(The Center Square) A booming stock market propelled California’s main state retirement fund to near-record returns, but the fund is still $166 billion short on its obligations, according to the Reason Foundation. With the taxpayer-funded Legislative Analyst’s Office warning the state should be ready for a possible stock market peak and downturn as weak economic conditions persist, the 12-figure pension shortfall could widen once again – and leave taxpayers with the bill.
Amid these risks, and several high-profile mishaps by the California Public Employees’ Retirement System uncovered by The Center Square, one California assemblyman is wondering why the state is continuing with this system in the first place.
After The Center Square’s investigation found CalPERS lost 71% of its $468 million investment in a clean energy and technology private equity fund, Assemblyman Carl DeMaio, R-San Diego, a government finance expert and former San Diego city councilman, requested an investigation by the U.S. Department of Justice into the matter; DeMaio’s office reportedly is in ongoing discussions with the Department of Justice, which has confirmed receipt of the request but has previously declined comment to The Center Square on the matter.
In an interview with The Center Square,, DeMaio renewed his calls for greater transparency, more effective management and possible reform of the state’s pension system.
First, regarding CalPERS’ $282 million commitment to HongShan, a Chinese venture capital firm investigated for human rights abuses, DeMaio cautioned against future state investment in China, citing close cooperation between the Chinese Communist Party and corporations – more formally known as the nation’s military-civil fusion strategy.
“Why is CalPERS investing in the Chinese Communist Party? Let’s be very clear, this is not like it’s a private economy that they run there: the Chinese Communist Party is knee deep in almost every single investment that happens, every operation,” DeMaio said.
CalPERS’ investment in HongShan has posted a $7.7 million loss, as of the most recent filings reflecting March 31, 2025.
“High risk management with very little return — and every day that passes that there’s no return, taxpayers are responsible for the assumed rate of return every year, and it compounds,” continued DeMaio. “This is a major financial risk for taxpayers and it’s another element of mismanagement of [Gov. Gavin] Newsom and the California Democrats.”
California’s pension deficit has fluctuated in recent years, but in the historical long-term, the system has been fully funded; at the market peak before the Dotcom bubble in the late 1990s, CalPERS was able to fund 137% of promised benefits. After the Dotcom bubble burst, the pension system fell into a deficit, until the peak of the market before the late 2000s global financial crisis, at which point CalPERS was able to fund 101% of promised benefits.
Since the financial crisis — during the worst of which CalPERS was only able to fund 61% of promised benefits — the system has remained in a pension deficit.
Even with near-record returns in the past year, CalPERS was only 81% funded as of Sept. 30, 2025.
Financial experts at the state’s own Legislative Analyst’s Office warn “it now appears time to take seriously the notion that the stock market has become overheated,” suggesting it’s possible CalPERS’ “recovery” to being able to meet 81% of its obligations could be a new high water mark before a possible downturn.
CalPERS’ SEC filing for Sept. 30, 2025, shows the state held nearly $144 million worth of Strategy Inc., formerly known as MicroStrategy, at the time. Shares in Strategy, a highly leveraged, Bitcoin-related stock, have since declined from $322.21 per share on Sept. 30, to $158.24 at the close of trading on Dec. 18 — a share price decline of more than half in less than three months.
DeMaio responded by suggesting reforms are in order, such as a possible shift to more index-based, rather than actively-managed investments.
“Newsom needs to take responsibility for the state’s pension systems. He’s the governor and he wields a lot of influence on that board through his appointments and the fact that he’s the governor,” said DeMaio. “Actively managed funds, with all these consultants getting these fees, don’t seem to be performing as well as an index fund, so why don’t we save the money of all these high-priced consultants, and just go with a basic index fund?”
DeMaio even suggested that state pension reforms could go one step further by shifting to a 401(k) system, as used by most employees in the United States.
“Or, better yet, why don’t we just go to 401(k)s and let our workers have the security of knowing that the money is theirs and they get to make the decisions?” DeMaio said. “I would prefer to give our employees the security of knowing the money is in their control — I don’t trust politicians, they manipulate the investments, they mismanage the investments, and so having a 401(k) is a safer bet and it’s better for taxpayers, because once we make the contribution, we are not on the hook to bail out government employees’ retirements.”
Under the California Supreme Court’s rulings, the so-called “California Rule” prevents the reduction or impairment of vested pension and retirement benefits once they have been vested, making the state pension fund’s deficit ultimately taxpayers’ responsibility.
CalPERS declined comment.
