State retirement costs may ‘skyrocket’

As schools and health and welfare programs face deep and painful cuts in the new state budget, spending on retirement costs for state workers will increase 10 percent.

Most retirement costs are locked in by labor contracts, making them untouchable by budget negotiators.

Total state retirement costs will be nearly $5 billion in the new fiscal year beginning July 1 and could increase by “hundreds of millions of dollars” in 2010 because of the stock market crash, says the nonpartisan Legislative Analyst’s Office.

“State retirement costs may skyrocket in future years,” warns a headline in the analyst’s report on Gov. Arnold Schwarzenegger’s proposal to close a general fund budget gap estimated to be $42 billion over the next 17 months.

Unlike most areas of the state budget, the analyst said, contract law backed by court rulings enforces payments to the two big state pension funds, the California Public Employees Retirement System and the California State Teachers Retirement System.

But whether the fastest-growing retirement cost — retiree health care expected to increase 12 percent next year — has the same apparent iron-clad legal protection has not been tested in court.

“While the legal status of the state’s contributions for retiree health and dental benefits has never been litigated, efforts to alter those benefits in order to reduce contributions substantially would likely result in litigation against the state,” said the analyst.

State general fund retirement costs have doubled in the last seven years, going from $2.4 billion in fiscal 2002-03 to an estimated $4.8 billion in the fiscal year that begins in July, said the state Department of Finance.

The lion’s share is for CalPERS, increasing from $760 million to $2 billion during the period. In addition, state payments to CalPERS from non-general fund sources increased from $545 million to $1.3 billion, bringing the total next year to $3.3 billion.

State general fund payments to CalSTRS increased from $980 million to $1.25 billion during the seven-year period. Payments for state retiree health and dental programs more than doubled, going from $560 million to $1.3 billion.

The two state pension funds set aside money to pay for future obligations, creating giant investment portfolios that have lost a third of their value in the market crash. CalPERS had $174 billion in assets last week. CalSTRS had $126 billion on Dec. 31.

But the state has no fund for future retiree health care, an obligation that begins when workers retire as early as ages 50 to 55. A governor’s commission estimated last year that the state has a $48 billion unfunded liability for retiree health care.

The Schwarzenegger administration is proposing that the state begin “prefunding” retiree health care with savings gained by shifting state employees into health plans with lower costs than those currently offered by CalPERS

The proposal not only faces possible opposition from labor unions and CalPERS, but would also only generate an estimated $236 million the first year — far short of the roughly $1.2 billion a year that the commission and LAO have both said is needed

Most state workers pay part of the cost of their health coverage while on the job. The retiree health plan is more generous. The state pays 100 percent of the health care cost for the fully eligible retiree and 90 percent of the health care cost for dependents.

Adding to the potential for skyrocketing state retirement costs is the University of California retirement system, the third largest public pension system in the state. It has enjoyed a remarkable contribution “holiday” for nearly two decades.

The state, UC and employees have made no contributions to the pension fund since 1990. Retirees have been paid from a very successful investment portfolio, apparently created in part by higher contribution rates than needed in previous decades.

Last week, UC regents voted unanimously to restart contributions to the pension system. But as with health care for retired state workers, it’s a modest beginning as the state struggles with a huge budget shortfall.

The regents had wanted $228 million from the state, enough for a contribution of about 9.5 percent of the payroll. The budget proposed by Schwarzenegger contains only $20 million to restart pension contributions.

The plan approved by the regents restarts pension contributions in April 2010, the fourth quarter of next fiscal year. The employer contribution is about 4 percent of the payroll.

The $20 million from the state covers about a third of the cost for the quarter, said Paul Schwartz, a UC spokesman. He said UC will have to find an additional $40 million from other sources such as medical centers and federal contracts and grants.

Employees will contribute 2 percent of payroll — the same amount they have been required to contribute to a 401(k)-style individual investment plan, separate from pensions that guarantee retirees a monthly check.

The regular contribution that UC employees make to their 401(k)-style accounts will be redirected to the pension fund in April 2010. The regent’s plan is to increase the employee contribution to 5 percent, probably in annual increases of 1 percent.

Schwartz said the goal is to reach a contribution split similar to the CalPERS average — 5 percent from employees and 16 to 17 of payroll from the employer. That would be a big increase for the state.

To keep the UC retirement system fully funded, all contributions will have to total $1.3 billion a year, about 20 percent or more of payroll, said the Legislative Analyst. Then the contribution would have to grow annually with inflation and payroll.

CalPERS has warned its 2,000 local government member agencies that the market crash may require a contribution increase of 2 to 5 percent of payroll. If the market does not recover, the state faces a similar increase in its CalPERS contribution in July 2010.

The labor-friendly CalPERS board has the power to set employer contribution rates. But the CalSTRS board lacks that power and must rely on the Legislature to increase contribution rates when needed to keep the fund solvent.

“This usually limits the year-over-year increase in regular state contributions to CalSTRS,” said the Legislative Analyst’s report, “but the 2008-09 investment losses may be so large that state contributions to CalSTRS could rise sharply as well.”

The analyst said a state law requires “additional funding to CalSTRS if the actuarial value of its assets associated with benefit provisions in effect as of 1990 is less than the actuarial liability for those benefits.”

At a CalSTRS meeting last week, board member Beth Rogers said this might be a good time to ask the Legislature to give the CalSTRS board the power to set contribution rates.

“Why don’t you re-empower us and we take all the heat (for the contribution increase)?” Rogers said the board could argue.

“I would like to include that with all our other Hail Mary proposals,” said Tom Sheehy, a chief deputy representing Finance Director Mike Genest on the board. The remark drew a laugh from his fellow board members.

Sheehy later apologized for being blunt and asked to strike the remark from the record. But some board members said they appreciated the candor from Sheehy, a former legislative aide knowledgeable about how the Capitol works.

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 9 Feb 09

14 Responses to “State retirement costs may ‘skyrocket’”

  1. nenebird Says:

    Many if not most local agencies’ employee pay nothing out of their paychecks towards their own retirement. That is just wrong. They need to pay up to 5% like the ‘miscellaneous’ State employees.

    What doesn’t make sense in this picture is the fact that both the taxpayer and state miscellanious members are enrolled in Social security. Local Agencies arent’ enrolled in Social Security. Dept of Corrections isn’t in SS. So why is the rest of the state?

    It doesn’t make sense for State taxpayers to pay into both SS and Calpers. Calpers is intended to be a full service retirement fund, while SS is not.

    The State could save the current 6% contributions if it would get its employees out of Social Security. Savings? If the current furlough program with all its service disruptions, 10% salary cut, will result in 1.3 billion (87 million a month) in savings by June 2010.

    Dropping Social Security would save $52 million a month indefinitely or $624 million annually..This amount could go a great distance to offsetting any increase in pension costs to the State.

    This makes a tremendous amount of sense to me.

    The whole issue with any employee benefit is getting value for your money. Social Security is a dubious investment considering the funds precariousness and wide open use as a handout to too many people who never paid into it.

    No employee should have their full retirement benefit born by their employer. Everyone needs to pay part of the cost.

  2. Jack Says:

    Let’s be honest people. The skyrocketting cost of PERS is directly related to the idiotic retirement package put into practice by Gray Davis (buying votes) before he was kicked out office. When you increase the retirement benefit percentage from 2% to 3% at age 50 (a 50% increase) against the advise (warnings) of your own bean counters, you have effectively bankrupted the entire system. The state was warned about this bone head move but no one had the political guts to say no to it. Now the State and city workers are expecting to retire early and live the rest of their lives on 75 to 90% of full time pay.
    I’m sorry guys and gals, you have been mislead and lied to. This will never work out. The State is going to have to cancel this dumb idea and we all better pray that they can even afford to pay 50 cents on the dollar after all is said and done. The State is broke because of the fools we have put into office and it’s time to vote the lot out.

  3. nenebird Says:

    Dear Jack – please get your facts straight.

    Your wrote: When you increase the retirement benefit percentage from 2% to 3% at age 50 (a 50% increase) against the advise (warnings) of your own bean counters, you have effectively bankrupted the entire system.

    This formula is for law enforcement only. Out of 230,000 plus state employees, less than 10% are law enforcement? Please differentiate between the various rates for safety retirement or miscellanious retirement. If you don’t know, send me an email.

    For an employee to get 75% of their pay – State

    Must be 55 years of age and have 37 years of service in = 75% salary

    To get 90% of their salary
    must be 55 years of age and 45 years of service, ie impossible (unless in Law Enforcement. Earliest a person could get the 90% would be someone at 58 who started working for the State at 18.

    If you are the same Jack from Pension Tsunami, you need to get some facts to back up your posts. You come off sounding kind of nutty.

  4. Jack Says:

    Nenebird, You are correct when you state the percentage (more or less) of Law Enforcement personnel in PERS but you are absolutely wrong when you state that someone has to be 58 to collect a 90% retirement. I am ex-law enforcement and the truth is that if you came on the department at age 21, then, at age 51 you are eligible for a 90% retirement. One of the problems that has occurred from this dumb idea is that many more officers are takiing early retirements then ever thought would do it. Now do the math! If a city is hoping to get 30 years out of it’s employee, they have figured out what it will cost to fund his/her retirement. But when you wave a carrot in front of the employee and tell them that they can go out at 25 years and get a 75% retirement (which was the original percentage that we all signed up for) many people are going to grab that brass ring. Now add into the equation all of the officers (females at a higher rate) that are already taking early [STRESS] retirements, you can begin to see the strain that this is causing on the cities and PERS and when the cities go bankrupt and stop making their contributions this affects everyone in the system.
    I don’t know your back ground or your knowledge base and I can only speak from personal experience in the system, but you have to admit that something has to give here. We are paying our state and city employees very well and giving them the best retirements , except maybe the Congress, and now with our State being bankrupt some of these perks are going to have to be taken away and I think we have to start with this 3% at 50 formula and we have to get much tougher on the early stress retirements that are happening at a much greater frequency.

  5. nenebird Says:

    Hi Jack, love talking to ya.

    You are law enforcement and enjoy a more generous pension because of that fact. I am mere miscellaneous ( can you say mutt?) have the standard 2% at 55 formula. This is the misc formula is what the overwhelming majority of State employees have.

    I have 36 years in as a State employee and have been to a couple of retirement workshops over the years. For the bulk of us, we get a reasonable pension but certain not grandiose..I do analytical work and manage. My salary on the outside would easily be 15-25% higher. But factor in my bennies etc and I am doing okay in my book.

    People who bash public employees when times are bad need to be reminded that when times are good, they’ll take one look at the government salary and keep on going. The State salary will always be lower. Its the bennies, specifically health insurance and retirement that helps government retain good employees. Without that, the State would not retain those folks. Who would suffer? The public.

    So who do you want designing and building that freeway you drive on? A satisfied workforce or a furloughed, pissed off group of engineers ?

    I work with engineers mainly. We use contractors some. Bottom line – the consultant contractors cost 25% more than State staff…That comparing their hourly rate to our loaded rate – including all bennies. I know of what I speak…I do THE NUMBERS.

    So while a safety retiree would get 75% at 25 years, I would get 35% of my salary at 50 with 25 years.

    For miscellaneous members, you can see the scale is much less. At 58, for someone who began at 21, at the misc rate, that person would get 79% of their salary. Our rates pick up as you age. Safety members have a different actuarial table; ie. not so heavily weighted towards age.

    So yes, law enforcement can retire at 58 with 90% salary, but they are the only ones.

    With safety members, there have been a bunch of early retirements. I hear about the CHP ones. Its is kind of scam and embarrassing from a fellow state employee point of view.

    I don’t see pensions as the root of public finance issues. There are lots of competitors for that prize. A couple of my favs:

    1. State employees have to pay into social security. I am guessing you don’t. I don’t think state taxpayers should pay for two retirement systems: Calpers and SS. I say drop the Social Security and save the State’s 6% contribution. That amounts to about 52 million savings per month!!! Annually, the state could be saving $624 million..Over 5 years? $3.125 BILLION….We have Gov. Moonbeam to thank for this one.

    2. Did you pay into Calpers account? I pay 5% a month. Everyone should pay into their own retirement.

    I did a brief stint with a City locally. I made the same pay basically but because they paid the entire Calpers and weren’t in SS, I netted a $1000 more per month. I had less responsibility, had fewer people reporting to me..

    Well, guess what? they are flirting with bankruptcy due to the wages they pay. The employees were approached about paying 2% of their Calpers cost and they went postal!!! I didn’t have any sympathy for them.

    Its kind of like my kids. I don’t give them things – I will match what ever they earn towards a major purchase. If they have to contribute I know they appreciate it more.

    3. What concerns me more than the pension issue are the decision makers and policies we have in state government. There is a tremendous amount of stupid stuff we have to do based upon bad laws that are passed. Plus they respond to marginal issues. The whole stress in the workplace issue has become the safe haven for marginal employees. Push them. They claim stress. Blame our policy makers and lawyers. Its too easy to play the stress card and cash it in. Ditto worker’s comp.

    4. All public employees should be barred from suing their employer just like you can’t sue your HMO. Being able to sue government entities is stealing from the taxpayers. Litigation costs my agencies upwards of $100 million per year. That’s money that can’t be used to do something for the taxpayer. You should be able to sue a taxpayer funded organization. If you are harmed, they must pay to make you ‘good’ again, but there should be no punative damages. We need litigation reform.

    5. Publically funded elections. I think the whole pay to play for Sacramento is more to blame for bad policy than term limits, gerry mandered districts or anything else. Our legislature is owned by special interest. Publically funded elections would remove the dirty money from public policy.

    6. Of the $41 billion deficit, the LA times estimates that conservatively $12 billion is related to providing services to illegal immigrants. That is 30% of the deficit.The whole emotion of the issue has clouded everyone’s judgement to the point that on one can solve it. Neither you or I could absorb the living costs of a free loading relative year after year? Imagine your weird Uncle Fred coming to live with you. You have a balanced budget before Uncle Fred shows up. You find yourself spending an additional 30% extra in groceries, utilties, health care, etc. for Uncle Fred. After awhile, you either start leaving maps or want ads at Uncle Fred place at the table.

    So in my view, all costs have to be controlled. Pension are just one. But there are others who I see as having no up side (pensions help retain good employees) Litigation just take money out of the state coffers with no upside.

    We need better and smarter policy makers. My view is we will only get that through publically funded elections.

  6. Jack Says:

    Nenebird, I too enjoy the discourse…..You obviously know what you’re talking about when it comes to various types of retirements with the majority of city, county and state employees but that has never been the subject matter of my comments.

    I too believe that most employees should not have to pay into both SS and PERS. When I came on the dept. in the 70’s we had to contribute 9% of our gross which was mached by an equal amount from the city and we didn’t pay SS tax. By the early 80’s most of the cities, instead of giving actual pay raises to Fire and Police personnel, began to pay the employees’ contributiion which was, in affect, giving them a 9% increase.

    What most people don’t know is that during the 80’s and 90’s the accounts of the cities were growing so much because of Stock Market investments they actually didn’t have to make contributions and in some cases were receiving refunds which were use to subsidize their general budget. Then by the end of the 90’s when the Stock Market began to crash these dividends (for lack of a better term) stopped and the cities were still making double contributions to Fire and Police pensions along with annual pay raises. The cities couldn’t take back the 9% because they would, in affect, now be givng a pay cut.

    Now, to address your statements about state, county and city workers receiving less than their Private counterparts. You are absolutely, 100% correct. My father was a Deputy City Manager for one of California’s largest Citiies and then went on to be a manager for the League of Cities in the L.A. area and he had many offers to go into the private sector but decided against it as he truly believed that he was doing a good public service and that he would be rewarded with a better retirement. This is where you and I see eye to eye.

    BUT, and here is the big BUTT of this conversation. The biggest draw on most city and county budgets these days is the cost of Public Safety which covers all of Fire and Police as well as in some cases the jails and other misc. job descriptions. When I became a Police Officer in the 70’s I was actually making less money than I had been as a Security Officer in the quality control dept. of the old Ford plant in Pico Rivera, but in private industry there was no real retirement to speak of and so the chose was easy as well as being able to serve my community. I spent nearly 20 years on the dept. and then started my own security business and deferred my retirement till age 50 when I would be able to collect a 36% retirement (18 years actual at 2%). I actually had a 33% disability rating but chose not to take what I would consider a phony Medical Retirement which would have cost the city an immediate half a million dollar deposit into the PERS fund to cover my retirement payments as well as any payments guaranteed to my spouse (half of my payments) who is 10 years younger.

    Now, when Gray Davis came up with this Idiotic idea of increasing the Police and Fire retirement formula from 2% to 3% at age 50 (a 50% increase) without increasing the contribution or making sure that it was not retroactive, he in effect has placed a huge liability on the entire system and people like yourself and my father should be concerned that this “LIABILITY” is going to have an extremely negative affect on the entire system.

    I hope that others are reading our exchange here and from your info and mine, they are beginning to see the extreme challange that is facing the persons that have the un-enviable task of managing the funds of PERS.

    By the way, my Brother is going to retire this year at the age of 50 from a City Police Dept. with a 90% payout. He entered the academy when he was 20 and a half years old and so he has a full 30 years in the system and will collect the maxium retirement (he will be receiving close to $100,000 per year.)

    Take this into account as well as all the early Medical (stress) retirements and you can see why this is going to severely affect, in a negative way, the solvency of the Fund. I look forward to your response….Jack

  7. nenebird Says:

    Hi Jack!!

    I had a feeling that we agreed on most issues. With your Father also being in public service you have a broader perspective than most.

    I wasn’t aware that any members of Calpers actually got refunds!!! What a concept!! I think one of the reforms that needs to be made for all member agencies is that they contribute a set amount continuously. State members also had some periods where the State didn’t have to make contributions, but it is kind of like investing. You do better if you do continuous investing, called dollar cost averaging. Calpers actually enacted a policy like this a couple of years ago. So the State has been making a set amount on my behalf, in both good times and bad.

    There were a couple times during Pete Wilson’s tenure, that Calpers actually gave the state loans to get them out of a tight spot. Would never happen today!!

    I did a brief stint with a City, I think I mentioned that. The City employees definitely had a better deal that the regular State employees. But you know, they just asked for it, they didn’t agree to it. The city councils approved it. Often times our elected officials are extremely short sighted and agree to things that are just financially dumb. Kind of like a bunch of bankers who make bad loans.

    When I was there they were just starting to have problems, and the Public safety people really felt off limits to cuts. That has changed recently. The oddest think I heard was the Fire dept hadn’t gone to a structure fire in four years!!! Granted they did a lot of car accidents, brush fires, etc. The public supports public safety folks. I don’t think that is a bad thing. So Jack, what is the answer?

    I hear you on the phony medical retirements. I got diagnosed with MS. I could be asking for all sorts of ‘accommodations’ i. e. ways to get out of doing work, but that just isn’t me. I like to work.

    Gray Davis gave up the ghost to unions because of the money they spent. Did you read the article in Capitol Weekly? Legislature received $500 million from lobbyists last year. SEIU, one of the big state unions gave them $10.9 million alone. I have co workers who have to give to SEIU. They haven’t had a raise since 2001. They got 3% about 4 years ago that got eaten up by health insurance raises and a big union due hike. Criminal.

    Well, I know the CHP had a big rash of ‘medical’ retirements. An investigation got launched and guess what? No more medical retirements. Have you made some of your concerns known to Calpers? If you truly have concerns about the insolvency of the fund you draw from, or that safety officers in general, you really out to make it known. Do you find it embarrassing or dishonest in some way that so many public safety officers are getting generous retirements?

    I can understand if you do. But I guess I look at like a Mom or Wife. If my son or hubby didn’t come home from work one day, which is a possibility, the money isn’t a substitute but at least it is better than a poke in the head with a sharp stick.

    A couple things I should let you know, that I have learned about Calpers. Of many of the State miscellaneous members, not local agency, city members, is the average payout is 18 months…So unless those people have survivors, think of the divorce rate (50%) a lot of members die with no survivor, or if its children, they only receive bennies till 23.

    So Calpers have a big iceberg of money from all those dead members who didn’t leave a survivor..I can tell you from my experience through the years, a lot of my old coworkers retired and died within a couple years. Isn’t that sad? Calpers has this money and its their free and clear. I don’t worry about them going belly up.

    Take care.

  8. Jack Says:

    Nenebird, you hit the nail on the head….When the numbers were crunched many years ago the average policeman and fireman were living less than a decade after retirement and their spouses, if they had one, didn’t live much longer. Fire and police personnel are retireing much earlier and living much longer and I hate to say but since women have been hired in much larger numbers since the 80’s and retireing after only a few years and will be collecting for 40 or 50 years the system was already under stress and now with the (do I dare say it again) 3% at 50 formula the system will not survive unless severe changes are made.

    The bean counters were emphatic about this during Davis’s ousting but the press and others refused to speak about it. Schwartseneger brough it up once or twice but was completely shouted down and he hasn’t had the political huevos to bring it up again since he knows it will happen off his watch.

    Last year PERS had 239 billion in the fund. Today it has 174 billion and it hasn’t written down it’s real estate losses yet. If you look at what they are paying out in bennies today and what they are taking in, the fund is at a near negative. Now, take into the number of cities and counties that are having problems with making their payments and those who have already quit funding their retirements i.e., San Diego and others, and now you have the perfect storm approaching. God forbid, but if the Stock Market has another tumble this year or next you could easily see the fund drop below 100 billion and at that point they would have no other option but to start cutting payourts.

    Nobody disagrees on the fact that for the fund to stay solvent they must achieve approximately 8.5% return on their money, if not, they’re in troulbe. They haven’t made that since 1999.

    I don’t want to sound like Chicken Little, but the sky is dark and it won’t take much more to make it fall……..Prepare for the worst and hope for the best…..

  9. nenebird Says:

    Well, the actual retirement data of both men and women should start to reflect in the rates the various local agencies are being charged. I think Calpers re-rates every couple of years.

    Here is what I found in the Calpers audit report:

    According to this cost method, the normal cost percent for
    an employee pension liability is the level percentage of
    payroll amount which would fund the projected benefit if
    it were paid annually from date of employment until
    retirement.

    They go on to detail several methods of calculating what they need to have to fund the retirements.

    This whole thing, retirement rates, is based on actuarial tables. Like life insurance, the insurance company bets when and how are going to die calculates a rate and charges you. You hope they are wrong and you live longer. It a form of legalized betting. So what I would expect to have happen if women in law enforcement, fire are going out earlier and living longer the rates for the whole profession will go up. I think some of that may already be happening.

    I know the agency I worked at had a very aggressive safety program which was intended to reduce disability retirement. I would expect other to do the same, or pay the piper.

    I went and dug up some Data on Calpers: Here you go.,

    The actuarial assumptions discussed in this section are used
    to determine projected benefits. The effect of differences
    between those assumptions and the actual experience of
    the plan is calculated each year when the annual actuarial
    valuation is performed. These differences are actuarial
    gains or losses. Gains and losses are tracked separately
    and amortized over a rolling 30-year period.

    ACTUARIAL INFORMATION (AS OF JUNE 30, 2007)
    Each year CalPERS actuaries calculate a funded ratio—the ratio of market value of assets in the fund to the liabilities for each retirement plan. The funded ratios vary from year to year but are expected to approach 100 percent in the long run.
    Funded Status of Retirement Plans by Member Category
    Member Category 6/30/02 6/30/03 6/30/04 6/30/05 6/30/06 6/30/07
    State 82.1% 76.4% 82.9% 85.5% 88.6% 96.6%
    School 88.5% 83.4% 91.4% 96.2% 98.7% 107.8%
    Public Agency 89.2% 80.7% 87.6% 90.2% 92.7% 102.0%
    Notes

    1. The funded ratios are based on the Market Value of Assets.

    2. There were five plans in the state category with funded ratios between 89 percent and 104 percent as of June 30, 2007. The funded ratio for the state is an aggregate of all five plans.

    3. As of June 30, 2007, there were 2,012 plans with active members in the public agency category. There were 1,564 plans in one of nine risk pools and 448 public agencies in non‐pooled plans. For non‐pooled plans: about 1 percent of the plans were below 75 percent funded; about 44 percent of the plans were between 75 and 100 percent funded; and approximately 55 percent of the plans were 100 percent funded or better. All risk pools were between 95 percent and 110 percent funded.

    INVESTMENT PORTFOLIO MARKET VALUE
    $180.9 Billion (As of November 30, 2008)

    These are based on 6/30/08
    Actual Value of Assets: 216.8
    Actuarial Accured Liability 248.2
    Unfunded Liability 31.7
    Funded Ratio 87.2%
    Annual covered payroll 40.8
    UAAL as % of covered payroll 77.7%
    Market Value of Assets $251.1
    Funded Ratio 101.2%
    Notes:
    1 The funded ratio based on the market value of assets is the true measure of the plan’s ability to pay benefi ts.
    2 The Unfunded Accrued Liability (the total Actuarial Liability in excess of actuarial value of assets) of the PERF by major employer groups
    from the June 30, 2007 valuation is as follows: 1) $16,938 for the State of California; 2) $3,190 for Schools; and 3) $11,611 for Public Agencies.
    3 The June 30, 2008 fi nancial reporting is based on a total of 72 individual actuarial valuations with valuation dates ranging from January 1, 2006,
    to June 30, 2008. As a result, the asset values in this schedule will not equal the asset values on June 30, 2008.
    4 LRF and JRF are funded using the Aggregate Actuarial Cost Method. The Aggregate Cost Method does not identify actuarial accrued liabilities and
    funded ratios. For this reason, no funding progress information is available for either the LRF or JRF prior to June 30, 2007. Beginning with the
    June 30, 2007 actuarial valuation, CalPERS is complying with GASB Statement 50, which requires the funding progress to be disclosed using the Entry Age Actuarial Cost Method.

    Rates of return on investment go all over!! I think the average may approach the 8,.5%.
    HISTORICAL RATES OF RETURNS
    YEAR YEAR END 6/30 (%) YEAR END 12/31 (%)
    1984 ‐3.1 12.9
    1985 35.4 28.0
    1986 24.6 15.9
    1987 13.8 4.3
    1988 3.9 12.8
    1989 15.7 21.3
    1990 9.7 ‐0.8
    1991 6.5 23.0
    1992 12.5 6.5
    1993 14.5 13.4
    1994 2.0 ‐1.0
    1995 16.3 25.3
    1996 15.3 12.8
    1997 20.1 19.0
    1998 19.5 18.5
    1999 12.5 16.0
    2000 10.5 ‐1.4
    2001 ‐7.2 ‐6.2
    2002 ‐5.91 ‐9.5
    2003 3.9 23.3
    2004 16.7 13.4
    2005 12.7 11.1
    2006 12.3 15.7
    2007 19.1 10.2
    2008 ‐4.9

    This is from the CAFR audit..Its a 208 page report so I tried to pull the highlights from it.

    Through CalPERS 15 year smoothing of investment
    returns, previous positive returns will cushion the impact
    of the 2007-08 fiscal year investment losses on employer
    contribution rates. As of June 30, 2007, the asset
    smoothing method set aside about 14 percent of the
    CalPERS fund as a “rainy day” fund. The negative
    5.1 percent return for fi scal year 2007-08 uses up about
    13 percent of the 14 percent “rainy day” fund, leaving
    about one percent. If this one percent is used evenly over
    15 years, then employer contribution rates set by the
    June 30, 2008 actuarial valuations are estimated to be
    lower by up to 0.1 percent of payroll. However, given the
    decline in PERF investments between June 30 and
    October 31, 2008, it is not certain that the “rainy day”
    fund will be available beyond the June 30, 2008 actuarial
    valuations. This analysis also assumes that all other
    actuarial assumptions are realized in aggregate. It is
    important to note that in recent years, the demographic
    experience of most plans translated to increases in
    employer rates.

    Here is data on the State peace officer funds:

    State Peace Officers’ & Firefighters’ Defi ned Contribution
    Plan Fund (SPOFF)
    Plan Net Assets
    The SPOFF provides supplemental retirement benefits to
    eligible safety employees. Net assets held in trust for
    pension benefits increased by $19.3 million (5.8 percent)
    to $354.7 million at June 30, 2008, from $335.4 million
    at June 30, 2007.
    Contribution revenues were $51.5 million for fiscal year
    2008, an increase of 5.3 percent from fiscal year 2007. The
    increase to contribution revenues in fiscal year 2008 was due
    to an increase in membership. Net investment losses were
    $18.4 million for fiscal year 2008, representing a decrease in
    investment income of $56.2 million from the $37.8 million
    in net investment income for the 2007 fiscal year due to a
    significant drag on domestic equities from the downturn in
    global equity markets.
    SPOFF benefit expenses were $11.6 million for the 2008
    fiscal year, an increase of $0.8 million (7.4 percent) from
    the 2007 fiscal year, due primarily to the increase in the
    number of retired SPOFF participants in 2008.

    Interesting enough the report has the actuarial data for disabililty retirements…You might want to go to the Calpers Website and download it. It’s the annual CAFR report. Huge!!

    But I would get the report..Its a pretty comprehensive look at just about every aspect of Calpers.

    Take care, Jack.

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  12. Norris Hall Says:

    Pensions are fast becoming like dinosaurs.
    Most companies are dropping pensions in favor of 401K programs that do not obligate the employer beyond retirement.
    Most self employed folks have no retirement program other than what they save for themselves. They even have to pay 100 percent of their Social Security contributions.

    Only the State remains wedded to the old idea of Pensions.

    I object to having to provide pension benefits to State workers. They would howl if they had to contribute to my retirement.
    So why should I have to pay for theirs?

    Pensions are just another reason why the State would be better off subcontracting out much of its’s work. Not only do you avoid all the costs of an employee…sick pay, vacation time, holiday pay, pension contributions, etc. You also don’t have the huge obligations to continue to pay an employee even when the economy is in the toilet…like now. When there is no work to do, there is no salary to pay.

    Many state jobs have nothing to do with actual government operations: food services, web designers , graphic artist, video production specialists, maintenance etc. These jobs could be performed more economically with employees hired from temp companies or independent contractors rather than state workers . There are so many companies to choose from in the private sector who are hungry for work and would be willing to bid on any State contract.

    Also, Because state workers are rewarded with generous sick leave, vacation days, and holidays…on days when the rest of us are busy working, using outside contractors can increase productivity and help the state to keep on tight deadlines.

    I have often heard state workers say that they need generous pensions to make up for the lack of pay. Well, if you know any state workers you can go here to see what they make.

    http://www.sacbee.com/statepay/

    I plugged in several people that I know and was surprised at how much they make. They were being paid far more than similar jobs in the private sector. The myth that State workers would like you to believe is that they are being underpaid. Not true.

    California’s budget woes are directly related to State workers pension and compensation. Pensions are too generous , state workers are overpaid and too many are performing jobs that could be performed cheaper, faster and better by private sector workers.

    It’s time to reduce the number of State workers.

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