Eber: The myths of the California pension mess

The Stanford Institute for Economic Policy Research has stated CalPERS has an unfunded liability of $1.4 trillion.  CalSTRS, per the Institute, has a real unfunded liability of over $200 billion.  Both agencies have announced and started implementation of a doubling of mandatory contributions, at a minimum, over the next five years—plus the State put in several hundred million extra to CalSTRS—to keep their doors open and checks flowing.

“What should be a strong Republican issue has been greeted by a collective yawn.  The GOP mentions pension insolvency but does very little to bring attention to this matter.  Progressives seem to have bigger fish to fry (like climate change and Sanctuary Cities) they have tended to table the issue for future generations to deal with.  The closest any elected official has done to strengthen public employee pensions in California is Governor Brown who “lend/leased” 6 billion dollars to CalPERS to help keep them afloat earlier this year.”

The author of this article, Rich Eber, attended a recent seminar by this group lead by Democrat former Assemblyman Joe Nation.  This article explains a lot about the situation we are facing and the reality that CalPERS is already in the process of cutting back retirement checks, based on technicalities.

Calpers headquarters is seen in Sacramento, California, October 21, 2009. REUTERS/Max Whittaker

The myths of the California pension mess By Richard Eber

Richard Eber, California Political News and Views,  9/25/17

As the current public employee pension crisis grows in California and throughout the rest of the country, there doesn’t seem to be a major outcry to bring solvency to these ticking time bombs. In the Golden State it is estimated that it would take over one trillion dollars to pay all of the unfunded obligations for past and present workers.

This total is increasing each day much like the National Debt.

What should be a strong Republican issue has been greeted by a collective yawn.  The GOP mentions pension insolvency but does very little to bring attention to this matter.  Progressives seem to have bigger fish to fry (like climate change and Sanctuary Cities) they have tended to table the issue for future generations to deal with.  The closest any elected official has done to strengthen public employee pensions in California is Governor Brown who “lend/leased” 6 billion dollars to CalPERS to help keep them afloat earlier this year.

At the forefront of trying to reform public employee retirement have been former Assemblyman Joe Nation, who is a Professor with Stanford Institute For Economic Policy Research  (SIERPR) and Chuck Reed, who enacted painful pension reform when he was Mayor of San Jose. Both of these individuals consider themselves to be solid Democrats yet have received little support for what they are doing within the party.

Last week, Nation put on a symposium at Stanford intended to educate the press on California’s pension crisis. Despite the quality of the event, only six newspapers, two blogs, and one TV Station thought the event was important enough to spend the day at Stanford.  Most present were employees of public agencies that are most affected by CalPERS problems. Also in attendance were prominent experts in this field from throughout the Country.

Those who came were treated to presentations from a long list of participants including Nation, and Reed, who is trying to put together a pension reform ballot measure on the ballot in 2018. Also participating were a distinguished group of economists. CalPERS was also well represented by their Chief Actuary Scott Terando and Richard Costigan, who serves on their Administrative Board.

By the end of the day it had become abundantly clear CalPERS is on the ropes and the misnomers of pension reform need to be addressed now.  Kicking the can down the road and delaying action will only make things worse.  But this is exactly what the Progressives, who dominate California’s government, apparently plan to do

Below are the 10 myths that guide them and where they stand versus reality.

  1. There is not a serious pension crisis in California. There is plenty of money to pay off obligations to workers. The state will never go broke in paying off its obligations because it has economic resources that will never allow bankruptcy to happen. This is nonsense.  If present policy continues,  providing government services today will need to be used for paying obligations for those no longer on the payroll. Also, it is to be remembered that unlike the Federal Government, the state does not print their own money.
  1. With an approximately 1 trillion plus in pension obligations to public employees that are not paid for, California is in the worse shape of any state in the Union with their present holdings of approximately 65% of the funds needed to be solvent. Not true.  Actually California is in the middle of the pack as 27th out of 50 States in percentages of assets. This fall begun in 1999 when the legislature passed AB400 giving more benefits to public employees. At that time the State was #1 in assets. Poor investment decisions and a couple of recessions have changed things since then.
  1. The California Rule set forth by the California Supreme Court that protects the benefits of past and present public employees is a fair way to protect the interests of workers, elected officials and tax payers? This system which says that whatever benefit package that was in effect at time of hiring and during employment cannot be changed. To put it another way, tax payers are responsible for any overages. And are left holding the bag when trouble ensues.
  1. The two cases before the California Supreme Court that test the California Rule can be overturned by voters regardless of what rulings are made. Even if the courts overturn a couple cases involving pension spiking and purchasing extra benefits, it will not deal with the fundamental problem of lack of funds to pay for present workers and retirees. Even then if voters can reform pensions of public employees, it is likely litigation between the State and various unions will reverse the people’s will.
  1. Public employee unions are principally responsible for the current pension deficit by negotiating benefits that have gone beyond what can be afforded by tax payer contributions. This is not true. Unions cannot be blamed for representing their workers. Those who negotiate labor contracts, almost all have serious conflicts of interests. They are largely responsible for the current dismal financial picture CalPERS faces.
  1. Jerry Brown’s transfer of 6 billion dollars from funds that had not been spent by the State to prop up the reserves of CalPERS was a bad investment. Actually, it was a good move on paper because he likely saved the state at least 11 billion dollars of interest in the next quarter century. While the money is supposed to be paid back in 12 years, it is possible another accounting adjustment will be made to change this. Whether Brown’s actions, which took money allocated for other programs such as road repairs and education, was the right thing to do, is another matter.
  1. Since it was it was somewhat reorganized after experiencing  heavy losses, CalPERS is proactive in making good investment decisions compared with what one might find in private enterprise.   Such a notion is nonsense. CalPERS and their sister agency CalSTRS have taken the Don’t shoot me, I’m only the piano player”  After they failed to raise the value of their portfolio during a 6 year period from 2007 to 2013 they are most concerned with “transparency” of the process to guarantee no wrong doing. In private enterprise such failure would mean the whole bunch of them would be fired.  Not so in civil service.
  1. Defined contributions to public employee pension plans where the public agencies and their workers put in a set amount each year is fair to both parties. Each year employees and employers put money in the kitty based upon collective bargaining and what CalPERS asks for. Should investment returns falter, if retirees live longer, or not enough money was collected, tax payers end up picking up the tab.
  1. Public and private pension plans with defined payments paid to retirees are playing by the same rules in providing suitable economic resources to cover the costs of their plans. Baloney! Stringent regulations in Private enterprise through ERISA, guide pension funds concerning employer contributions. Such laws don’t apply for government pension programs. The resulting “I’d gladly pay you Tuesday for a hamburger today” approach, simply does not work. Public employee plans in general don’t take in enough revenue to pay for themselves.
  1. All retirees state workers, teachers, and those coming from city and county agencies all have the same rights in how they are treated by state retirement funds Not State workers have more protection than county and city retirees. Teachers have their pensions guaranteed. There are a few cases where CalPERS denied benefits to local agencies that either defaulted or went out of business. In general, public employee pensions are very safe,

Bonus Myth: Conflicts of interest in determining public employee benefits do not exist because of regulations which make the system transparent for all to see. Where do we start with this one? The Judges on the California Supreme Court that decide pension cases?  The politicians who negotiated labor contracts with government workers? Union leaders who sit on State pension Boards?  The workers themselves?   These groups have severe conflicts of interest in dealing with a system they all materially benefit from

This transparency talk is a total sham.

Other than limited opportunities at the ballot box, tax payers have little recourse in dealing with California’s spiraling pension crisis.

About Stephen Frank

Stephen Frank is the publisher and editor of California Political News and Views. He speaks all over California and appears as a guest on several radio shows each week. He has also served as a guest host on radio talk shows. He is a fulltime political consultant.