explore this option at no cost.