An initiative that would phase out Ventura County employee pensions is headed for a court test, challenged by a union lawsuit contending the change requires state legislation.
Ventura County supervisors put the initiative on the November ballot after the required number of voter signatures were submitted. Then a board majority, who oppose the initiative, told the county counsel to back the suit to keep the initiative off the ballot.
The maneuver earlier this month sets up a court test, presumably before ballots are printed, of whether local voters can phase out the 20 county retirement systems, ranging in size from Los Angeles to Mendocino, that operate under a 1937 act.
Like an initiative approved by San Diego voters two years ago, the Ventura initiative gives new county hires a 401(k)-style individual investment plan, instead of a pension, and reduces current worker costs with a five-year freeze on pensionable pay.
The San Diego initiative exempted police, allowing new officers to receive pensions. The Ventura County initiative, backed by the county taxpayers association and others, has no exemption and would give new deputy sheriffs a 401(k)-style plan.
In the legal challenge, the key difference is that the San Diego pension plan operates under the city’s laws while the Ventura County pension plan operates under a state law.
“Because the measure proposes only a local ordinance, which cannot by law disestablish the 1937 act plan in the county, the measure is illegal and of no effect,” Leroy Smith, the Ventura County counsel, said in a 21-page analysis.
“Once accepted, the 1937 act provides no procedure by which a county can disestablish the retirement system or unaccept the retirement law by any subsequent local action, either by the voters or by the board of supervisors.”
The 1937 act provides no authority or process to withdraw from the system, Smith wrote, so the proper method to “repeal or amend a state law such as the 1937 act” is through state legislation or a statewide initiative.
David Grau, chairman of the Ventura County Taxpayers Association, said he is confident the initiative will withstand the legal challenge. “We got a legal opinion first,” he said. “That was the basic question: Can the voters change the system?”
David Grau
Attorneys for the initiative backers said in a letter to Smith, responding to a union threat of a lawsuit if supervisors put the measure on the ballot, that voters can legally repeal the pension plan and replace it with a 401(k)-style plan.
“This measure amends Ventura County Ordinance Number 401 which established the pension program in 1946 by a vote of the people,” wrote attorneys Kenneth Lounsbery and James Lough. “The power of the people to adopt a measure carries with it the power to repeal by the same means.”
The lawsuit filed by the public employee union coalition said the initiative is unlawful for several other reasons, including a violation of state labor law requiring good faith negotiations with unions before determining types and amounts of benefits.
In San Diego, the state Public Employment Relations Board unsuccessfully tried to get a court to block a vote on the pension initiative, prompting the city attorney, Jan Goldsmith, to say in one interview, “They are owned and operated by labor unions.”
The San Diego pension initiative was approved by 66 percent of the voters. In the same election in June 2012, a San Jose reform giving employees a choice between higher pension contributions or a lower pension was approved by 70 percent of voters.
Last January, a statewide poll issued by the Public Policy Institute of California found that switching new state and local government hires to a defined contribution system similar to a 401(k) plan was supported by 73 percent of likely voters.
“They know the only hope they have is to keep it off the ballot,” Grau said of union opposition to the Ventura County initiative. “They know it is going to win by a big margin.”
Four of the five members of the Ventura County board of supervisors, including Chairman Steve Bennett, oppose the pension initiative. The lone supervisor supporting the initiative is Peter Foy.
At a board meeting this month, Bennett said he thinks voters are likely to approve the initiative. He said a 4-to-1 decision to back the union lawsuit is an attempt not to block a vote on the initiative, but to ensure that the law is being followed.
“The public’s understandable and appropriate frustration” with high pensions, some paying $250,000 a year, is “driving people to say they would accept almost any measure that would attack the pension system,” Bennett said.
Steve Bennett
Ventura County is associated with “spiking,” the manipulation of final pay to boost pensions. In what became known as the “Ventura decision,” a 1997 state Supreme Court decision in a deputy sheriffs suit expanded pensionable pay for county systems.
An analysis done by the Los Angeles Times two years ago found that 84 percent of the Ventura County retirees with pensions greater than $100,000 had pensions that paid them more each year than their salary while working.
The Ventura County pension initiative prompted a proposal that an association of the 20 county systems operating under the 1973 act hire a public relations firm to educate the public about the benefits of pensions.
Robert Palmer, executive director of the State Association of County Retirement Systems, said attorneys told SACRS that it can “educate” but not “advocate,” an important legal distinction.
Four years ago the California State Teachers Retirement System issued a $600,000 contract to two public affairs firms to tell members of the system and legislators about the need to close a huge funding shortfall.
Last week Gov. Brown signed full-funding legislation that will gradually increase CalSTRS funding by more than $5 billion over the next seven years, nearly doubling the current $5.8 billion a year contribution.
The new SACRS president, Yves Chery, said in a memo this month that the public relations proposal produced “very little formal feedback” from the county systems, but a variety of comments from SACRS staff.
“Some have said that trustees are fiduciaries, not proponents of DB (defined benefit pensions),” Chery wrote. “Some believe that this matter is a plan sponsor and labor organization issue. Others have said that to do anything in the way of a public relations firm creating public support could become very divisive at the local level.”
Chery said he appointed a five-member committee to study the educational campaign issue and make a recommendation. Among the questions his memo said the committee may try to answer:
“Does SACRS have an obligation to become involved with initiatives, such as Ventura? If so, to what level?”
Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Calpensions.com. Posted 30 Jun 14
Calpensions 
June 30, 2014 at 1:35 pm
Clearly, the FOXES are in charge of the hen-house.
June 30, 2014 at 5:14 pm
We are watching this one like hawks! This could be the breakthrough that all of us who are aware of and horrified by the mounting “wall of debt” caused by the current pension system have been waiting for. If Ventura County is successful, you will see a similar initiative on the Marin County ballot the next time around. There is simply NO other answer to this problem. Look what CalPERS is doing in San Bernardino! How they think they can squeeze water from rocks is beyond me, but I guess they will keep trying until the city no longer exists. Then what? Good luck with that strategy!
Citizens for Sustainable Pension Plans http://www.marincountypensions.com
June 30, 2014 at 7:42 pm
Of course there is another answer. Cities can default and dissolve. The State can go into sovereign default. Those solutions are overlooked because non-pension debt holders don’t like them; non-pension debt holders want to shift, if possible, as much of the debt problems onto the pension holders.
The real root of the pension problem is that public entities went into binding contracts that perhaps cannot be honored.
There is not a private sector business in our Country that would give up on a duly agreed upon contract; they’d go to court just like CalPERS does.
What Tough Love and CSPP want is to only enforce the contracts that they have financial interest in, and set aside those contracts that were made with people they don’t like.
A better solution is to give everyone a similar haircut.
June 30, 2014 at 7:56 pm
I haven’t read this yet, here it is, for what it’s worth.
http://reason.org/news/show/pension-reform-case-study-michigan
July 1, 2014 at 12:55 am
@Jody Morales: your group’s website says, “State workers routinely retire at 55 years old with pensions higher than their base pay…” This is not true and it diminishes your website’s credibility when your group makes such exaggerations. State workers have never been able to spike pensions as there have always been regulations prohibiting that practice.
July 1, 2014 at 2:34 am
“spension Says: Of course there is another answer. Cities can default and dissolve. The State can go into sovereign default.”
Will you please stop with the stupid sovereign default comment. If that’s the best solution to the current problem we’re in much deeper trouble than I ever imagined. Why not try to fix the problem before the implosion, spension? Surely the tax payer representitives in Sacramento know what needs to be done. They just need to know they’ll be punished if they continue to place union interests above taxpayer interests. Recent polls suggest we’re heading in the right direction.
Your comments are consistently underwhelming.
July 1, 2014 at 3:41 am
“Elliott James Says:
July 1, 2014 at 12:55 am
@Jody Morales: your group’s website says, “State workers routinely retire at 55 years old with pensions higher than their base pay…” This is not true and it diminishes your website’s credibility when your group makes such exaggerations. State workers have never been able to spike pensions as there have always been regulations prohibiting that practice.”
That is just not true! State workers base pay doesn’t include the “Extra Pay” they receive so it is quite possible their retirement income exceeds thei “Base Pay”. If it isn’t the case at retirement it will probably happen in a few short years.
Regarding spiking, CalPers also allows holiday pay as a mechanism to spike final year compensation, while also allowing unused sick leave to be counted toward years of service credit (1400 hours of sick leave equates to one year in additional service credit – and most public employees accrue sick leave at at least 96 – 120 hours per year).
CalPers also allowed members to purchase up to five years of service credit. When CalPERS discovered they’d been selling the service credits for 8-32% below cost they could have hit the brakes on the program knowing it wasn’t fair to the taxpayers. Instead they encouraged their members to hurry and buy the service credits before the window closed in six months. Pathetic!
CalPERS is CORRUPT & the CalPERS Board of Administration (Directors) are underqualified union employees without a clue. They have control over, well – just about everything at CalPERS including the hiring/firing of the CEO. And that probably has much to do with the sorry a$$ state of this corruprt pension fund.
July 1, 2014 at 4:18 am
Elliott James Says: “State workers have never been able to spike pensions as there have always been regulations prohibiting that practice.”
Elliott, I can’t believe I forgot to include the MOTHER of all SPIKING SCHEMES – SB 400 and the follow up legislation that allowed local governments the same ENHANCED PENSION FORMULAS & RETROACTIVE PENSION BENEFITS.
CROOKS – CalPERS & the PUBLIC EMPLOYEE UNIONS STOLE the TAXPAYER RESERVES PLUS BILLIONS MORE.
CalPERS needs to be ABOLISHED.
July 1, 2014 at 5:32 am
Jody Morales Says: “There is simply NO other answer to this problem. Look what CalPERS is doing in San Bernardino! How they think they can squeeze water from rocks is beyond me …”
Jody, CalPERS is CORRUPT and they will do what they want with the backing of our Democratic politicians in Sacramento. Regarding San Bernardino, CalPERS is providing what they call a “FRESH START”, IMO. What that means is that CalPERS, the CROOKS, will allow San Bernardino to refinance – through CalPERS (The Crooks) by converting debt they can’t afford to pay today into 30 years of easy payments (not really) – guaranteeing that San Bernardino will never be a thriving community while most likely becoming a candidate for re-entering BANKRUPTCY in the not too distant future.
The City of Oakland has played Russian Roulette with pensions for two decades and they’re on the verge of Bankruptcy. SB won’t be far behind with Bankruptcy TWO if they keep defering the inevitable while making a deal with the DEVIL (CORRUPT CALPERS)!
I just find it ridiculous to think that the organization that created this mess is capabale of fixing it. CalPERS is way too busy lying about their complicity, and protecting pension packages that are completely outrageous, to ever be a part of the solution.
CalPERS is a VERY CORRUPT ORGANIZATION.
July 1, 2014 at 11:50 am
Quoting Captain …”CalPERS is way too busy lying about their complicity, and protecting pension packages that are completely outrageous, to ever be a part of the solution.”
Perfectly stated !
July 1, 2014 at 3:49 pm
Captain, From today’s news …”Los Angeles Violated Labor Law in Rolling Back Pension Benefits, Report Finds ”
Yup they decided that LA must “negotiate” with the Unions even to roll back pensions for those NOT YET EMPLOYED.
It’s astounding how the workers, not those EMPLOYING the workers run the show …. the WHOLE show….. and how the Taxpayer (with ZERO say) get screwed.
July 1, 2014 at 5:10 pm
Well, Captain, your comments may someday, after much work and effort by you, aspire to be merely underwhelming.
It is you and Tough Love, among others, who ring the bell that we are in a big crisis. Well, either we are or we aren’t. I think we are.
In your view, somehow, the crisis is just big enough to cut payments on one class of contract holders, those who you dislike, But the crisis, miraculously, is not big enough to cut payments to those you like, for example, state bondholders.
Amazing coincidence, don’t you think?
I say nick everyone for the financial mistakes promulgated by our political system. Seems only fair to me.
You and Tough Love shriek and wail hysterically when the facts don’t go your way. Calm yourself with a warm wet hanky, please.
July 1, 2014 at 6:17 pm
Zero say? Seems to me there are regular local and State elections …. of course our turnout, particularly in local elections in odd years, is well below 30%… the taxpayers *choose* not to have a say.
July 2, 2014 at 1:04 am
Most of the posts here seem to believe that the Calpers system, and by inference all pension systems, are corrupt. How are they corrupt? Are the contracts legally agreed upon by the employers and the unions illegal? The benefits the employees receive were obtained through hard won negotiations. The employers agreed to these terms when the economy was doing well and they felt the system was able to accommodate them.
Since the recession hit it has been touted around the country that pensions are sucking the blood out of the taxpayers (you didn’t hear of this when the economy was doing well). This is not true. The people that receive these pensions are also taxpayers and have to live in the same economy as everyone else. When the economy improves, as it already has for many, (see Wall Street and the 1 percenters), and for those that are doing well, why not ask them to pay a little more? Instead of trying to take the earned benefits of the middle and less than middle class. If we take away much more there will be no more middle class.
Also, there is the clamor about people “spiking” their retirement pay so they can retire with more money than their base pay. Money earned over and above base pay is all money agreed upon and earned by the employees. And what is the money people get that is not their base pay? Things like vacation and sick days(I guess people should not be allowed vacations or to get sick), health care plans(I’m sure no one needs that), educational incentives(why encourage employees to be smarter at their jobs). It was mentions that some employees can save up to 1400 hours to use to increase their retirement. For the vast amount of pensioned employees you are limited to 400hrs. Any more than that and you lose it. And lets see, for those than can save 1400 hrs, the maximum accrual rate of 120hrs mentioned above means that if you don’t take a vacation or get sick for more than 10 years you can save up that much time to spike your retirement. Anyone think they would be able to do that?
It is true that some retirees make inordinate amounts after retirement. But focusing on a few people that make those large amounts is a disservice to the rest of the employees, some of whom barely make a living wage. And that “base pay” your referring to is usually much lower, (5 to 25%) than comparable pay provided to employees of companies that don’t provide pensions. Why would people even work somewhere that the pay is that much lower? Because of the promise of a pension that says after many years of service you can retire with a defined benefit, (which a 401 is not), that you can live on. How do you think those employers attract qualified employees if not for the benefit of a pension.
I believe pensions helped this country develop a strong middle class and that leads to an improvement in the country as a whole. Many people want everyone to adopt the 401K system for retirement saying that most private firms no longer offer pensions. Well, 401’s are good for people that earn enough to be able to put away a lot of money in that system. But what happens when the economy has a downturn or you or someone in your family has an illness or loses a job and they have to take their money out of their 401 just to pay their bills. You better hope that that doesn’t happen between the time you retire and the time you die. Just ask anyone that had a 401 as there only income when the recession came along. And who will pay to support those that couldn’t save enough in a 401 to retire but are too old to work. You don’t think the taxpayers will be paying for that?
The ones that really benefit from 401’s, no matter what the economy is doing, are the companies the run the 401’s. They get a steady income from handling those systems whether the economy is doing good or not.
I agree that during times of an economic downturn there may be a need to readdress some of the pension benefits, especially for those that have been able to take unintended advantage of the pension rules and earn more than their fair share. But do you think that those same entities that want to lower benefits will return those same benefits when the economy is doing well? Not without a fight they won’t.
As an example, employees within the union at my job have not had a raise or cost of living increase in over 5 yrs. And we worked that last year and a half with no contract at all. But that hasn’t stopped the prices of almost everything from going up. We still have to pay for our homes, food, gas, etc. And when we finally did settle upon a contract this past April, the small percentage of a raise we did get is only enough to cover the increases in our health insurance and additional retirement contributions.
Instead of trying to get rid of pension systems because most private employers no longer offer them, we should be asking why those private companies, especially the large employers that are sitting on record amounts of capital because their worried about what Uncle Sam will do, do not offer pensions to their employees. We should all be asking, Why are the people with the majority of affluence in our country continuing to get more and more while those with much less having to fight to keep what little they have.
July 2, 2014 at 1:45 am
@ Captain: No, you are incorrect about state workers. Pension spiking is defined as adding one time special pay to base pay to inflate total pay used to calculate a pension. Some cities took the position that the total income on the W-2 form was pensionable, even if it included cashed out overtime, vacation and sick leave.
State workers have never been able to add overtime, vacation or sick leave to base pay. Unused sick leave is added to service time, but base pay is unchanged. The resulting pension increase is small and can hardly be considered a “spike.”
My objection remains to the Marin citizens group website, which says state workers _routinely_ retire at 55 with pensions greater than base pay. That statement is absolutely false.
July 2, 2014 at 5:26 am
But that is just state workers. There are other pensioned worker such as county and city employees. The initiative that is the the main point of this article is specifically aimed at county workers.
And in a more general way I was also referring to how this country has seemed to try and put the blame for our different government entities, local, state and federal, indebtedness (of which is at least partially related to the recession) and fiscal mishandling (of which not all are guilty) on the backs of pensioned workers and the unions that support them. People point to the few that have taken advantage of the system and say “See, those guys are stealing our taxes. Somethings got to be done!” But in reality most of the people working in the public sector are just regular middle class citizens like teachers, firefighters, nurses, government office workers, etc. Their the ones suffering the backlash of that anger. But these are not people scamming the system out of the taxpayers money. They are people that just go to work everyday and try to save enough so they don’t have to sell there homes when the retire and hope to retire before they can no longer enjoy it.
July 2, 2014 at 3:21 pm
The county plans did have too many spiking options. It is fine for them to cash out vacation pay and unused sick leave according the rules in place at each, respective entitiy–they should have caps on those plans like my former municipality did. Those items should not be used to increase pensionable income–the one item that is still available to CalPERS recipients is a portion of unused sick leave to add to service credit–not pensionable income–is now seldom used. My entity paid me one-half of the unused in cash and all of the vacation pay which was capped. I received a grand total of $23,000 with service credit of 36.4 years and took home about $13,000. My situation is more standard than the “excessive” pensions that TL talks about. I am a proud member of CalPERS which is now about 85 years old–and Captain, it is not corrupt–it is the lifeblood of 1.6 million members and you should thank your lucky stars it exists, or you would be taking care of those people with your taxes, which are my taxes too, by the way. You keep saying how corrupt CalPERS is–for once state your case and we will evaluate it. You can also attend CalPERS Board meetings, you know. Of course, Spension, your suggestion that CA go into sovereign default is ridiculous!
July 2, 2014 at 3:23 pm
Chris, When your kids ask what you do, do you respond …….. oh, I’m a porker riding the Public Sector gravy train ?
July 2, 2014 at 3:34 pm
What do you tell your kids when they ask what you do all day, TL?
July 2, 2014 at 5:56 pm
CalPERS bottom line, July 1, 2014–299.7 billion. Does that look like need for a sovereign default, Spension?
July 2, 2014 at 8:13 pm
Got a link to the report, legpress2? All I can find is:
http://www.calpers.ca.gov/index.jsp?bc=/about/forms-pubs/calpers-reports/annual-investment.xml
It is not how much you have, but how much you owe.
July 2, 2014 at 11:00 pm
spension Says: “Well, Captain, your comments may someday, after much work and effort by you, aspire to be merely underwhelming.
It is you and Tough Love, among others, who ring the bell that we are in a big crisis. Well, either we are or we aren’t. I think we are.
In your view, somehow, the crisis is just big enough to cut payments on one class of contract holders, those who you dislike, But the crisis, miraculously, is not big enough to cut payments to those you like, for example, state bondholders.
Amazing coincidence, don’t you think?”
No. Bond holders have been taking a financial hit. I think it’s Franklin that’s been offered 5 cents on the dollar while Stockton pensions are going untouched. Given that, I have know idea what your point is.
I’ll add one think that isn’t a part of your comments, at least directly. We keep hearing about how public employees may not have accepted the jobs they’re currently working if not for the pension benefits. But most of the people working in the CA public sector actually started their careers under much lower pension formulas, lower pay (even in relation to inflation adjusted numbers), less holidays and other paid leave, less life insurance, etc…etc… .
II think we probably agree on several things. I do appreciate your comments even if I do NOT always agree with them. If I sometimes come across as harsh it’s because I find this topic/problem/lack of effort from our politicians very frustrating, and I’m not a fan of your sovereign default theory.
Have a happy 4th.
BTW, the ‘37 ACT pension plans are stealing the taxpayers blind. I hope Ventura County is successful in accomplishing their goal of fiscal sustainability/sanity.
July 2, 2014 at 11:08 pm
Before Ventura County voters throw the baby under the bus with the bathwater……..
“Someone” should read and understand Barton Waring, who literally wrote the book on DB pensions: “Pension Finance: Putting the Risks and Costs of Defined Benefit Plans Back Under Your Control ”
He is, among other things, a big believer in using a riskless discount rate AND major changes in the way pensions are managed…….
but…….
“The most stingy defined-benefit plan is better than the most generous defined-contribution plan,” he said. “Defined-benefit plans are by far the most efficient way of taking part of an employee’s lifetime earnings and postponing it for their retirement.
The knee jerk reaction of switching to a DC system falls under the category of:
” For every complex problem there is an answer that is clear, simple, and wrong.”
H. L. Mencken
July 3, 2014 at 12:09 am
SDouglas, what is your point? Is it that “The most stingy defined-benefit plan is better than the most generous defined-contribution plan,” he said. “Defined-benefit plans are by far the most efficient way of taking part of an employee’s lifetime earnings and postponing it for their retirement.”
I’m not sure what “the most stingy DB plan” has to do with what’s going on in California, but maybe you can make the connection? Given the public employee unions litigious position on, and protection of, outrageous pensions that are gouging taxpayer wallets – I think they deserve what’s coming (hopefully). Ventura County is attempting to put the tax payer’s rights on an equal footing with a “Special Interest” group. That hasn’t been happening for quite some time. In my opinion, the public employee unions will have nobody but their selves to blame if they cook their own Golden Goose – because they just can’t get enough.
July 3, 2014 at 2:20 am
” I think they deserve what’s coming (hopefully).”
If retribution is your primary goal, it’s called cutting off your nose to spite your face.
A DB plan is inherently better for BOTH employees and taxpayers.
Better to fix what’s wrong with the DB. You’re not going to “punish” existing workers. If Ventura goes to a DC plan, all existing employees will be grandfathered in.
” outrageous pensions that are gouging taxpayer wallets –”. Is YOUR opinion, citing some of the most extreme examples. All pensions are not the same.
Many public sector workers receive less in total compensation than their private sector equivalents, even when including retiree health costs and pension costs computed at a risk free discount rate.
Merely going to a DC plan will not “punish” past politicians or present workers. It will only give a less efficient plan to future workers…and future taxpayers.
July 3, 2014 at 3:22 pm
Just enter “CalPERS” into your browser, Spension. Its right there on the site’s home page–at the market close on July 1, 2014, CalPERS is worth 299.7 billion. Ahaa! Ahaa! It is not broke–sorry, haters.
July 3, 2014 at 3:53 pm
Its on the CalPERS homepage, Spension. Close of market on July 1, 2014 the CalPERS bottome line was 299.7 billion.
July 3, 2014 at 6:10 pm
Oh my! At close of the market on July 2, 2014, the CalPERS bottom line is 300.4 billion. What was that about a sovereign default?
July 4, 2014 at 7:22 pm
*Really*, lepress2, SeeSaw? You really believe that CalPERS only needs assets, and has no need to consider what it must ***PAY OUT***. You have really sunk in my viewpoint.
So what I find (and not easily) is:
Click to access facts-at-a-glance.pdf
The 300.4 billion represents a 66.1% percent funded ratio.
So there is an indebtedness of (1/0.661 -1)*300.4 = $154 billion dollars.
Yeah baby, only $154 billion in debt. I suppose lepress2 and SeeSaw, you can just dig into your cookie jar and pay that off.
Why don’t you?
July 5, 2014 at 1:23 am
I don’t have to and neither do you! Your individual liability to that plan is so minute that it is not even worth talking about. Go on with your life and enjoy it, so long as it can be lived in the best country on earth. Those still here when you and I take our last breaths will still be here to deal with whatever comes. The CalPERS plan has existed for 85 years–the sky has not fallen has it?
July 5, 2014 at 2:04 am
FYI, a 66% “official” funded ratio is just about 50% when Plan liabilities are discounted using an interest rate that Moody’s considers appropriate …. and NOT the very high rate that CalPERS assumes as the return on invested assets.
It’s a banner day …spension & I FINALLY agree on something !
July 5, 2014 at 2:07 am
Quoting SeeSaw … ” The CalPERS plan has existed for 85 years–the sky has not fallen has it?”
Please tell your grandchildren that WHEN (not IF) the sky falls on CalPERS, that the greed of their grandmother contributed to it’s demise.
July 5, 2014 at 2:24 am
“Stupid is as Stupid does”–I am referring to you, TL. My children and grandchildren benefit greatly, at this time, because of my pension. We and they will never see the demise of CalPERS, but we will be demised–may you rest in peace, TL.
July 5, 2014 at 6:01 am
SeeSaw, it is magical thinking that somehow the $154 billion debt will just vanish. I get that the CalPERS pension debt is $4,053 per Calfornia resident, or about $11,933 per household.
I don’t think those are minute figures.
July 5, 2014 at 3:35 pm
The figures are not minute, but how you spin them is a whopper. Such debts will be paid incrementally over 30 years or more by many different people (thousands and millions in CA) who will pass through the system as times goes by. I am a taxpayer like you, Spension. I get a property tax bill of $500 every year on my 50’s era tract home. There is no line-item on that bill to fund pensions, but I bet a penny or two goes to such. I know people who get $1,000 mo in CalPERS pension. It makes better copy for getting the taxpayers to wail and wretch by emphasizing the much smaller group of pensioners composed of non-union CM’s and other high-level managers who get $10,000+.
July 5, 2014 at 4:26 pm
Math is hard. Too many don t think about debt. Pathetic but sad. They are not bad people. The ones that expect others to pay their debt, they and those close to them will be very, very, very sad.
July 5, 2014 at 9:22 pm
Uh… $4,053 **PER CALIFORNIA RESIDENT**. Many different people are not going to pay that! As for spreading it out in time, maybe, maybe not… the record of the last 5 years has been… not much change in that $4,053 per california resident.
If you want to compare to your property tax, SeeSaw, the $11,933 per household is the right comparison. Spread that out of 30 years and it is $398/year. That is 80% of your property taxes, **JUST FOR PENSION DEBT**.
That the CalPERS system ever got into a 66.1% funded status is a travesty. It is a combination of unwise increases in benefits and insufficient contribution rates. That we got to 66.1% proves the system is badly managed. I don’t agree believe any criminality was involved, but ignorance, yes.
What matters is payout per vested year. Saying $1,000/month is uninteresting… for all I know they worked 5 years for the State.
Someone who worked 30 years or greater getting $1,000/month is quite interesting. I checked months ago on my grade school teachers, and indeed, some of them were 40+ year employees (CalSTRS) and were getting less than $5,000 month. They should not get cut much in any Sovereign default.
But the CalPERS debt includes lots of future pensions back-calculated to today. And some of those future payouts, particularly the 3% at 50, are way too generous. I understand the payouts are contractually guaranteed, like bond payouts. But something’s gotta give, and those with high pension payouts and also investment banks that hold bonds should get the first haircuts in a default.
July 5, 2014 at 10:13 pm
Ridiculous, Spension! The portion of my property taxes that goes to my City is less than $100–that goes into the general fund to provide me with all the services I receive; I can assure you that anything that goes into the pension fund is minute.
Nobody retires after working only five years, and there would not be a thousand a month for anyone with that short tenure. A miscellaneous worker I knew had to make a change after 13 years, and gets less than $1,000. You can dream if you want, but CalPERS is an arm of the state of CA and states cannot declare bankruptcy. Sovereign default is just a figment of your imagination–a disgusting one at that.
July 6, 2014 at 12:40 am
SeeSaw, you keep evading the simple issue: there is $4,053 of CalPERS pension debt per person in California right now. I will someday get around to adding in CalSTRS.
You have presented no sensible plan to deal with that debt, other than magical thinking. I am by no means a DB pension hater nor a paid poster of the right wing, but I must say: I never hear a sensible approach to deal with this debt from anyone.
As for the CalPERS & CalSTRS payouts being reasonable: I agree, sometimes they are. But there is a tendency to do magical statistics by only focusing on the average payout, which is skewed by all the short timers, and also skewed by the debt that will come due when all those currently working retire at much higher annual multiplier.
All those problems are captured by the CalPERS debt of $4,053 per California resident.
As for Sovereign Default: it is not a figment of my imagination. US States have employed it roughly 10 times in history. Iceland did a good job of it recently.
July 6, 2014 at 1:49 am
It is not a debt that any resident is legally liable to pay, Spension–so I say its not a debt. The “debt” as you refer to it, is included in the property taxes that CA residents pay while they are residents. They can leave any time they want to and they will not be taking any “debt” with them. As for states using sovereign default 10 times in history–how many hundred years ago was the most recent state default?
July 6, 2014 at 2:56 am
I am not required nor am I qualified to come up with a sensible pension-debt plan for CA, Spension. CA has professional investors, actuaries and other staff to do that. You should not present yourself as professionally qualified either. If you are, attend a CalPERS Board meeting and let them in on your debt, rehabilitation plan.
July 6, 2014 at 3:03 am
Where are you getting the 66.1% figure Spension? The most recent figures available are for the fiscal year ending June 30, 2012, at which time the funded status was 69.6%. Don’t you think the funding figure is probably up, slightly, in two years–especially considering the current, 300+ billion dollar, portfolio?
July 6, 2014 at 4:08 am
State figure at http://www.calpers.ca.gov/eip-docs/about/facts/facts-at-a-glance.pdf . Anytime anyone posts the total value of assets of CalPERS, they should also post the funded ratio. The total value is meaningless without the funded ratio. SeeSaw & legpress2 started this, and should have posted the funded ratio.
Future obligations (like raises given to current employees) can drive the funded ratio down even if there have been stock market gains.
The residents of the State of California are liable for the debt, by all means. Very strong contracts were signed with the pension systems that tie the residents into a binding agreement to pay that debt, SeeSaw.
Are you saying the residents can just break the contracts?
I am a concerned voter and resident and have every right to inquire as to how the debt will be paid off. You might like me to avert my eyes but leaving the pension system to the `professionals’ left it $154 billion in debt. So sorry, no, I don’t accept that the `professionals’ have managed it well. Had they managed the pension system well we would be 100% funded.
July 6, 2014 at 5:05 am
It was not a matter of the professionals managing it. It was a matter of a global financial collapse, perpetrated by Wall Street, wiping out one fourth of the CalPERS portfolio in 2008 and 2009. Residents do not have binding contracts for pension debt, unless they are pension members. They are responsibile to pay the fees and taxes that pertain to their property while they live in it–they can move any time they choose and they do not have to take so-called pension debt with them. I am a firm believer in paying my debts and I would never consider personal bankruptcy or “sovereign default”–so you are off-base when you try to accuse me of recommending that citizens walk away from legally binding contracts.
July 6, 2014 at 1:09 pm
I asked a question about breaking the contract, I made no accusation.
A California resident who moves out of California is no longer a California resident, your logic escapes me. My point is that California residents are bound to pay for the $154 billion in debt that CalPERS has incurred.
Saying that someone doesn’t have to help pay the $154 billion debt because they can just sell their home, leave their family etc is pretty wild. My home and family are pretty important to me.
On the one hand, I agree that the Wall Street collapse was indeed a major source of the debt.
On the other hand, collapses like that have historically happened numerous times in US history. My Mom as a young girl couldn’t get her kids’ savings out of the bank in 1933 because of one of them.
When you play with fire, you better make plans for the inevitable burns. CalPERS used to invest in safe bonds. In the 1970’s they shifted to allow investments in the stock market. Now they do all sorts of investing with really risky, fly-by-night characters; indeed some of their management has gone to jail for getting CalPERS into some crazy schemes.
Maybe it is OK to go for the riskier, more volatile investments. But you better be sure you define 100% funded as able to survive the worst historical financial panic the US economy has every experienced, with the lowest funding ratio being 100%. Even with all the amazing computing power and access to the history of the markets (the CRSP database http://www.crsp.com) CalPERS management messed up big time, and didn’t do their homework.
And so we are left with a $154 billion debt. More if you include CalSTRS. It is an atrocious situation, and I don’t like your advice to `avert my eyes’, SeeSaw.
States undergo sovereign default regularly; Iceland did it quite recently. Public pension debt has been a significant contributor to sovereign defaults. I think it is a good, sober analysis to include sovereign default as a possibility for California. One very attractive aspect of sovereign default is that it is denounced by both conservatives (who don’t want their paymasters, the big investment bankers who own bonds) and liberals (who want the unions to get their payouts).
July 6, 2014 at 5:11 pm
I have not told you to avert your eyes from anything, Spension. You seem to want to emphasize that the pension underfunding problem is a personal debt attached to every CA resident, and that is not true. Pensions are paid from revenue received by the, respective, entity members–mostly property taxes. CA residents who pay property taxes are not specifically tagged with a personal debt to the pensions. They will pay taxes while they are in residence–if they decide to leave, the debt does not follow them. The lost revenue is replaced by the next incoming residents. Pretty simple–I refuse to take on this situation as one for me to figure out–my responsibility is to observe and then vote. I am not a professional actuary or investment manager–the responsibility for putting up a plan belongs to those people.
“States undergo sovereign default regularly”–huh???? Please clarify that statement by naming the states and when they did it. (In my mind sovereign default is a complete collapse–not bankruptcy, which states may not claim.)
July 6, 2014 at 8:04 pm
http://www.reinhartandrogoff.com/data/browse-by-topic/topics/7/
is a list of many of sovereign defaults.
If the residents of California are not liable for the CalPERS debt, who is? Your words say nothing.
July 7, 2014 at 12:21 am
Just quit stalling and name the states that you claim have used sovereign default regularly. If you don’t, you can’t, because it is not true.
I have a next door neighbor who is not a public sector employee. He pays property taxes and other fees to cover public services he receives, just like any other resident. He could decide tomorrow that he is moving out of the state of CA. Unless he is leaving with any unpaid tax bills pertinent to his residency in CA, he is free to go and will not be carrying any CalPERS debt or any other pension plan’s debt with him. Lest you are unaware, this is a free country!
July 7, 2014 at 12:45 am
I won’t compare the unfunded liability to a mortgage, but it’s not like we all have to cough up $4,053 tomorrow.
CalPERS was in possibly worse shape in the 1980s. 55% funded, and ARCs about the same as now. And 130% funded 20 years later.
Past performance is no guarantee of future returns, but surely there is some compromise between rose colored glasses and “the sky is falling”.
July 7, 2014 at 1:20 am
Or ever. The “debt” is the amount of money that CalPERS would have to cough up now if every one of the currently eligible-to-retire members did so immediately–something that is not going to happen.
July 7, 2014 at 2:02 am
There are 4 spreadsheets at the bottom of http://www.reinhartandrogoff.com/data/browse-by-topic/topics/7/ with all the sovereign states and their list of defaults as a function of time.
US States are sovereign.
SeeSaw, so because CalPERS mismanaged its debt, I have to sell my home and leave my family? That is wild.
SDouglas47, maybe so, but in the 1980’s the level of employer contributions… http://www.calpers.ca.gov/index.jsp?bc=/employer/actuarial-gasb/emp-contrib-rates.xml&pat=STER ,
were never employed.
I think telling people to move out of their homes because of CalPERS debt is saying the sky is falling.
As Reinhardt & Rogoff document, employment of sovereign default is frequent and effective. It is by no means saying the sky is falling.
July 7, 2014 at 3:36 am
OMG!!!! Nobody is being told to leave their home and family because of CalPERS debt!
CalPERS is paid by the member entities, who get the money to pay that debt from the taxes that the taxpayers in that specific jurisdiction pay. Nobody, is getting a bill for $4,000+!!!! to pay the CalPERS debt. You pay taxes wherever you live–if you don’t live in a certain place anymore, you leave that jurisdiction and don’t pay taxes there anymore. You pay whatever taxes are in force wherever you live in a different location! Wake up Spension–take whatever meds you forgot to take!
July 7, 2014 at 2:15 pm
Me take meds? You, SeeSaw, not me, wrote:
“ I have a next door neighbor who is not a public sector employee. He pays property taxes and other fees to cover public services he receives, just like any other resident. He could decide tomorrow that he is moving out of the state of CA. Unless he is leaving with any unpaid tax bills pertinent to his residency in CA, he is free to go and will not be carrying any CalPERS debt or any other pension plan’s debt with him. Lest you are unaware, this is a free country!”
I very pointed suggestion that either pay the $4,053/person debt or move out. And then you suggest I’m in need of meds.
So you’re saying the $4,053/person doesn’t have to be paid in a lump sum. I still has to be paid, just more slowly over time. If I were you I’d point out that maybe 1/4 of it will be paid by the employee, and 3/4 by the employer, where the employer is the residents of California.
SeeSaw, you are guilty of magical thinking, that debts disappear magically without anyone having to pay them. That is just wrong. All debts get paid.
And all residents of California should know, they owe $4,053 in CalPERS pension debt. Maybe another $2,000 in CalSTRS too. Some LRP etc too.
July 7, 2014 at 3:42 pm
Spension, these are paper debts that will accrue over time for the pension plans. No specific resident is going to get a bill with these amounts as line items that they must pay on their taxes. The pension plans themselves do get earnings on their investments that are used to pay the pensions. At the current time, CalPERS investment earnings pay 64 cents of every retirement dollar paid out. Sit down and take a deep breath, Spension.
July 7, 2014 at 3:42 pm
SeeSaw, and others, have tried to explain. $4,053 is not a debt. It is an estimated liability. It is also a moving target that may, as it has in the past, move from an underfunded to an OVERfunded status.
The sky is not falling.
The glass is half full, at least.
July 7, 2014 at 4:13 pm
SDouglas47, a rose by any other name would smell as sweet.
Whether or not you call it a debt, an estimated liability, a deficit, a hole, whatever. It is the best estimate, in 2014 dollars, of what is missing. The money has to come from somewhere.
SeeSaw, the $4,053/resident figure assumes future investment returns. If no future investment returns are earned, the figure would far exceed $4,063/resident; might be as much as $12,000/resident.
It is entirely possible that future investment earnings will pay *all* of the $4,063. It is even more likely that if future investment earnings do so, CalPERS will increase payouts and reduce employer & employee pay-ins, and just start the same cycle once more.
On the other hand, it could be that the fund never recovers, and a Sovereign Default is necessary. Predictions are difficult, particularly about the future.
Pondering all the possibilities is not saying the sky is falling. But given the history of mismanagement, it is fair to question whether the mismanagement has been addressed.
Years ago CalPERS only allowed investment in bonds, which are nowhere near as volatile. There are still public DB systems in the country that never got out of bonds. They look pretty smart now.
July 7, 2014 at 8:28 pm
Not roses.
Apples and oranges. My wife had about $12k invested in a fund that wasn’t a tax deferred retirement account. When it went below $10k, she cashed it out. Her 401(k) lost more than that (on paper) but eventually bounced back. But the $2,000 loss from the other account is just gone.
$4,053 is an accounting figure. On paper. It eventually may end up being more, or less.
Not a debt.
July 7, 2014 at 10:06 pm
The $4,053 is the best estimate of the debt today. It has error bars on it, obviously. There is uncertainty. But still, it is the best estimate.