Under the new budget proposed by Gov. Brown, the annual state payment to CalPERS drops from $3.5 billion this year to $3.1 billion in the new fiscal year.
The payment falls, at a time most pension costs are rising, because a $404 million payment to CalPERS for California State University pensions is shifted from the state budget to CSU.
The change is part of a proposal that could freeze state support for CSU and UC pensions. The nonpartisan Legislative Analyst’s Office said CSU would be faced with a potential burden “out of proportion” to its limited ability to control future pension costs.
“For this reason, we recommend that the Legislature reject the governor’s approach,” the analyst said in a report this month.
The governor’s plan to shift some of the unpredictable future pension risk out of the state budget, where the general fund has been running huge deficits for a decade, could play a role in the debate over public pensions.
Next month CalPERS will look again at changing its earnings forecast. The board rejected actuarial advice last year to lower the forecast from 7.75 percent to 7.5 percent, which would have increased the state CalPERS payment by an estimated $400 million.
An increase from a lower earnings forecast and a decrease from the CSU accounting shift could offset each other. Barring other changes, the state CalPERS payment might remain roughly the same as this year.
The heart of the pension debate is whether soaring pension costs, driven by overly generous benefits and massive investment losses in a deep recession, will divert too much money from basic government services.
Recent increases in the state CalPERS payment have been gradual, going from $3.3 billion last year to $3.5 billion this year. CalPERS adopted a “smoothing” policy in 2005 that spreads gains and losses over 15 years, far beyond the usual three to five years.
When the CalPERS investment fund plunged from about $260 billion to $160 billion before rebounding to $235 billion last week, the heaviest losses during a stock market-crash year were given special actuarial treatment to avoid a sharp rate increase.
A state CalPERS payment once projected to be $3.9 billion this fiscal year was reduced to $3.5 billion after state worker unions agreed to increase employee pension contributions, most going from 5 percent of pay to 8 percent.
The Legislative Analyst said state savings from increased employee pension contributions will be largely offset by pay raises at the end of the labor contracts. But the strain on the state budget is eased during a time of deep spending cuts.
Importantly for the pension debate, CalPERS also has avoided a sharp rate increase that can be cited by advocates of sweeping structural pension reform, such as switching new hires to a 401(k)-style investment plan now common in the private sector.
Now if the governor’s budget proposal is adopted and the earnings forecast is lowered, the state payment to the California Public Employees Retirement System might show little change or a much smaller increase.
The payment amount would depend on how much of the increased payment from the lower forecast is offset by the shift of $404 million from the state budget to CSU.
The CalPERS chief actuary, Alan Milligan, told the board last week that a decision to lower the earnings forecast would increase state CalPERS payments in the new fiscal year beginning in July.
“This is something that could have a very significant impact, and we want to make certain that any review of this assumption is done in the full light of day and with lead time and notice to stakeholders,” he said.
When lowering the earnings forecast was discussed last year, Milligan said, a drop from 7.75 to 7.5 percent would have increased state CalPERS payments by 2 to 3 percent of pay for miscellaneous workers and 4 to 5 percent for of pay for police and firefighters.
The state budget proposed by Brown last year wrongly assumed the CalPERS board would lower its earnings forecast. His Department of Finance estimated that a drop of one quarter of one percent would increase the state CalPERS payment about $400 million.
The CalPERS actuaries also will take a new look at price inflation and wage inflation. Though unlikely, a decrease in the wage inflation forecast could lower the state CalPERS payment.
“I doubt very much that I will be recommending a decrease,” Milligan said of the wage inflation forecast. “At this time I have not finalized my recommendation. So I don’t know exactly what I’m going to be recommending to the board.”
CalSTRS followed the advice of actuaries this month, lowering its earnings forecast from 7.75 to 7.5 percent. Like CalPERS, CalSTRS had previously rejected the recommendation of actuaries, lowering the forecast from 8 to 7.75 percent instead of to 7.5 percent.
The change of a quarter of one percent is estimated to add $500 million to the annual increase in contributions CalSTRS previously needed to reach full funding in 30 years, $4 billion a year.
Unlike CalPERS, the California State Teachers Retirement System lacks the power to increase annual pension contributions that must be made by government employers, needing legislation instead.
Legislative approval of a $4.5 billion increase in annual payments — nearly doubling the current payment of about $5.3 billion from schools, teachers and the state — is not realistic, particularly at a time of deep cuts in education spending.
Funding scenarios prepared by CalSTRS for the Legislature to discuss do not begin phasing in new funding until 2016. Five of six scenarios, never reaching full funding, are projected to have funding levels after 75 years ranging from 32 to 14 percent.
But the funding scenarios do keep CalSTRS from running out of money for most of this century and reverting to pay-as-you-go funding, with no revenue from investment earnings.
Before CalSTRS lowered its earnings forecast, actuaries had projected that CalSTRS could run out of money around 2044 if contributions are not increased. Bad as the funding problem portrayed by CalSTRS may seem, some say it is worse.
Citing a number of economic experts, critics contend a 7.5 percent earnings forecast is still too optimistic and unlikely to be achieved. If even a small change in the earnings forecast can result in a significant funding gap, a big change opens an abyss.
Stanford graduate students issued a study two years ago showing how the unfunded liability of the three state pension funds (CalPERS, CalSTRS and UC Retirement) ballooned if a lower earnings forecast is used.
The students used a risk-free bond earning rate, 4.1 percent, arguing that some economists say that is the proper way to measure risk-free pension debt guaranteed by the taxpayers.
The three state pension funds, using earning forecasts of 7.5 to 8 percent based on their diversified investments, were reporting a combined unfunded liability of $55 billion. The lower Stanford forecast pushed the debt to about $500 billion.
Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at https://calpensions.com/ Posted 21 Feb 12
Calpensions 
February 21, 2012 at 4:38 pm
This is another step in the continuing process of screwing up California finances by failing to deal with public employee pensions realistically.
February 21, 2012 at 4:54 pm
“The heart of the pension debate is whether soaring pension costs, driven by overly generous benefits and massive investment losses in a deep recession, will divert too much money from basic government services.”
Sorry, it is not WHETHER the system crashes, it has already crashed, it is just a matter of WHEN it finally runs out of cash, goes BK.
February 21, 2012 at 5:29 pm
Quoting …”The heart of the pension debate is whether soaring pension costs, driven by overly generous benefits and massive investment losses in a deep recession, will divert too much money from basic government services.”
While for many THAT many be what in their minds, it’s the wrong measure, because even IF we could afford excessively generous pensions, SHOULD we continue such ? Is it an appropriate use of taxpayer dollars ?
The proper measure is equal “total compensation” (cash pay + pensions + benefits) in comparable Public/Private sector jobs. Notwithstanding competing salary studies, most (Incl. the US Gov’t BLS) show relatively equal cash pay. With this as the backdrop, WHY should we continue to provide Public Sector pensions, the taxpayer paid-for share of which is ROUTINELY 2-4 times (6 times for safety workers) greater that those received by their Private sector counterpart. And …. add to this the free or heavily subsidized retiree healthcare (unheard of today in the Private Sector) and we can easily see why their is a continuously shrinking pot of money for necessary services.
Taxpayers ….. it’s WAY WAY past time to demand change, and that change should start with a stop to digging this hole deeper, by VERY significant changes for FUTURE service for CURRENT (yes CURRENT) employees.
Current plan formulas should be reduced by 50+% and this would STILL leave public sector workers with richer pensions accruals than 90% of Private sector workers. Better yet would be a “hard freeze” to current Defined Benefit Plans with replacement with Defined Contribution Plans (ala 401-k style) with a MODEST taxpayer match …. JUST LIKE TAXPAYERS TYPICALLY GET.
Are Civil Servant “special” (80-90% paid for at YOUR expense) and more deserving ?
February 21, 2012 at 5:51 pm
TL- You and Rex can always be counted on the add a daily injection of humor to these boards….
February 21, 2012 at 6:03 pm
Skippy,
Didn’t you mean “honesty” (not humor)?
February 21, 2012 at 6:52 pm
This is business as usual. At the end of the article, the author takes the expected swipe at CalPERS and CalSTRS, by bringing up the Stanford Study, which both the “bigs”, have already rebuffed as being flawed, by using outdated research methods. These news-columnists, need to make a living, too.
February 21, 2012 at 7:09 pm
Seesaw,
BS …. Identify any “bigs” that are not Union-funded, Union-managed, Union-directed or Union-supported ?
Sure, the Unions argue the Stanford study is wrong BECAUSE it shows just how excessive (and therefore EXPENSIVE) the Public Sector pensions are.
Oh … and what have you to saw about California’s non-partisan Little Hoover commission … which called for pension accrual reductions for CURRENT workers ?
February 21, 2012 at 8:18 pm
“This is business as usual. At the end of the article, the author takes the expected swipe at CalPERS and CalSTRS, by bringing up the Stanford Study, which both the “bigs”, have already rebuffed as being flawed, …”
🙂 here here seesaw, let me fix your comment;
This is business as usual. At the end of the article, the author takes the expected swipe at CalPERS and CalSTRS, by bringing up the Stanford Study, which both the “FRAUDS”, have already rebuffed as being flawed,
Fixed by Rex TWD!
February 21, 2012 at 8:32 pm
CalPERS and CalSTRS are composed, of members, who might be represented, by unions, at their respective work-places, TL, but union membership is irrelevant, when it comes to the pensions. I am retired now, for five years, and I have no connection, with a union. Neither of the, “bigs”, are being directed by unions. The highest earning beneficiares, of these two, “bigs”, are former high-level managers, who were not, and are not now, in unions. Get union-hating off your brain, why don’t you! The Little Hoover Commission is not a non-partisan group. The five members, appointed by the Governor, were all, Republicans, appointed on Christmas Eve, by GAS, while he was walking out the door. The recommendations made by the LHC are unconstitutional–that’s where we are. I am all for pension reform. It just has to be done reasonably, and legally.
February 21, 2012 at 8:36 pm
Sorry, Rex–I take nothing you say, seriously any more. One cannot reason, rationally, when they are so consummed by hatrid, as you are. You need to sit down with a cup of coffee and look out–there is actually something out there, besides public workers.
February 21, 2012 at 9:42 pm
“Under the new budget proposed by Gov. Brown, the annual state payment to CalPERS drops from $3.5 billion this year to $3.1 billion in the new fiscal year.
The payment falls, at a time most pension costs are rising, because a $404 million payment to CalPERS for California State University pensions is shifted from the state budget to CSU… The nonpartisan Legislative Analyst’s Office said CSU would be faced with a potential burden “out of proportion” to its limited ability to control future pension costs.”
How does this proposal coincide with Gov. Brown’s position on protecting education? The only thing I see here is the governor trying to fix one problem while creating another. Considering the University system is already raising tuition through the roof to avoid addressing their own structural budget problems, how is Jerry Brown’s latest version of re-arranging the deck chairs on this sinking ship addressing much needed pension reform?
My suspicion is this is some “end game” that will eventually end up as part of his monologue to raise taxes in support of education. We would all be better off in the long run if J.B. would just get serious about an issue that is getting worse by the day – Real Pension Reform!
To Tough Love’s point, if you need 65-75% of your employment income in retirement, why are we paying anyone more than a 65% pension for a career in government when they are already being compensated as much or more than their private sector counterparts?
February 21, 2012 at 9:56 pm
Cap, the cost of living keeps rising. I read, a long time ago, that one must have from 60 to 80 percent of active salary, in retirement, to continue the same lifestyle. My lifestyle is very modest. I shudder to think, about the condition our lives, my spouse and I, would be in now, if I had not worked in the public sector, and received a pension. My spouse’s carpenter-pension is, $706/mo–his total medical premiums, including Medicare, part B, and secondary Blue Cross, are $946/mo. Now, taking us back, figuritively to the time when the cost, for his individual Blue Cross policy, was $69/mo., a 65% pension, for me, would be fine.
February 21, 2012 at 10:14 pm
Seesaw, It matters not …”what you need” in retirement. What MATTERS is that (with equal cash pay) that Taxpayers are not on the hook to pay any more towards your pensions and benefits than THEIR employers pay towards their pensions and benefits.
And FEW (VERY VERY few) private sector employers contribute more than an amount that would pay for a continuation 1/3 of one’s final salary (with no post-retirement COLAs). If a Private Sector workers want to maintain a higher level of income in retirement, that worker must fund the balance from THEIR OWN net pay, via 401K’s and private savings.
Civil Servants are not “special” and deserving of MORE …. and Taxpayer’s expense..
February 21, 2012 at 10:22 pm
“Cap, the cost of living keeps rising. I read, a long time ago, that one must have from 60 to 80 percent of active salary, in retirement, to continue the same lifestyle.”
SeeSaw, CalPERS & CalSTRS employees get COLA adjustments, and, in many cases, they also receive other inflation protection beyond COLA’s that have the potential to increase costs substantially down the road. To your point regarding the 60-80% number, let’s lower it to a max of 60% and let government workers save something toward augmenting their own retirement. If that concept is foreign to you or others it is only because you’ve been living in the CalPERS bubble world of excess.
And nobody is asking anyone to sacrifice what’s been earned. It is strictly on a go-forward basis. What do you have against that?
February 22, 2012 at 3:13 am
I don’t have to worry about doing that, but I would not blame anyone, currently working, who is against that. It is illegal, and I don’t know why you would fault me or anyone, who is affected, for being against such–its in the book–you are saying, “Throw away the book, and start over”. My whole focus, is to work for the preservation of my pension, and while I am doing that, I will continue to support every other past, present, and future public employee.
I went to a restaurant, with my husband for his birthday, tonight. Both the receptionist and the server had been asked, on the “QT”, by me, to surprise him. Well, guess what–they forgot. I think that is private sector–isn’t it? I did assert myself, when I got home, and let the manager know, that what happened, was not alright. I did not take, “I’m so sorry”, as an excuse, either. I stayed on the phone, until I was promised a gift card and free cake, for my husband, when we return. Other than that, there were no accusations, about how lazy restaurant workers are.
February 22, 2012 at 4:27 am
Quoting seesaw …”My whole focus, is to work for the preservation of my pension, and while I am doing that, I will continue to support every other past, present, and future public employee. ”
Your last sentence left out the obvious ….”… because I don’t give a damn about the Taxpayers or THEIR ability to pay”
February 22, 2012 at 5:51 am
I am a taxpayer, TL. and I care about all people. I support charities. I pay my taxes, and they are possible for me to handle. Fact is, I pay the same taxes as everyone else, in my category. Maybe you should come on out with a private citizen, who is unable to pay his taxes, “Because of the part of the taxes, that goes to pay pensions”. Come on–lets have some documentation. You do not know me personally, and I would appreciate it, if you would stick to the subject matter–not on your own assessment, of what I do, or do not, give a damn about! I will be the judge, of my own feelings!
February 22, 2012 at 6:36 am
I am a taxpayer, TL. and I care about all people.
You’re a tax TAKER, not a payer, for every dollar you pay you take $100-you’re so full of misinformation and talking points it makes everything out of your mouth worthless, and the public knows it.
seesaw, watch what happens in San Diego in June, when all the public lards get tossed into 401K’s, because when that happens I am going to be laughing my fanny off at you and your BS talking points.
I will repeat that when Jerry Clowns pension tax increase loses at the ballot box, like Arnold’s and like San Diego’s did last year.
February 22, 2012 at 6:37 am
The only person seesaw cares about is herself. The only charity she supports is herself.
February 22, 2012 at 6:52 am
As I already said, Rex. Nothing you say, matters.
February 22, 2012 at 10:11 am
Cap, the other inflation payments you talk about, with CalPERS, are payments to low-earning retirees, who have been retired a long time, and their pensions do not currently have enough purchasing power, to keep their heads above water. Thanks to such a plan, with CalPERS, you don’t have to supplement those retirees, through Social Services. Most CalPERS retirees, in my category get, a 2% or less, COLA, every year, and the last two years, I have received less than 2%. That doesn’t even keep up with the increased, cost of living.
Don’t insult me, by saying that saving, to augment my own retirement, might have been a foreign concept, in my world. My former employer started us, on a 457 plan, in the late 70’s, and our provider went bankrupt in the early 80’s. Our plans were frozen for three years, without interest. We had been changed over to another company in the meantime. I saved, in a 457 for 30 years so, “No”–saving for my own retirement was not a foreign concept. My 457 buys the groceries. We public employees are the same kind, of humans, that you are. Surprise, huh!
February 22, 2012 at 5:25 pm
I already said it seesaw, nothing you say will protect the taxpayers, your only concern is the fat greedy public employee getting an average pension of $80K per year, 7 times the average of SS.
Oh, I forgot seesaw, you now claim (per your post on the sacbee yesterday) those doctors, judges and others in gov are the only ones getting these mega affluent pensions, go to any muni website and pull up the top 100 pensions, 80%-90% will be cops and FF’s. HS diploma rank and file jobs.
February 22, 2012 at 6:29 pm
Better go back and re-read that post, of mine, on the Sacbee, Rex. It is about elite managers–has nothing to do, with rank and file PS workers.
February 22, 2012 at 7:17 pm
I re-read it, it says exactly what I said it does.
February 22, 2012 at 7:30 pm
You can’t read then. What are you–in first grade?
February 22, 2012 at 8:47 pm
I actually graduated 1st grade-started second grade this past September 🙂
February 23, 2012 at 12:20 pm
Poor Rex Poodle—– sad, just sad….
February 23, 2012 at 7:35 pm
I have a big goal, I am hoping to make it all the way to Middle School 😉
February 24, 2012 at 2:56 pm
That would be great!
February 24, 2012 at 7:59 pm
I know, it would be!
And think about it, I would still have a higher level of education than you do!
February 25, 2012 at 1:43 am
cant quite get Ted out of your head little fella? Should I charge rent?
February 26, 2012 at 12:20 am
Teddy, I hear you have been advising the public unions in Stockton, with the same result 😉
http://www.scpr.org/programs/madeleine-brand/2012/02/24/22655/the-fall-of-a-california-city-stockton-may-file-fo
February 26, 2012 at 2:35 pm
LOL– Well– there are 3,000 US counties and 23,789 cities. There have been 6 bk’s.
It’s so cozy up here in Poodles tiny brain locker.
Oh my.
February 27, 2012 at 7:43 am
Teddy Steals – I hear you’re advising San Diego and San Jose too!~
http://www.sacbee.com/2012/02/26/4291455/dan-walters-pension-battlefield.html
February 27, 2012 at 2:20 pm
LOL— it’s so cozy up here Poodle!
26,789!
mmmmmmmmmmmmm
I may raise the rent!
February 28, 2012 at 1:35 am
I just raised your rent Steal, I am now RICH 🙂
February 28, 2012 at 3:14 am
lol— how can u raise my rent when I live in YOUR head little buddy? Bam !
26,789 to go !
Have a nice day!
mmmmm cozy…
February 28, 2012 at 4:43 pm
Hey, where is my rent check, I feel bad living in your head for free 😉
February 28, 2012 at 8:09 pm
lol— so far t seems like i live in YOUR tiny head little guy! But you do almost live rent free—- 75 cents from every dollar you pay me comes out of the pension fund! Bam!!!!!
February 29, 2012 at 3:51 am
LOL….Teddy Steals, ALL the rent money you pay me comes from TAXES. You pay less than 5% if that.
The rest coems from TAXPAYER invetsments.
Come one little one, this is too easy!
February 29, 2012 at 3:08 pm
mmmmmmmmmmmmmmmmm
I knew you’d be back! LOL
cooooooooooozy up here!
February 29, 2012 at 8:20 pm
LOL 🙂