In a sign of the uncertain times, the CalPERS board last week approved a sharp increase in the cost of terminating pension plans, a rare action said to be taken each year by only one or two of the more than 2,000 retirement plans in the giant system.
After a plan terminates, there is no way to get more money from the employer. The worry is that ending just one big plan could “dramatically” erode a pool currently responsible for the pensions of 4,700 members of 118 terminated plans.
The new safeguard increases the money an employer must set aside to offset or “discount” future obligations. A much lower bond-based earnings rate will be assumed, currently 3.8 percent, rather than the CalPERS earnings forecast, 7.75 percent.
The change touches a hot-button issue. Critics contend that the California Public Employees Retirement System earnings forecast, 7.75 percent, is overly optimistic and conceals massive debt.
“I don’t want it to be reprinted somewhere else where CalPERS has all of a sudden decided to lower our assumed rate of return,” said board member Tony Oliveira. “This is a different animal here.”
Last March the CalPERS board, on a 10-to-3 vote, rejected a recommendation from actuaries to lower the earnings forecast from 7.75 to 7.5 percent. Dropping the forecast would have raised annual payments by employers.
A widely publicized report by Stanford graduate students last year estimated that the combined unfunded liability of CalPERS, the California State Teachers Retirement system and UC Retirement is $500 billion, not $55 billion as the funds reported.
The students used a bond rate, 4.1 percent, rather than the 7.5 to 8 percent the funds assume for their diversified portfolios. Some economists say a risk-free bond rate should be used because pensions are risk free, guaranteed by taxpayers.
“That’s one of the concerns I have,” said board member J.J. Jelincic, getting a laugh by referring to the Stanford report by describing the location of the university, as if uttering its name would sully his lips. “I think that some of these numbers will be quoted as, ‘Aha!’”
Jelincic said the critics may not understand “that there is a difference between pools where the system has a call on the employer and a pool where the system does not have a call on the employer.”
Unique among CalPERS funds, the Terminated Agency Pool lacks the key part of the modern public pension plan: the ability to get more money from employers and taxpayers if investments, expected to cover roughly two-thirds of pension costs, fall short.
“For all of the other funds at CalPERS we can ask the employers to make up any shortfall,” the CalPERS chief actuary, Alan Milligan, told the board. “That’s what allows us to invest the way we do.”
CalPERS investments, currently worth $224 billion, are in a diversified stock-based portfolio that is riskier than government bonds. Some of the money is in even riskier private equity and real estate expected to outperform the stock market.
“And as a result of investing the way we do, employers get a significantly lower cost in the long term,” Milligan continued.
A history of investment returns presumably would show that a diversified portfolio can pay for higher pensions than bonds, given the same level of contributions from employers and employees.
That was the theory behind a legislative ballot measure in 1984, Proposition 21, that allowed public pension funds to shift most of their investments from bonds to stocks and other riskier investments.
But arguably, diversified investments also led to the mismanagement of the state pension funds: lowering employer contributions and raising pensions when the stock market boomed.
A decade ago the Legislature was told, erroneously, that earnings from diversified investments would pay for increases in CalPERS pensions and a new CalSTRS benefit supplement. (See Calpensions 10 Jan 11: “State pension funds: what went wrong”)
Now the new bond-based discount rate for terminated plans is likely to result in a bond-based investment of the pool. The goal is to generate cash flow from the investments that matches cash needed to pay the pensions.
“This is really what insurance companies do, and for the same reasons,” said Milligan. “They have no ability to change the contributions, the premiums, so they have to fund like this.”
Milligan said the plan is to “immunize” the terminated pool against risk to better ensure pensions. Two years ago the CalPERS board rejected a proposal by actuaries to “immunize” a small survivor benefit program as a potential model for other funds.
Some of the dwindling number of private-sector pension plans, as well as a few European public pensions, are said to be moving toward bond-based investment strategies such as “immunization” and “liability-driven investing.”
As of June 2009, the terminated pool had assets worth $144 million, liabilities $60 million, and $5.4 million in annual pension payments. The pool was 240 percent funded, far better than CalPERS total funding of nearly 70 percent earlier this year.
A report given to the board by actuaries last week said the new 3.8 percent rate (an annual calculation based on 10-year and 30-year Treasury bond yields) would increase the liabilities from $60 million to nearly $92 million.
“For active agencies that wish to terminate in the future, a similar percentage increase in liabilities can be expected if rates remain unchanged,” said the report.
Even with a 7.75 percent rate, terminating a CalPERS plan could be prohibitively expensive. A study commissioned by the city of Pacific Grove last year found that leaving CalPERS would cost $30 million to $34 million.
Pacific Grove owed an additional $19 million on an ill-advised pension obligation bond. CalPERS does not require terminated plans to make a lump sum payment, instead allowing installment payments over time.
But the scenic Monterey Peninsula city with 15,000 residents had a general fund budget of about $15 million last fiscal year. The city has made deep spending cuts, reportedly reducing its police force from 30 to 20 members.
A local initiative approved by 74 percent of Pacific voters last fall, Measure R, would limit city pension contributions to 10 percent of pay. The police union filed a lawsuit in Monterey County Superior Court to block the cap.
The measure is one of the first attempts to reduce the pension benefits promised current workers. It’s a cost-cutting move some think is needed to make pensions “sustainable,” but which also is widely believed to be prohibited by court rulings.
A leader of the citizen group that wrote the measure, Dan Davis, said the legal argument that Pacific Grove employees do not have a “vested right” to promised pension benefits is based on what may be a unique provision in the city charter.
“I’m not sure it’s going to help anybody else,” Davis said last week, if the courts uphold the measure.
CalPERS will include a hypothetical termination liability in the annual actuarial reports sent to plans, starting in October of next year. With a lower 3.8 percent rate, the termination liability will be much higher than ongoing liability with a 7.75 percent rate.
“CalPERS will need to proactively communicate with stakeholders, including employers, members, and the general public about this change and why it was necessary to protect our members,” said the report to the board.
If there is an initiative on the November ballot next year that would switch new state and local government hires to a 401(k)-style retirement plan, the goal of a group led by Dan Pellissier, the higher cost of leaving CalPERS could be a campaign issue.
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 22 Aug 11
Calpensions 
August 22, 2011 at 2:02 pm
At SOME POINT, a more than miniscule CA City will be in such dire straights that it will simply NOT have sufficient money to pay for the most basic services and also pay it’s annual contribution bill to CalPERS. Assuming it has ALREADY raised Taxes as high as possible and has already cut services and salaries to the bone, what happens when it’s simply tell CalPERS it has no money … and for the purpose of this discussion let’s assume it’s clear it won’t have the funds for next year, or the next, (likely never) etc.
SO WHAT happens ?
(a) DO the worker’s no longer accrue additional pension benefits?
(b) If In (a) above they do continue to accrue additional benefits, who ultimately pays for them if this city cannot?
(c) How do the cities current retirees and future retirees get impacted ? For example , if (as likely) there ALREADY exists a significant underfunded liability, if THIS city doesn’t pay, OTHER CalPER cities’ taxpayers wind up paying unless THIS city’s pensioners get a benefit haircut. How does this pan out?
And please skip the CONTRACTUAL OBLIGATION response. In the real world with no money THAT won’t matter. What really happens ?
August 22, 2011 at 2:26 pm
Let’s see here… CalPERS refuses to get honest about their discount rate even after their own actuary’s are projecting 7.6 percwent returns over the next decade (50% confidence level?), and their independent consultant was telling them that 6% might be more realistic. But:
““CalPERS will need to proactively communicate with stakeholders, including employers, members, and the general public about this change and why it was necessary to protect our members.””
When will CalPERS start protecting the taxpayers?…or at least start being honest. I think it’s time to reconfigure the BOD’s.
This story raises the concern-o-meter on several different levels.
August 22, 2011 at 4:46 pm
I thin this pretty much proves up the point that CalTURDS is a major fraud.
They are scared there will be plan terminations because they CANNOT meet their ridiculous dicount rate of 7.75%, so they jack the rate to exit- because you KNOW the muni’s are going to be abandoning the SINKING CalTURDS ship once the contribution rates keep rising at a steady pace for the next 20 years, and the muni’s cannot afford to keep paying the sky rocketing contribution costs.
I do question whether their bump is legal, trying to FORCE the muni’s into staying onboard the sinking ship- not allowed to leave CalTURDS by making ti cost prohibitive, when in fact the costs are not as high to exit as CalTURDS claims. C
alTURDS is a scam. A fraud. A rip off. They will say and do anything to rip off the taxpayers and keep their gravy train ponzi scheme running.
No other reason.
CalTURDS living up to their name. A fraud. Just like SB400 was a fraud.
Run by crooks.
August 22, 2011 at 4:47 pm
When will CalPERS start protecting the taxpayers?…or at least start being honest.
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Never. That’s when.
Rip off and con artists don’t change their spots.
August 22, 2011 at 5:01 pm
It’s not CalPERS job to protect “taxpayers” generally. Their charter specifically directs the organization to make fiduciary decisions solely in the interest of the fund members. That would be the people whose retirements are entrusted to the fund.
CalPERS is doing exactly what it’s supposed to do, and the contracts that every member agency signed were very clear about the organization’s focus and fiduciary responsibilities, as is the California Constitution and the Government Code.
August 22, 2011 at 5:27 pm
CalPERS Acts to Ensure Benefits of Terminated Agency Members
This Aug. 17, press release can be viewed on the CalPERS website.
August 22, 2011 at 6:21 pm
It’s not CalPERS job to protect “taxpayers” generally.
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Yes it is their job, as well as their fiduciary duty (Skippy, this term is above your white belt legal analysis status I’m afraid) to keep their fund sound financially.
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CalPERS is doing exactly what it’s supposed to do, and the contracts that every member agency signed were very clear about the organization’s focus and fiduciary responsibilities, as is the California Constitution and the Government Code.
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Since when is fraud, conning, scamming and going BK a duty CalTURDS was “supposed to do”??????
Go home GED Wonder, this is above your pay grade.
August 22, 2011 at 6:25 pm
BTW Skippy, running the fund in an irresponsible and reckless manner violates CalTURDS fiduciary duty to the members of the plan. A clear and convincing violation.
In fact I will state right here that calTURDS is easily at risk fro being sued in a fraud claim by the member muni’s, for the claism they made about SB400. Classic fraud. They clearly violated their fiduciary duty.
August 22, 2011 at 6:27 pm
Quoting Skippy …”It’s not CalPERS job to protect “taxpayers” generally. Their charter specifically directs the organization to make fiduciary decisions solely in the interest of the fund members.”
Making …. “fiduciary decisions solely in the interest of the fund members” … should NOT include advocating for Plan members in a way that supports greater benefits (as they did for SB400), a roll CalPERS has clearly taken on. That’s wrong.
August 22, 2011 at 8:24 pm
Skipping Dog,
“It’s not CalPERS job to protect “taxpayers” generally.”
– OK (for now). But considering that taxpayers are in some odd way customers, wouldn’t you think they have a responsibility in that regard? And it is usually customers that pay, right? And it is the taxpayers that are paying – isn’t that correct?
“Their charter specifically directs the organization to make fiduciary decisions solely in the interest of the fund members. That would be the people whose retirements are entrusted to the fund.”
– Where in their Charter does it say that? I agree that CalPERS has been making desicions “solely in the interest of the fund members” – one of the problems, but I disagree that it is (A) their charter, or (B) what they should be doing. Only the union dominated Board of Directors or a Pension Fund Culture Gone Mad could see it as such.
Your thoughts?
August 22, 2011 at 9:42 pm
The Termination Pool is 240% funded. In addition,terminated funds do not have the biggest risk,i.e., salaries increasing greater than the 3.25% per annum actuarial rate used by Calpers. The 240% funding occurred in spite of the worst stock market since the great depression. So the whole deal is an arbitrary and capricious “penalty” for Pacific Grove. Pacific Grove now,because of this “penalty,” has two viable courses of action: It can privatize all services,including police and fire,to non-Calpers contractors, or, it can declare a financial emergency and cut all salaries by 50% until the emergency passes,which would allow it to pay off its’ Calpers deficit in 6-7 years,after which time it could leave Calpers with no deficit.Importantly,in contracting,it can’t contract with entities that utilized current employees,or Calpers retirees,because Calpers would prohibit it. This is like Maddoff,swindling his clients,and charging them a 100% fee to get their money back. Only,for Calpers,it is legal because the legislators and govenors made it legal .What a state!
August 22, 2011 at 9:55 pm
Only,for Calpers,it is legal because the legislators and govenors made it legal .What a state!
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The state legislator cannot violate the Constitution. Take the issue to court, test it.
Test it with cutting pensions for current empoyees for years not yet worked. Test it.
August 22, 2011 at 10:18 pm
It is cheaper and more certain to just contract for all services ,including fire and police, with non-Calpers entities. In this state,don’t be suprised if you can only hire illegals. The ways of Calpers are indeed mysterious.
August 22, 2011 at 10:26 pm
Where is the “truth squad” now!
August 22, 2011 at 10:35 pm
Well, a public entity is not going to be hiring illegals. That only happens in the private sector.
August 22, 2011 at 11:09 pm
So I guess the Private Sector attracts the MOST competent/entrepreneurial and the illegals cast aside … while the Public Sector attracts those with the least drive and work ethic and of course those whose father worked there and reserved a spot for his progeny.
August 22, 2011 at 11:19 pm
CalPERS recently held a special election for a vacant seat on their Board of Directors. I decided to watch the presentations of all seven candidates that were campaigning for one seat. It was a special election because one of the members was caught up in the CalPERS “Pay to Play” scandal, apparently changed his testimony three times during the investigation, and resigned. He was probably handed a prepared letter of resignation and told to sign it or be terminated.
Anyway, I ranked the seven candidates from 1-7, with one being the best candidate from the taxpayers perspective. I ranked Michael Bilbrey 6th. The unofficial winner of this seat on the Board of Directors of the worlds largest pension fund, of this Union dominated BOD, is – Michael Bilbrey. He is a union guy. Here is his BIO:
Biography and Background:
“Michael Bilbrey is the Bookstore Operations Coordinator at Citrus Community College District in Glendora, Calif. Michael also serves as the 1st Vice President of the California School Employees Association (CSEA), which represents more than 220,000 classified employees in California’s public schools and community colleges. He has earned AA, BA and MBA degrees.
At CSEA, Michael is chair of the CSEA Investment Committee, where he oversees a multi-million dollar investment portfolio (60 million) for the union special fund and pension fund. He also chairs the CSEA Health and Welfare Taskforce, addressing health benefit issues at the local, state and federal levels. Chairing these committees has provided Michael the experience and skill to move seamlessly onto the CalPERS Board of Administration and deal with issues related to investment, corporate governance, asset management, health care benefits and cost containment. Michael also serves on the CSEA Budget Committee and as the State Administrator for Los Angeles Unified School District CSEA Chapter 500. “
– Michael Bilbrey is the Bookstore Operations Coordinator at Citrus Community College – what? …. No indication of a degree in finance or accounting, or even which schools he attended (online?). Now he is on the board of an entity that is managing 224 billion in assets (down from 237.5 on June 30).
Link: http://www.bilbrey4calpers.com/resources.html
Is this guy even qualified to sit on the BOD’s of CalPERS. The answer is yes according to CalPERS and their voting members. I wonder what the credentials of the other five union members look like?
August 22, 2011 at 11:55 pm
Since employer (meaning TAXPAYER) contribution (including the investment earnings thereon) pay for 80-90% of the total pension costs …and YES, that’s correct …. shouldn’t 980-980% of the CalPERS Board members be TAXPAYER representatives … and NOT from Labor/Union, worker ranks ?
But noooooooooo …. 90% ARE from Labor, Union, worker ranks.
What a scam perpetrated on the Taxpayers !
Taxpayers, refuse to further fund this traitorous dog and renege on these grossly excessive pension promises !
August 22, 2011 at 11:59 pm
It isn’t about which sector attracts what type of worker. Its just fact, that an illegal is not going to get hired in the public sector, unless they are legal. I processed new hires.
August 23, 2011 at 12:06 am
Its interesting that you would be so up in arms, if Board Members are from unions. It doesn’t seem to make any difference, as far as the size of pensions go. The drawers of the mega-sized pensions, are all former managers, who were not in unions.
August 23, 2011 at 12:12 am
The Board Member does not necessarily need a degree, in finance or accounting. This one has plenty of public sector experience. CalPERS staff has plenty of actuaries, who know math, and investment professionals.
August 23, 2011 at 12:35 am
Lets’ stick to the point. If the termination plan is 240% funded,compared to less than 70% funding for the active plans,there is absolutely no reason to impose a 100% penalty for terminating.Obviously terminated plans have significantly less risk than active plans. This is a sick,sick joke. They lost 55 million dollars of a 100 million pension plan and they want 110 million for the city to terminate. Evidently the logic is that if a city like Pacific Grove was so stupid that it stayed with Calpers until its’ losses are unrecoverable,it deserves to be subject to a terrorist cancellation fee. Calpers doesn’t just want the parks,the library.and city hall:it wants the churches as well! What a group!
August 23, 2011 at 12:37 am
“The Board Member does not necessarily need a degree, in finance or accounting. This one has plenty of public sector experience. CalPERS staff has plenty of actuaries, who know math, and investment professionals.”
This explains how people with almost zero experience, in the big scheme of things, get elected to the Calpers board. The only people that get to vote are see-saw and company.
Sorry seesaw but your comments are beyond ridiculous, and that thinking has probably contributed to the current mess.
August 23, 2011 at 12:54 am
Beyond ridiculous? How so? Six of the 13 Board Members are elected by CalPERS members–that is as it should be. The one, who was the biggest crook, served during the Pete Wilson administration–I am not sure if he was a Wilson appointee, but I would not be surprised. Pete Wison dipped into the CalPERS cookie jar, as also did GAS. Wilson tried to take over the Board, so he could run CalPERS himself. That would have been disaster. I think if you read the biographys of all of the Board members, you will find plenty of financial experience. The new member, as quoted, from his bio, in a post here, hasd plenty of financial experience. Do you have a specific complaint about CalPERS, or are you just a CalPERS hater, in general?
August 23, 2011 at 12:54 am
The Board Member does not necessarily need a degree, in finance or accounting.
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LOL…right seesaw, and a race car driver does not need to know how to drive a car either and pro quarterback does nto need to know how to throw a forward pass.
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This one has plenty of public sector experience.
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Exactly why he should NOT be on the CalTURDS board.
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CalPERS staff has plenty of actuaries, who know math, and investment professionals.
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Are these the same “actuaries, who know math” who said SB400 woudl nto cost a dime and ended up costing HALF A TRILLION DOLLARS?????????????? Yes, they sure do know math, like a 1st grader knows math.
Yikes seesaw. You have more spin than Maytag!
August 23, 2011 at 12:57 am
Evidently the logic is that if a city like Pacific Grove was so stupid that it stayed with Calpers until its’ losses are unrecoverable,it deserves to be subject to a terrorist cancellation fee
==========
The fee is out of line and I am positive if it were litigated in court the fee would be tossed in 2 seconds.
August 23, 2011 at 1:11 am
SeeSaw said …”Its interesting that you would be so up in arms, if Board Members are from unions. It doesn’t seem to make any difference, as far as the size of pensions go. The drawers of the mega-sized pensions, are all former managers, who were not in unions.”
Your nuts. If CalPERS Board was comprised of financially literate Taxpayer (not Labor/Union) representatives, the retroactive increases of SB400 with its disastrous consequences (for taxpayers … and quite possibly the workers if the Plans fail as a consequence) would NEVER have been approved.
August 23, 2011 at 1:21 am
Anyone can go to the CalPERS website and read the bios of the Board Members. Saying that that Board is union dominated is a bunch of BS. Not that it matters–unions are irrelevant when it comes to CalPERS. There are plenty of advanced degrees and pleny of financial experience, among the 13 Board Members.
August 23, 2011 at 1:50 am
“Anyone can go to the CalPERS website and read the bios of the Board Members. Saying that that Board is union dominated is a bunch of BS. Not that it matters–unions are irrelevant when it comes to CalPERS.”
SeeSaw, skipping dog doesn’t even think CalPERS views the unions as irrelevant and niether do I. Here is what he had to say:
“It’s not CalPERS job to protect “taxpayers” generally. Their charter specifically directs the organization to make fiduciary decisions solely in the interest of the fund members. That would be the people whose retirements are entrusted to the fund.”
I think that sums it up. And if you think the CalPERS board is anything less than dominated by unions you are blinded by your own self-centered greed (or something I’m not familiar with).
“Michael Bilbrey is the Bookstore Operations Coordinator at Citrus Community College District in Glendora, Calif”
– if you can justify BilBREY as a CalPERS Board member I guess you can justify anything. You sound like David Low.
August 23, 2011 at 2:12 am
If you believe what you say, Captain, you should not be adverse on going to the CalPERS website, and reading the bio of each member. If you do that, you won’t find union domination of the Board. Nuff said–I am not into personal insults.
August 23, 2011 at 2:41 am
“you should not be adverse on going to the CalPERS website, and reading the bio of each member. If you do that, you won’t find union domination of the Board.”
The union influence is in the form of six union board seats on the thirteen member board. On top of that we have two designated board members by virtue of their positions: John Chiang the state controller (D), and the state treasuer Bill Lockyer (D). As we are all learning the elected democrats are controlled by the unions and in the case of our treasuer, that includes both he and his wife. But it is just two more; lockyer & Chiang, for a total of eight union members. Our Democrat Governor Jerry Brown also gets to appoint two members to the CalPers board for a total of 10 union funded democrats/union members. The other three I beleive are appointed based on both their independence and experience regarding pensions and investments.
IMO, because the taxpayers have had 100% of the risk imposed upon them and the unions, according to the unions, have constitutional guarantees of payment, that we need to eliminate all six union members and replace them with six members approved by taxpayers.
That would be a good start.
Sorry Mr. Moore, my next post will be on topic.
August 23, 2011 at 3:17 am
Captain, you should not be adverse on going to the CalPERS website, and reading the bio of each member. If you do that, you won’t find union domination of the Board.=
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90% of the CalTURDS board are public union members or public union mouth pieces. Arnold’s appointment, the Stanford Study author, was removed by Jerry Clown and replaced with a CalTURDS apologist.
Nuff said.
August 23, 2011 at 3:40 am
Captain –
Here’s the relevant section of the California Constitution that governs public retirement systems, including CalPER. You’ll find it in Article XVI, section 17:
(a) The retirement board of a public pension or retirement system shall have the sole and exclusive fiduciary responsibility over the assets of the public pension or retirement system. The retirement board shall also have sole and exclusive responsibility to administer the system in a manner that will assure prompt delivery of benefits and related services to the participants and their beneficiaries. The assets of a public pension or retirement system are trust funds and shall be held for the exclusive purposes of providing benefits to participants in the pension or retirement system and their beneficiaries and defraying reasonable expenses of administering the system.
(b) The members of the retirement board of a public pension or retirement system shall discharge their duties with respect to the system solely in the interest of, and for the exclusive purposes of providing benefits to, participants and their beneficiaries, minimizing employer contributions thereto, and defraying reasonable expenses of administering the system. A retirement board’s duty to its participants and their beneficiaries shall take precedence over any other duty.
The following section of the California Government Code also directs the fiduciary responsibilities of CalPERS:
§ 20151. Additional fiduciary standards
The board and its officers and employees shall discharge their duties with respect to this system solely in the interest of the participants and beneficiaries:
(a) For the exclusive purpose of both of the following:
(1) Providing benefits to members, retired members, and their survivors and beneficiaries.
(2) Defraying reasonable expenses of administering this system.
(b) Minimizing the employers’ costs of providing benefits under this part.
(c) By investing with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with those matters would use in the conduct of an enterprise of a like character and with like aims.
____________________________________________________
This stuff is easy to find, starting with the CalPERS website and even more easily through Lexis or WestLaw.
The regulations and a long series of AG opinions and legal decisions make it very clear that the fiduciary duty of CalPERS, as well as other public retirement systems in California, is to its members, not “taxpayers” who may wish the Constitution and Government Code gave them that priority.
August 23, 2011 at 3:43 am
BTW, Captain. The fact that public pensions in California are protected by the constitution and state law has nothing to do with unions whatsoever. CalPERS long predates the ability of public employees in the state to bargain collectively, a right that was signed into law by Governor Ronald Reagan in 1968 for local agency employees under the Meyers-Milius-Brown Ace, and was later extended to state employees under the Dills Act of 1974, signed into law by Governor Jerry Brown.
August 23, 2011 at 3:49 am
There’s no requirement that any public office holder have a college degree, in accounting or anything else. Governor Walker of Wisconsin has no degree, nor I suspect do many others the right wing or our political system adore.
CalPERS is a state regulated body created solely to provide pension benefits to retired California state and local employees and their beneficiaries, as applicable. Those aren’t accounting questions, but policy questions. CalPERS has plenty of accountants, actuaries, and financial professionals on staff, and they have the degrees you seem so enamored of. That’s why the board members rely on staff reports for details, just like any other large organization would do.
August 23, 2011 at 4:04 am
Pay particular attention to 1992 in the chronological history of CalPERS. That’s when the “taxpayers” of California passed a Constitutional Amendment (Prop 162) giving CalPERS sole and complete authority over its funds, in response to Gov. Pete Wilson trying to steal $2 billion out of the trust to balance his budget.
Click to access general.pdf
August 23, 2011 at 4:25 am
Skippy, I read your recent comments outlining CalPERS duties and obligations. Although I’ll admit it’s not perfectly clear, I come away with the view that references to CalPERS obligation to act (with respect to it’s duties) in the best interest of Plan members, does not extend to advocating for improved benefits, a roll it has taken on more than once.
A reasonable reading would suggest that those references (to acting in the best interests of it’s members) does not expand upon it’s specifically enumerated “duties” to administer the Plan, protect and prudently invest Plan assets.
It is clearly because of the makeup of the Board that CalPERS roll has morphed into one of employee advocate for greater benefits.
August 23, 2011 at 4:59 am
It’s difficult to see how it could be more clear than the state constitution and government code, TL.
When you suggest CalPERS was “advocating” for improved benefits, I assume you are referring to the discussion over the passage of SB400 to allow the 3@50 retirement plan for safety personnel. If you’ll take the time to actually review the statements made by CalPERS staff at the time, you’ll find that they clearly noted the risk of a prolonged downturn in the investment environment could undercut the actuarial assumptions, and I don’t think you can show me anywhere or any time when CalPERS told member agencies it was a wise practice to disregard their required annual contribution to the fund, even if it appeared to be “superfunded.” I know that employees weren’t given the option of not paying their required fees.
There’s also the matter of “statutory construction,” a legally well recognized component of which is that the duty first articulated takes precedence over those that follow. Therefore, the first duty is to provide benefits, etc. A subsection of the second duty is to administer the Plan, prudently invest, etc.
We’ve been doing this too long with one another to be coy or obtuse about clear constitutional language so, even if we agree to disagree about public employee pensions in general, the California Constitution and related statutes concerning the fiduciary duties of CalPERS and other retirement systems is very clear.
August 23, 2011 at 5:10 am
One other bit of history, TL. Throughout the 90’s, California government employees had many of their benefits reduced, including the imposition of a two-tiered pension system and greater costs for newer members. This was in addition to the efforts Republican Gov. Pete Wilson made to take money out of the pension trust to balance his state budget and give tax cuts at the same time.
In addition, the state and many municipalities kept a firm and consistent lid on most salary increases, often having Wilson himself calling County Supervisors or city mayors to harangue them into stalling or preventing pay raises for their employees.
Many public employees, myself included, became politically active during that decade specifically because of Wilson’s actions, and in the latter part of the decade we started to have some successes – first in the legislature and later with the election of Gray Davis as Governor. When SB400 was passed, it was the result of years of political work by law enforcement and firefighter organizations with nearly 100,000 members in the state. The same was true about the pent up demand for wage and benefit improvements throughout the early part of the 2000’s, and our position wasn’t hurt by the events of 9/11.
Much of what you consider “excessive” compensation today is attributable to the ebb and flow of political power, but it could have been mitigated if Republicans like Pete Wilson and the legislature he controlled for at least one term had not opposed reasonable increases in compensation for public employees at the same time it appeared everyone else was making tons of money in the go-go era of the 1990’s.
Unintended consequences permeate this entire discussion, so a thoughtful approach would recognize the shifting pressures of the time, as well as the inherent tension between employees of any organization and those who must pay for their services.
August 23, 2011 at 5:21 am
Skippy, I admit my specific knowledge with respect to CalPERS roll in the SB400 fiasco is limited to what I’ve read on this and other blogs (hardly a definitive source), although I do seem to recall CalPERS being less than forthcoming with actuarial projections that showed possible problems (as you noted).
As to “providing benefits” being the first enumerated duty, I guess we disagree as to what that means. To me it simply means accurate timely payment of benefits per documented Plan provisions … without any element of advocating for employees or seeking to evaluate less than perfectly clear Plan provisions in a manner which yields the greatest benefit among the possible options.
August 23, 2011 at 5:31 am
Hello,
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—
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August 23, 2011 at 5:34 am
“It’s difficult to see how it could be more clear than the state constitution and government code, TL.
When you suggest CalPERS was “advocating” for improved benefits, I assume you are referring to the discussion over the passage of SB400 to allow the 3@50 retirement plan for safety personnel. If you’ll take the time to actually review the statements made by CalPERS staff at the time, you’ll find that they clearly noted the risk of a prolonged downturn in the investment environment could undercut the actuarial assumptions, and I don’t think you can show me anywhere or any time when CalPERS told member agencies it was a wise practice to disregard their required annual contribution to the fund, even if it appeared to be “superfunded.” I know that employees weren’t given the option of not paying their required fees.”
Are you serious. It isn’t just that they advocated for improved benefits, and I think your revisionist history is beyond suspect, but that they were advocating at all. That isn’t in the CalPERS Charter.
I’m pretty sure I will have much to say on the issue of the CalPERS board, the calPERS culture, SB 400, union influence and their role in creating this mess, and the conversation that hasn’t taken place -but we should be having.
In the meantime this aspect of the story is very interesting:
“If there is an initiative on the November ballot next year that would switch new state and local government hires to a 401(k)-style retirement plan, the goal of a group led by Dan Pellissier, the higher cost of leaving CalPERS could be a campaign issue.”
August 23, 2011 at 5:35 am
Edra, I guess you missed the part of Milchael Bilbray’s bio, where it says he has AA, BA, and MBA degrees.
August 23, 2011 at 5:35 am
Skippy, Please take a look at the first comment in this post where I asked what the process would be if a city just simply told CalPERS it simply has no money to pay (it will happen eventually)…. what happens ?
I’m assuming CalPERS might be able to get a judgement against the City, but how can it actually force the payment of funds. Can a judge unilaterally raise the city’s property taxes? Can it force the sale of town buildings, parks, etc. ?
And what happens to pensions currently payable and pensions of future retirees if there exists an unfunded liability and the city can’t pay ? Do pensioners get a haircut? Do other cities pick up the tab (doesn’t seem fair to them) ?
For discussion purposes, I’m assuming the Federal or State Gov’ts don’t ride to the rescue.
August 23, 2011 at 6:16 am
TL,
You cut retiree healthcare for both current workers (in the future) and retiree’s. That is what Vallejo did. They cut their unfunded retiree medical from 135 million to about 23 million. Is that a solution that is fair? In some cases yes and in some cases no, but when the current employees won’t negotiate and your city is broke you’re left will little choice. If your city considers pensions a vested right, and I don’t believe that to be true for future years of service, then the first thing to go is retiree medical – which is NOT a vested right.
I hope retiree’s are paying attention to what current workers are doing.
August 23, 2011 at 6:50 am
Sorry captain. Post employment benefits like healthcare don’t have nearly the legal protections of pension obligations.
Whether or not existing benefits are legally vested for future years of service will be something that requires several years of litigation and millions of dollars in legal costs to sort out. If you live in California and have the persuasive ability to get your city to take such an unknown risk, step right up and take a shot.
TL – Wouldn’t our working assumption be that any city violating the provisions of their contract with CalPERS would find itself being sued for that action? The city would also be sued by its employees, either individually or, more probably, as a group for violating their contract agreement, and would probably be sued by their retired employees as well.
On top of that, how well do you think the existing employees will continue to perform if they know their employer is actively undermining something as basic as their pension obligation.
Once the lawsuits conclude, and there are multiple judgments against the city, the city may then be legally insolvent. That would allow it to file for Chapter 9 bankruptcy reorganization, during which CalPERS and all of the current and retired employees would be creditors, and the bankruptcy court would oversee whatever work-out plan the city came up with. Remember, there will be added pressure from all of the other creditors on the list who’ve provided services or supplies to the city involves, so it’s going to be a long, messy, and politically destructive period for the city.
If you were a business person, would you open or move your business to such a place? If you had the chance to leave, wouldn’t you? What condition do you think other city services will be in at that point?
Once more, we have people looking for some magic and painless bullet that simply doesn’t exist. That’s also why it makes perfect sense to ensure that a city deciding to end its pension contract with CalPERS has paid off its complete liability before the contract can end.
August 23, 2011 at 6:54 am
TL – the other variable is whether or not the city in question is participating in one of the various “risk pools” that CalPERS has. If so, then the entire pool would suffer, including people in other cities.
August 23, 2011 at 7:12 am
Captain wrote:
“Are you serious. It isn’t just that they advocated for improved benefits, and I think your revisionist history is beyond suspect, but that they were advocating at all. That isn’t in the CalPERS Charter.
I’m pretty sure I will have much to say on the issue of the CalPERS board, the calPERS culture, SB 400, union influence and their role in creating this mess, and the conversation that hasn’t taken place -but we should be having.”
____________________________________________________
I’m sure you question my version of history, but it is always in the eyes of the participant, isn’t it? I don’t think you can construe the fact that CalPERS staff members answered questions posed to them by legislators as advocacy, as least in the way you seem to want it defined.
As to your future eloquence on CalPERS board, culture, etc., all I can say is welcome to the conversation – finally. Many of us have been deeply involved in the discussion for the past three, four, five or more years, so you’ll forgive my potential impatience in response if you haven’t bothered to prepare by doing a little study of both California and federal law concerning pension rights, vesting, contract law, ex post facto laws, the constitutions of both California and the U.S., and the specific laws controlling public pension funds in California. You might also want to go to the CalPERS website and read the reports available there.
The Second District Court of Appeals for California wrote an extensive opinion earlier this year, which was cleared for publication and citation by the California Supreme Court when they denied further appeals. It involved the attempt by Orange County to unilaterally roll back the 3@50 retirement plan for its law enforcement personnel. The county’s effort failed in every court, much to the chagrin of Supervisor John Moorlach who championed it as an easy fix for the county’s financial problems. Orange County is now facing an additional expense of several million dollars in attorney fees for that decision. Read the opinion of the court. It is binding precedent statewide, and provides an excellent primer on California pension law, including its history and legal development.
The possible initiative you refer to hasn’t even been circulated yet for signatures, and there doesn’t appear to be a political angel ready to supply the $2-$3 million necessary to get ballot access and run a campaign for its approval. Again, if you have the money or ability to raise such funds, have at it.
I’m sure we’ll talk again.
August 23, 2011 at 7:24 am
BTW, captain. If you don’t trust my version of history, here’s a version posted in 2009 on this very blog. Tough Love even has a comment listed:
August 23, 2011 at 1:57 pm
Skippy, It’s always helpful to understand the financial magnitude of a change (such as SB400), and in doing so an extreme example help to get the point across.
With respect to the impact of SB 400, if we consider a 3%@50 formula employee with exactly 30 years service and age 55 when SB400 was passed, and then making $100,000 (likely as a higher level officer at the tail end of a career), the change from 2%/yr to 3%/yr is an EXTRA annual starting pension (with subsequent COLA increases) of $100,000x.01×30=$30,000. The cost of purchasing this INCREMENTAL straight life annuity to a 55 year old is just about 20 times the initial annual payout or 20x$30,000=$600,000.
This $600,000 is the upfront, (i.e., immediate) “value” to this officer as a result of SB400, a retroactively granted “gift” for which that officer produced no product nor provided any service.
While as explained that this is an extreme example, I find it VERY difficult to believe that if this example and others of lesser magnitude were fully shared with taxpayers (with sufficient time to digest and comment upon) prior to the Legislature’s vote on SB400, that the taxpayer’s reaction would have be so pointedly against passage, that even with the enormous clout of the supporting Unions, SB400 would likely not have passed. Certainly it SHOULD NOT have been passed.
August 23, 2011 at 2:32 pm
Skippy, I though it important that I elaborate on the last statement in my prior comment … that SB400 SHOULD NOT have passed.
I feel such strictly on the merits of a “retroactive” increase being on-it’s-face unjustifiable. And, it would make no difference even if Plan assets were even much greater than the well-funded Plans at the time SB400 was passed.
The reason why I feel as such is because (as I demonstrated in numerous comments) Taxpayers’ pension contributions and the investment earnings thereon fund 80-90% of total Plan costs and therefore Taxpayers assume almost ALL the risk of asset shortfalls.
If Taxpayers assume almost all the downside risk, then THEY must be the beneficiaries of favorable returns. The politicians essentially (and unjustifiably) gifted away Taxpayers’ money to curry favor with the Unions and Plan members. Certainly, even if such excess Plan assets were not withdrawable (as they likely would not be) for appropriate community purposes, this excess should have stayed in the Plan to reduce future taxpayer contributions or (as we learned in the years that followed) to provide needed support if/when the equity markets soured.
August 23, 2011 at 3:47 pm
CalPERS is a state regulated body created solely to provide pension benefits to retired California state and local employees and their beneficiaries, as applicable. Those aren’t accounting questions, but policy questions.
=================
The GED mind at work.
Actually CalTURDS is ALL about accounting and fiduciary duties. Something the public employee piglets on the board breach on a regular basis.
August 23, 2011 at 3:49 pm
Throughout the 90′s, California government employees had many of their benefits reduced, including the imposition of a two-tiered pension system and greater costs for newer members
=============
You’re a lair Skippy. PUBLIC PAY and BENEFIST have goen trhough the roof the last 15 years.
More spin from the public trough feeding piglets.
August 23, 2011 at 3:51 pm
Can a judge unilaterally raise the city’s property taxes? Can it force the sale of town buildings, parks, etc. ?
=====================
No and No.
Judges have no authority to force a state, or a state subdividsion like counties and muni cotoes, to raise taxes or sell property.
None whatsoever. Barred by the 11th Amendment.
August 23, 2011 at 6:28 pm
TL – We may have to continue our disagreement, but I understand your point about what you call “retroactive” increases to existing employee retirement levels.
In reality, what SB400 created was an entirely new plan option for CalPERS and other public pension funds in California. In that regard, it’s much more like a new and expanded plan that you might purchase for your property and casualty insurance. People who make a claim early are going to receive more benefits than they could have possibly paid into the system, while others will receive no benefits at all, and the bulk will pay into the fund for years before receiving a benefit.
Employer/employee contributions have historically comprised about 30% of income to the retirement systems, with the other 70% or so being derived from investment income. I see your point about “taxpayers” (in this case the employer municipality or state) should reap the benefits of additional investment returns by having their contribution rate lowered for as long as those profits last, and that may be a reasonable exchange for the backstop guarantee they are compelled to provide.
On another note, I’ve largely quit responding to anything Rex the Wonder Dog posts here or anywhere else, finding that he’s become nothing more than an antagonistic provocateur when addressing any question about public employees, their benefits, or their official acts. It’s just not worth the time to educate someone who’s more concerned with drive-by flaming than meaningful discussion.
August 23, 2011 at 6:54 pm
Some don’t like the truth squad, even when they requested it. Are you still following along, Edra, or is the truth too much for you?
August 23, 2011 at 6:57 pm
Skippy, I’ve always considered you quite sharp and informed, not one to so radically stretch for justification where little or none exits.
FYI, being peripherally in the business, your analogy to an insurance claim where early duration claimants get back far more than they paid is patently off-point. Did the insured who died a day after purchasing a life insurance policy “win”? No, insurance factors in both the risk of the insured-event occurring, and the financial magnitude (and perhaps recovery therefrom as in the case of disability insurance) should the insured-event happen. That risk drives the premium charged.
You said ….”Employer/employee contributions have historically comprised about 30% of income to the retirement systems, with the other 70% or so being derived from investment income. “. If that 30% figure is accurate, it is only because the Plans have been underfunded (primarily via asset “smoothing” which delays the recognition of gains and losses, and unduly aggressive assumptions with respect to the calculation of the Present Value of Plan liabilities).
For a 3%@50 officer retiring after 30 years at age 55 the level annual percentage of pay to fund that (COLA-increased) pension is 58% of pay. With employee contributions rarely more than 8-10%, clearly you can see the 30% figure is illogical. In general employee contribution WITH interest fund 10-20% of their pensions. Taxpayer contribution (with the interest earned thereon) fund the 80-90% balance.
You tend to be pretty forthright, so I’ll assume that perhaps you don’t fully understand, but here are only 2 contribution sources (the employee, and the employer, meaning Taxpayers). Investment earning is NOT a 3-rd source, but drives from and is associated with the source of the original contribution. With Taxpayers contributing roughly 6x as mush as the employee (in the example mentioned above) then 6/7-th of the investment income is associated with taxpayer contributions and would have stayed in the taxpayers’ pockets in the absence of the need to contribute so much. The often-repeated remarks that investment income “funds” ANY part of a pension is absurd. It simply reflects the time-value of money.
August 23, 2011 at 7:21 pm
Depending on an employee’s age of entry into service (and entry into the pension plan) the employee rate can be anywhere from 8% to over 14%. During the last decade, the employer rate dropped down as far as 4%-5%, and even that was waived because of the “pension holiday” instituted at that time.
I certainly agree that employer rates have taken a sharp rise, but it’s not as sharp as it might appear by just using the data from 1999 to present. In the early 90’s, the employer rate was above 15%. It now appears to be running, on average in the 20%-24% range, so the total input is around 35% right now, due largely to “smoothing” I suspect.
As I’ve previously written, there are certainly unintended consequences throughout this whole discussion, but it is also good to remember that every dollar of the pension contributions – employer and employee alike – was a dollar directed into the compensation package of the individual employee. Not a single cent was invested on behalf of some general “taxpayer.” It was all employee compensation. Therefore, whether the amount of the input was a total of 30%, 35%, or even 40% by the employer and employee, every dollar was employee compensation. That would also mean that every dollar return on the CalPERS investments is also employee compensation.
If we were discussing a defined contribution plan of some sort, and the employee/employer contributions were the same – just for the sake of our discussion – would you suggest that the investment returns belonged to the employer instead of the employee? Of course not because that would be a preposterous claim.
Your suggestion that “taxpayers” should benefit from high investment returns because they backstop any potential losses certainly has some merit, and I might even be convinced that it would be a win-win kind of reform under the right circumstances. But aside from that approach, the current system is just a modified and enhanced version of our Social Security approach, in which there is both an employer and employee contribution, both of which are made on behalf of the employee and constitute “compensation.”
August 23, 2011 at 7:30 pm
TL –
BTW, I found that this report contains the information you were seeking in your first post. It’s under section IV.
If this link doesn’t work, it’s also embedded in the story above.
“A report given to the board by actuaries last week said the new 3.8 percent rate (an annual calculation based on 10-year and 30-year Treasury bond yields) would increase the liabilities from $60 million to nearly $92 million.”
August 23, 2011 at 7:30 pm
The link didn’t post, but it’s in the story. Check it out.
August 23, 2011 at 7:47 pm
In reality, what SB400 created was an entirely new plan option for CalPERS and other public pension funds in California. In that regard, it’s much more like a new and expanded plan that you might purchase for your property and casualty insurance.
=====================
It is nothing like an expanded insurance plan. More spin from the typical GED edcuated cop. Only a GED mind could dream up these whopper lies.
/
Employer/employee contributions have historically comprised about 30% of income to the retirement systems, with the other 70% or so being derived from investment income.
============
No they have not, EMPLOYER-aka taxpayers- cover 90%-100% of the pension plan costs. Always have. Only recently have the employees been forced to pay THEIR share, and then it took raises equal to the amount they had to pay.
/
On another note, I’ve largely quit responding to anything Rex the Wonder Dog posts here or anywhere else, finding that he’s become nothing more than an antagonistic provocateur when addressing any question about public employees, their benefits, or their official acts.
==============
You can’t respond, I shoot your whoppers so full of holes they look like a slice of swiss cheese after I am done with em………
August 23, 2011 at 7:51 pm
As I’ve previously written, there are certainly unintended consequences throughout this whole discussion, but it is also good to remember that every dollar of the pension contributions – employer and employee alike – was a dollar directed into the compensation package of the individual employee. Not a single cent was invested on behalf of some general “taxpayer.” It was all employee compensation. Therefore, whether the amount of the input was a total of 30%, 35%, or even 40% by the employer and employee, every dollar was employee compensation
===============
Captain Obvious with another comment we all have known for years.
The fact you cannot seem to figure out is that the MONEY ALL COMES FROM THE TAXPAYERS, not the employee, which is where your whopper lie said it came from.
August 23, 2011 at 9:39 pm
See what I mean? Rex is clearly on drugs or delusional. There’s no point in engaging him.
August 23, 2011 at 9:49 pm
You can’t engage me because I destroy you and your whoppers all day long. You post ridiculous comments, folloed by “cut and paste” of a section of the California Constitution that has no relationship to the story. Don’t whine like the overpaid piglet you are, just thank me for setting you straight.
Nice try.
Better luck next time
Thanks for playing.
August 23, 2011 at 9:58 pm
But aside from that approach, the current system is just a modified and enhanced version of our Social Security approach,
==========================
Skippy with more spin. Like seesaw, better as a Maytag salesman than anything else.
Hey GED Wonder, tell us what FULL retirement age is for SS (hint-67).
Tell us what the MAXIMUM amount is for SS if you retire at age 67 and paid in at the MAXIUM level of $125K (hnt- $30K MAX)
Tell us if the SS benefit survives the spouses death like a CalTURDS pension does (hint- it doesn’t)
Tell us if SS can invest in the stock market (hint-no)
Tell us if SS can invest in real etsate ( hint-no)
Tell us if public trough feeding piglets will be forced to cover any shortfall if SS cannot pay off (hint-no)
Tell us if SS gives retroactive raises (hint- no)
Tell us is SS has ever LOWERED retirement ages (hint- no)
Yes, calTURDS is jsut antoher version of SS, look at all the similarities!
BAM, Skippy the GED Wonder spanked again.
August 23, 2011 at 10:51 pm
Poor little dog. Rabies finally got him. He will have to be put down now, for sure.
August 23, 2011 at 11:14 pm
Skippy, Your points are duly noted. For consideration let me add that while we could argue who rightfully owns (and should benefit from greater than anticipated investment returns), I think you’ll agree that when these generous-formula DB pensions were first instituted decades ago (well before the SB400 enhancements) the cash pay of Civil Servants was well below that of typical Private sector workers. The generous leveraged effect of rich DB pension formulas applied to lower pensionable cash pay resulted in relatively comparable “total compensation” (cash pay + pension + benefits). So all was “OK”.
The root cause of the today’s problem is that over 10-15 years Public Sector cash pay increased faster than Private Sector cash pay, hence (by 2000 or so) equaling Private Sector cash pay, but their rich DB plan formulas were not ratcheted down to maintain equal Public and Private Sector “total compensation”.
Combine the now very expansive public sector compensation package (of now equal cash pay together with MUCH richer pensions) and the ability and willingness of politicians to defer as much of that package into future years, and we have a recipe for disaster. That disaster has now arrived.
August 23, 2011 at 11:53 pm
Article XVI Section 7 of the California Constitution
(Some Capitalization added)
(a) The retirement board of a public pension or retirement system
shall have the sole and exclusive fiduciary responsibility over the
assets of the public pension or retirement system. The retirement
board shall also have sole and exclusive responsibility to administer
the system in a manner that will assure prompt delivery of benefits
and related services to the participants and their beneficiaries.
The assets of a public pension or retirement system are trust funds
and shall be held for the Exclusive purposes of providing benefits to
Participants in the Pension or Retirement system and their
beneficiaries and defraying reasonable expenses of administering the system.
(b) The members of the retirement board of a public pension or
retirement system shall discharge their duties with respect to the
system solely in the interest of, and for the exclusive purposes of
providing benefits to, participants and their beneficiaries,
minimizing employer contributions thereto, and defraying reasonable
expenses of administering the system. A retirement board’s Duty to
its Participants and their Beneficiaries shall take precedence over
Any Other Duty.
(c) The members of the retirement board of a public pension or
retirement system shall discharge their duties with respect to the
system with the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent person acting in a like
capacity and familiar with these matters would use in the conduct of
an enterprise of a like character and with like aims.
(d) The members of the retirement board of a public pension or
retirement system Shall Diversify the Investments of the system so as to minimize the risk of loss and to maximize the rate of return,
unless under the circumstances it is clearly not prudent to do so.
(e) The retirement board of a public pension or retirement system,
consistent with the Exclusive Fiduciary Responsibilities vested in
it, shall have the sole and exclusive power to provide for actuarial
services in order to assure the competency of the assets of the
public pension or retirement system.
August 24, 2011 at 12:30 am
Poor little dog. Rabies finally got him. He will have to be put down now, for sure.
===============
seesaw, you owe me 20 Scooby Snacks for that smack down I just gave Skippy 🙂
August 24, 2011 at 12:33 am
Charles Sainte Claire with a Skippy “cut and paste” move, oh brother.
Can’t ANY of you public employee piglets post an original thought or messege, instead of cutting and pasting something no one wants to, or will, read??????????????????????
August 24, 2011 at 3:18 am
TL – While I disagree that “the disaster has now arrived” I do recognize the need to occasionally look over what all of our obligations and expectations are of public employees and the compensation we provide for same. That’s exactly what is happening around the country now, and it appear to be the order of the day for at least the next several years.
If you are ever able to remove defined benefit pensions from the public employment arrangement, you and I both know we will have to substitute market level salaries and benefits across the board. Therefore I’m confident that you will have no problem supporting pay scales that are comparable to private firms for physicians, attorneys, managers, accountants, psychologists, computer science engineers of various types, journey level mechanics, etc., etc., all of which will be markedly higher than those now paid.
OTOH, you will probably see some savings from salaries in the low-skill areas, although that will come with the same costs of turnover now faced by private firms.
I’m not sure how the numbers will all shake out and, if your honest, you aren’t either. We will definitely be paying professionals at a much higher rate than we now compensate them. As for police officers, firefighters, and those other occupations that really have no analog in the private sector, I suspect you and I both know their pay and benefits will remain much the same.
August 24, 2011 at 5:01 am
Quting Skippy …”If you are ever able to remove defined benefit pensions from the public employment arrangement, you and I both know we will have to substitute market level salaries and benefits across the board.”
That’s EXACTLY what we should have. Fair to all, and it would take away the politicians ability to screw things up by deferring compensation into the future. Essentially we pay for TODAY what we can afford TODAY. That’s called proper expense control …. and such should apply to everything except long term capital improvements which should be capitalized and than amortized over the improvement’s useful life.
You also said …”Therefore I’m confident that you will have no problem supporting pay scales that are comparable to private firms for physicians, attorneys, managers, accountants, psychologists, computer science engineers of various types, journey level mechanics, etc., etc., all of which will be markedly higher than those now paid.”
True that cash pay in these occupations is higher in the Private Sector …. but it’s not clear that “total compensation” is. Release from the obligation to fund their DB pension might MORE THAN free up sufficient funds to provide cash pay equal to that of the Private Sector. I think you are understating the enormous cost of fully funding these pensions (remembering that we’re currently playing games and not fully funding the promised benefits).
Net you said …”OTOH, you will probably see some savings from salaries in the low-skill areas, although that will come with the same costs of turnover now faced by private firms.”
Agree … big time. Some Public Sector workers in these positions are now making 2x-3x greater “total compensation” than in comparable Private Sector jobs. It might now be wise to go that low.
Lastly you said …”As for police officers, firefighters, and those other occupations that really have no analog in the private sector, I suspect you and I both know their pay and benefits will remain much the same.”
This is indeed that hardest group for which to determine an “appropriate” compensation level. E,g., how much risk is really there … from the ghettos of LA to the bedroom community of Monticeto ? Should they get more than the military ? Lumberjacks certainly have MUCH riskier jobs, with FAR LOWER pay. There is no “right” answer. I’d like to start with eliminating OT from pensionable comp., etc. And everyone would simply feel better if the compensation games and pension spiking would end.
August 24, 2011 at 5:04 am
john moore – the termination fee being imposed by CalPERS isn’t any sort of “terrorist fee,” but a method to ensure that the members of the terminating agency have their retirement benefits funded and protected in the absence of that agency. Since the employing agency, such as Pacific Grove, would have ceased making payments into the trust, all future obligations would have to be paid only from the existing trust assets.
Even though the terminated agency trust is currently well funded, CalPERS notes that a large terminating agency could easily imperil that funded status without these changes.
Pacific Grove has benefited for years by having its employees in CalPERS and, at least for the safety personnel, not being required to pay Social Security or other long term disability insurance premiums. PG’s participation also allowed it to compete for employees with similar cities, giving you and your neighbors much of the quality of life to which you so frequently refer.
BTW, I reviewed the Pacific Grove budget last week after one of our discussions. I believe you have over estimated the city’s pension obligations by adding its CalPERS annual contribution and the city’s pension bond debt twice, although they are contained within one category in the budget. It’s also apparent that the increased annual contribution for your city will be about $500k for the upcoming budget year, which is certainly a hefty raise but not at all insurmountable for a city with an annual budget approaching $30 million.
August 24, 2011 at 6:26 am
The root cause of the today’s problem is that over 10-15 years Public Sector cash pay increased faster than Private Sector cash pay, hence (by 2000 or so) equaling Private Sector cash pay, but their rich DB plan formulas were not ratcheted down to maintain equal Public and Private Sector “total compensation”.
==================
Tough Love, it is MORE than what you have posted. Public employees are being paid more in cash salary, have fringe benefits higher than anything in the private sector, and have pensions worth millions of dollars that start at ages 60% younger than SS.
25 years ago cops and FF’s were paid about the same as a private sector union tradesman-like plumber, electrician, carpenter. They received about $35K in cash pay before OT, with FF’s back then, as now, making much more by receiving copious amounts of OT- which increased cash salary by more than 100% in many cases. The benefits were also very close back then, even pensions. Back then- as now- the trades were SEASONAL jobs, not so for public employment.
Today the trades make NO MORE than they did in the 1980’s. Their work opportunities have gone down drastically, and they have NO job security at all. Nothing.
Now compare that to the PUBLIC sector, where we have BASE SALARY for FRONTLINE patrol cops in PD’s here in CA that are $120K (Santa Clara) to over $161K (Richmond) with “special pay” added in (language, “longevity (only in gov!) pay”, night shift pay, etc).
When you have a BASE CASH SALARY of $161K then you have a pension and benefits package of roughly the same amount. So RPD is comping FRONTLINE cops $320K per year. Richmond is one of the poorest communities in the Bay Area, and one of the poorest in the entire state. Median income is about 1/15th of that $320K comp package.
So it is much worse than you stated, and totally out of control.
.
August 24, 2011 at 6:34 am
If you are ever able to remove defined benefit pensions from the public employment arrangement, you and I both know we will have to substitute market level salaries and benefits across the board.
==========================
Then 80% of gov employees would take a pay cut-GED educated jobs like cop, ff and prison guard would get cut at least75% to be at market level.
/
Therefore I’m confident that you will have no problem supporting pay scales that are comparable to private firms for physicians, attorneys, managers, accountants, psychologists, computer science engineers of various types, journey level mechanics, etc., etc., all of which will be markedly higher than those now paid.
=================
Gov lawyers make far more than the private sector. The same with private sector doctors. Gov lawyers work 40 hour work weeks, private sector lawyers work 80-100 hours per week.
In fact GED prison guards are being comped MORE than the lawyers graduating from the top LS’s in the nation, Harvard Yale and Stanford.
“California Prison Academy: Better Than a Harvard Degree”
Prison guards can retire at the age of 55 and earn 85% of their final year’s salary for the rest of their lives. They also continue to receive medical benefits.
“The application process may seem like a piece of cake compared to Harvard’s, but the correctional officer academy is actually more selective than Harvard. Over 120,000 people apply every year, according to the state Legislative Analyst’s Office, but the academy only enrolls about 900.”
.
http://online.wsj.com/article/SB10001424052748704132204576285471510530398.html
So once again, Skippy’s bogus whoppers just don’t hold up-like GED gov jobs don’t pay “market wages”!!!!! That is just more hot air from Skippy.
August 24, 2011 at 6:38 am
Lastly you said …”As for police officers, firefighters, and those other occupations that really have no analog in the private sector, I suspect you and I both know their pay and benefits will remain much the same.”
=====================
Actually these UNSKILLED gov jobs are no different than the construction trades-except the construction trades are;
1) much more dangerous,
2) are seasonal, and
3) have no job security.
Market salary for cop ff and prison guard would be $30K-$40K per year. Total compensation no more than $40K-$50K.
August 24, 2011 at 2:43 pm
What is often left out of this discussion is that many folks want to think of a DB plan like a personal 401k plan for each individual. There appears to be this impression that there has to be the dollar figure for each and every worker assuming that each and every worker is going to start at 20, work for 30+ years, and spike in their last year. These plans are funded and designed to the risk averages. They count on the people with too high of blood pressure, heart disese, etc. to help fund the healthly ones. So as long as a society we keep pounding down the Big Macs, we’ll help out our pension problem.
The other reason not stated in the article retirement plans drop the rate and move assets upon plan termination is due to pooled risk. When you will no longer have additional people entering the risk pool, as people slowly exit the pool, the pool slowly becomes an individual “retirement plan.” The fact that it is so overfunded in spite of the market (since they are just now changing thier assumed rate) indicates to me that the actuaries have been guessing too high on life expectancy and been billing too much to the agencies that fund it prior to their termination decsion.
August 24, 2011 at 3:41 pm
RW Says:
. These plans are funded and designed to the risk averages.
/
No, they are not funded, they are underfunded by half a trillion, and therein lies the problems.
August 24, 2011 at 4:24 pm
RPD pays nothing of the kind, Rex. Look at the city website and the pay for police officers.
More lies and misinformation from the little dog with pension envy and hatred of all government employees.
August 24, 2011 at 6:30 pm
CA has had a 22% U-6 UE rate the last 30 months. Our CA state budget has been short a WHOPPING $90 BILLION over the last 3 years.
CalTURDS has a HALF TRILLION deficit.
Higher education has had their budget slashed from 17% in the 1980′s to 8.3% today, while prison guards have seen THEIR budget increased from 3% of the budget in 1976 to 11% today. Prison guards now account for 3% points MORE than higher education in this state (33% more).
CA’s U-3 UE rate has gone UP to 12%, the HIGHEST in the nation.
But according to the GED Wonder we are living the good times, roads are paved with gold, money grows on money trees and there is a chicken in every pot.
Yeah, right.
August 24, 2011 at 6:33 pm
RPD pays nothing of the kind, Rex. Look at the city website and the pay for police officers.
================
Skippy, I know your GED math skills are lacking, but if you add the base salary with all the “special pay” at RPD, you will see the top of the scal for a GED educated, FRONT LINE cop is $161K in salary, and that is BEFORE any overtime or benefits. benefits are AT LEAST equal to base salary. $320K in total compensation. Not counting overtime.
Skippy, educate yourself, it will do wonders for your intelligence.
August 25, 2011 at 1:57 am
Here’s the RPD salary schedule that went into effect on 7/1/11. A Richmond PD Officer with 25 years of experience AND a bachelors degree AND and Advanced Post Certificate makes slightly more than $120k per year.
http://ca-richmond2.civicplus.com/DocumentView.aspx?DID=3506
August 25, 2011 at 3:43 am
Here’s the RPD salary schedule that went into effect on 7/1/11. A Richmond PD Officer with 25 years of experience AND a bachelors degree AND and Advanced Post Certificate makes slightly more than $120k per year.
http://ca-richmond2.civicplus.com/DocumentView.aspx?DID=3506
==================
Skippy, I know math is hard for you with just a 10th grade education, so I am going to add it up for you, that way your GED brain can see 2+2=4;
Front Line Richmond CA cop;
Cash Salary
Base salary = $123,108
Bachelors Degree= +7.5%, $9,233
“Longevity Pay” (LOL. I love this scam)= +9%, #$11,079
Shift differential= + 7.5%, $9,233
Investigations= +5%, $6,155
Bilingual Pay= +2%, $2,462
Cash salary= $161,270
Benefits;
Regular family healthcare= $25,000
Free Retiree Healthcare= $12,000
6 weeks PAID vacation = $14,204
12 PAID sick leave days= $5,682 (Total=$56,886 before 3%@50)
3%@50= 100% of base salary$123,108 if not more
Total Benefits = $179,994
Total Compensation, cash salary + benefits = $341,264
This is just ONE dork cop, being comped $340K BEFORE ANY OVERTIME is added in.
http://www.ci.richmond.ca.us/DocumentView.aspx?DID=4869
August 25, 2011 at 7:13 am
Rex, according to the Richmond website, a permanent, post trainee, position starts at $7,000+/mo. All of those other things you add are not going to pertain to one officer in just one year. Vacation is accumulated, and that six weeks paid vacation will probablty not occur, until he/she has been on the job 20 years. What is budgeted for one, step 1, officer for a year–surely not $341,264.
August 25, 2011 at 2:22 pm
Skippy, Rex makes a good point …. the Taxpayers SHOULD know the TOTAL cost of an “employee” with ALL aspects of compensation.
The VERY high number (whatever it is), much of it via hidden additives is a very good reason why we need to move as many positions as possible to non-employee contractors … via OUTSOURCING.
This both end the “employment relationship” and all growth of pensions and benefits, and also make TOTAL COMPENSATION completely transparent.
It also has the VERY beneficial effect of curtailing politicians ability to grant expensive but well hidden benefits.
August 25, 2011 at 3:59 pm
Rex, according to the Richmond website, a permanent, post trainee, position starts at $7,000+/mo.
==
Man seesaw, you really are dumber than a bag of rocks, read the pay scale, top is $123,108. Now get a clue.
/
All of those other things you add are not going to pertain to one officer in just one year.
==
They ALL APPLY, it says so right there. You are not very intelligent, as a matter of fact you and Skippy must have the same IQ and it is in single digits.
/
Vacation is accumulated, and that six weeks paid vacation will probablty not occur, until he/she has been on the job 20 years.
==
6 weeks vacation is what they get, maybe not in the first year, but they ALL get it eventually.
/
What is budgeted for one, step 1, officer for a year–surely not $341,264.
==
And how long is a GED cop a step one cop seesaw?? Here is a hint- less than ONE. As in 6 months. Step increases are every 6 months.
Hey, guess hwat I left out the 14 PAID HOLIDAYS, SO ADD IN ANOTHER $6629 TO THE $161,270= TOTAL CASH SALARY $167, 900
I came. I saw public employee union lies. I crushed those lies. My job here is done.
August 25, 2011 at 5:28 pm
TL – The total cost of every employee is included in every business and public budget as baser salary + some level of fixed cost overhead. If you and he want to “compare” salaries between public and private entities, you need to include every expense for the private employee as well.
I work for a private firm that pays me a good salary, onto which they add 12 holidays and 24 vacation days, in addition to my health insurance and the company making a 12% contribution to my deferred compensation plan. My organization also makes payments on my behalf into Social Security and Medicare.
My compensation package is not unique for someone with my level of education and experience.
The mantra of “comparable compensation” that you keep repeating must include every component of compensation for the private enterprise employee as well, and it isn’t at all accurate to compare the positions in large organizations, public or private, with those that some guy is running out of the back of his pickup truck or garage.
August 25, 2011 at 5:30 pm
By the way, Rex, adding all of those items together may indeed reflect “total compensation” for the position, but it in no way reflects “total cash salary.”
At least try to keep the basic concepts straight.
August 25, 2011 at 5:46 pm
Here’s the current year budget for the RPD. Once you back out the equipment and capital expenses, it comes in at right about $55m.
RPD has 300 personnel, most of them police officers. That means the total per FTE averages about $183k, which includes everyone from the highest ranking Chief to the brand new code enforcement officer.
Having been an executive in a law enforcement agency, I’m well aware of the fact that police officers are expensive assets. But their cost, even in the very high cost Bay Area of California, doesn’t approach the highly inflated numbers Rex and others claim.
Work the numbers out yourself if you doubt me.
http://www.ci.richmond.ca.us/DocumentView.aspx?DID=7375
August 25, 2011 at 5:59 pm
Skippy: If a city has an unfunded liability of 19 million dollars,and issues 30 year pension bonds, the total cost increases to 38.2 million dollars(19 principal/19.2 interest). BTW,the constitution makes Calpers equally responsible to “participants” and “beneficiaries”. Participants are the entities contracting with Calpers,including cities. Do you contend Calpers is fulfilling its’ fiduciary duty to participants,by burying them in so much debt and costs that they can’t function. Calpers and its’ supporters in state govt. have contributed mightily to Ca.s’ putrification and decline. No agency in Ca. history has caused more human suffering than Calpers! And actuarily,it can only get much,much worse.In my view Calpers is sicker than Enron and Maddoff,because the peoples representatives validate its’ otherwise corrupt administration of govt. pensions.
August 25, 2011 at 6:10 pm
Rex, there is a pay range for every position–in my former municipality, a new hire starts at step 1, unless they are a lateral transfer, and it usually takes about three years to get to that top step. You throw in everything that is on the list of things that one employee could get, and try to mislead, by saying that the entity has to spend all that on that one employee, in one year. The respective employee might get one of those add-ons, and he might not ever get any for many years. In my former entity, a 20 year employee starts to accumulate 5 weeks vacation as he/she starts work toward the 21st year. After working one year, at my former workplace, the employee will then have accumulated 10 days vacation, that can be taken with pay. Even though such benefits are budgeted as separate line items, the employer, is not, in fact, laying out money, for this ten days, that is in addition to the employees base salary. You are always accusing me of spin. I am a truther, Rex. That’s all I ever try to do in these discussions. You, in fact, are the biggest spinner around.
August 25, 2011 at 6:28 pm
In addition, I should have said that the employer is not laying out excess money for the vacation, if the employee actually takes the vacation, in that time frame. If the hours are left to accumulate, they do then build up to include a kitty, that the employee may cash in at retirement. That is why entities that budget and plan properly, have a cap on the amount of such time that can be accumulated. (The prison guards are an exception, because they have been unable to take any time off.)
August 25, 2011 at 6:46 pm
No agency has caused more human suffering than CalPERS? Wow, Mr. Moore, PG must have been very mismanaged. Where are all the articles and op-ed columns, on the human canarge, that CalPERS has strewn, all over the state? (I would venture to guess that the suffering as been on the part of the PG employees, who have either lost their jobs, or had their benefits cut, way back. Or, are the residents being taxed out of their homes?) I believe that Prop. 13, exists in PG, as well as in other, CA cities. If PG has gotten itself to the point of, such carnage, on the part of CalPERS, how has it happened? Are you an official of the City of PG? Are the officials of PG, publicly accusing CalPERS of great human suffering, as you do? Have they called, “Sixty Minutes”?
August 25, 2011 at 7:13 pm
Skippy, Re your 5:28 time-stamped comment, I agree 100%. But (with quite an extensive work history in financial management) you’ll find that ON AGERAGE the total cost of benefits for a Private Sector worker is 25-30% of cash pay while in the Public Sector its 40-60% of cash pay (with safely workers at the upper end) … if the REAL cost of fully funding the promised pension is included (as it should be) over that employees working career, not instead only counting what the employer is actually contributing in cash to fund that pension …. as 90% of cities are to a LARGE extent significantly underfunding these Plans.
August 25, 2011 at 7:42 pm
I work for a private firm that pays me a good salary, onto which they add 12 holidays and 24 vacation days, in addition to my health insurance and the company making a 12% contribution to my deferred compensation plan. My organization also makes payments on my behalf into Social Security and Medicare.
===================
Skippy, in three words-you’re a liar.
No company in America gives 12 paid holidays and 24 paid vacation days. Most muni’s do, but not the private secotr.
In fact most private sector jobs give no paid holidays and very little if any vacation time. The largest privaye sector employer in Amerrica -Walmart-gives no no paid vacation days, no overtime as a policy.
Oh and there has never been a company that pays the employee share of SS anywhere in America. Please feel free to post a link to ANY COMPANY IN AMERICA THAT PAYS THE EMPLOYEES SHARE OF SS.
You’re delusional Skippy if you think anyone here is buying your whopper lines and tall tales. You’re very delusional.
August 25, 2011 at 7:44 pm
By the way, Rex, adding all of those items together may indeed reflect “total compensation” for the position, but it in no way reflects “total cash salary.”
====================
Once again, Skippy proves he has a 9th grade reading ability.
I clearly laid out the CASH SALARY and the cost of the benefits in two different groups, and then added them together for the total compensation.
August 25, 2011 at 10:47 pm
Rex, you better go to Dog Obedience School, or you will never get back on the Watchdog.
August 25, 2011 at 11:33 pm
seesaw, I need you to lobby for my re-instatement on the Watchdog.
That place is dullsville without me 🙂
August 26, 2011 at 12:26 am
So that you can continue to inflict verbal and emotional abuse on me and other commenters? I had already informed Donkey that you had the mange and rabies, and had to be put down.
Turn the page. I’m sure the OCR commenters would welcome a new, and more respectful, RWD. Only you can resurrect yourself–you know what to do.
August 26, 2011 at 1:41 am
Skipping dog wrote:
“I don’t think you can show me anywhere or any time when CalPERS told member agencies it was a wise practice to disregard their required annual contribution to the fund, even if it appeared to be “superfunded.” I know that employees weren’t given the option of not paying their required fees.”
No, CalPers didn’t say that. They said cities would pay little or nothing for a decade. I’m not impressed with your attempt to parse words. There was NO required contribution. If there were then the cities would have paid it. The reason there wasn’t a required contribution for cities is because that was the centerpiece of the SB 400 sales pitch. CalPERS told the cities they wouldn’t have to pay. When CalPERS set the contribution rate at ZERO that‘s what the cities paid – so you can blame the pension holiday on CalPERS bad management. On a side note, where do you think that savings went? It went to employee compensation in most cases – which also increased the cost of pensions.
In reality, the superfunded status of the CalPERS pension plan would have reduced the “Normal Cost” of the plan anyway – for many Years, if not for the increased benefits.
August 26, 2011 at 1:56 am
Skippingdog wrote:
“I certainly agree that employer rates have taken a sharp rise, but it’s not as sharp as it might appear by just using the data from 1999 to present. In the early 90′s, the employer rate was above 15%. It now appears to be running, on average in the 20%-24% range, so the total input is around 35% right now, due largely to “smoothing” I suspect.”
You don’t have any idea how smoothing unfunded liabilities works, do you? The average contribution of 20-24% might be accurate if your talking about Misc. Employees, but for public safety the number is significantly higher, closer to 28%. If you add in the 9% most employer contribute on behalf of their employees the number grows to 37% of payroll. If you were to look at my city the the number is 43%. If you reduced the CalPers smoothing policy to the industry standard of 5 years that 43% probably grows to 55% or more. If you went further, and reduced the discount rate from 7.75%, to say 7% which is 1% more than a CalPERS consultant was projecting they would earn on their investments over the next decade, the cost would increase to 69% of payroll.
Some cities may show lower than 28% but it is probably because they’ve prefunded a portion of the unfunded liability, or sold pension obligation bonds at 6% to pay off part of the debt that CalPERS charges 7.75% interest on.
August 26, 2011 at 2:21 am
“Your suggestion that “taxpayers” should benefit from high investment returns because they backstop any potential losses certainly has some merit, and I might even be convinced that it would be a win-win kind of reform under the right circumstances. But aside from that approach, the current system is just a modified and enhanced version of our Social Security approach, in which there is both an employer and employee contribution, both of which are made on behalf of the employee and constitute “compensation.”
The first half of your statement skippy:
“Your suggestion that “taxpayers” should benefit from high investment returns because they backstop any potential losses certainly has some merit, and I might even be convinced that it would be a win-win kind of reform under the right circumstances.”
– thankyou for acknowledging that the people that take ALL the risk shoud benefit.
Skippy, the second part of your argument is wrong. Have you ever received a check that wasn’t government issued? This is what I’m talking about:
” the current system is just a modified and enhanced version of our Social Security approach, in which there is both an employer and employee contribution, both of which are made on behalf of the employee and constitute “compensation.””
The private sector doesn’t “pick-up” the employee share of social security (6.2%) & medicare (1.65%). In fact, I can assure you that many of us in the private sector that are independent contractors, sole proprietors, or S-Corp pay both ends of that, or 15.3%. I fall in that category. For that I get to retire at 67 (based on my birthdate) and will receive 30K per year.
August 26, 2011 at 2:37 am
Turn the page. I’m sure the OCR commenters would welcome a new, and more respectful, RWD.
=================
NEVER!!!!!!!!!!!!!!!!!!
🙂
August 26, 2011 at 5:15 am
The private sector doesn’t “pick-up” the employee share of social security (6.2%) & medicare (1.65%). In fact, I can assure you that many of us in the private sector that are independent contractors, sole proprietors, or S-Corp pay both ends of that, or 15.3%. I fall in that category. For that I get to retire at 67 (based on my birthdate) and will receive 30K per year.
===================
You are so right-read the comments section, specifically those from Editor ;
http://civfi.com/2011/08/22/letter-to-a-california-state-worker/
August 26, 2011 at 5:53 pm
3.8% or 4.1% is a way, way more realistic assumption than 7.75%. That really is the heart of the matter.
Hyperventillating over public employees, unions, etc, etc, is merely that… moist air moving quickly in and out of a hole.
The heart of the matter is that 7.75% or something in that vicinity is the *average* yearly return of the US stock/bond mix market going back all the way to the year 1800 or so.
But there have been 30-year periods where the annualized return for a stock/bond mix was as low as 4.0%.
I don’t think the pension managers were evil pawns of manipulative public unions. I think the pension managers simply don’t understand statistics and probability, and their arithmetic mistakes were seized upon by politicians and negotiators as a way to evade paying salary and instead give rich deferred benefits to public employees.
Meanwhile the private sector economy in the US is in meltdown, and private sector salaries have stalled out. Public sector salaries look good now, and the deferred benefits to the little guy in the public sector look way better than in the private sector.
Now unbelievably rich post-retirement benefits are given to executives in the private sector; nobody seems to complain about that. Nor does anyone seem to care that those same private sector executives have gutted the US economy in favor of Chinese and Indian manufacturing. Nobody seems to care that once upon a time those executives also seized huge pension funds during takeovers and leveraged buyouts.
God Bless America.
August 26, 2011 at 7:00 pm
Spension, Your comments are always so interesting … and cunning, as you start out sounding like a pension reformer, and slowly but steadily show your true colors…. another Civil Servant riding this gravy train and wanting to stop and delay the much needed pension reductions for CURRENT (not just new) workers.
So, you think 4.1 or 3.8% is in fact the more reasonable assumption. So do I, but THAT assumption would lead to CalPERS sending bills 2x as great to each city, a move that would certainly bring huge and immediate demands to seriously curtail these overstuffed pensions. That’s why CalPERS (whose BOARD is Union/Labor/Worker controlled) keeps using assumptions that are way too high (to artificially depress required contributions, hide and defer the true costs further into the future) …… the LAST thing they want is more pressure to reduce benefits.
And did you actually refer to Civil Servants as “the little guy” ? Compared to whom, certainly not the masses who make SOOOOO much less in pay (and especially pensions) but whose pension contribution (and the investment earnings thereon) pay for 80-90% of YOUR pension.
And of course you end with the stand (mantra of the Public Sector work force looking to deflect blame) that the Private Sector executives are the bad guys. Sure they are, but not quite as bad as you and there are a LOT more of YOU (Civil Servant) bad (i.e., GREEDY) guys than them.
Taxpayers ….. OUTSOURCE everyone now…. this ends the “employment relationship” and with it ALL further growth in pension and benefits.
August 26, 2011 at 10:07 pm
The heart of the matter is that 7.75% or something in that vicinity is the *average* yearly return of the US stock/bond mix market going back all the way to the year 1800 or so.
===================
Who told you THAT LIE?
It is mroe like 5%. But keep up the spin, I need some good trough feeder laughs after the hard day I have had 🙂
August 26, 2011 at 10:10 pm
Meanwhile the private sector economy in the US is in meltdown, and private sector salaries have stalled out. Public sector salaries look good now, and the deferred benefits to the little guy in the public sector look way better than in the private sector.
=================
The average private sector salary was 100% stagnent from 2000-2010, and in 2011 is now below the average salary in 2000 .
The public sector compensation has been far above the private sector for at leats 20-30 years. I would nto call a GED educated cop or FF comping $200K (or $350K in Richmond, CA) a “little guy”.
August 26, 2011 at 11:09 pm
For what it’s worth, from 1/03/1950 through today (8/26/2011), the S&P Index (adjusted for splits, etc.) rose from 17.05 to 1,176.80, a compound annual increase of 7.1098%
August 27, 2011 at 1:23 am
“You are so right-read the comments section, specifically those from Editor ;
http://civfi.com/2011/08/22/letter-to-a-california-state-worker/”
Thanks Rex,
I read the article and the comments, and I agree. I try to give people the benefit of the doubt but in the case of Skipping dog, seesaw, and saint Claire they all sound like David Low – selective comments with little factual substance to back up their claims. If this is the “truth squad” then, as I suspect, we should just ignore the selective use of statistics and/or blatant lies. I guess it’s possible that the truth squad educators are misleading this “truth Squad” but I suspect this group is prone to absorb the flawed information they’ve been fed.
CalPERS is corrupt in my opinion.
I watched the presentations of all seven candidates that were campaigning for one seat on th CalPERS Board of Directors, in this special election. It was a special election because one of the members was caught up in the CalPERS “Pay to Play” scandal, apparently changed his testimony three times during the investigation, and resigned. He was probably handed a prepared letter of resignation and told to sign it or be terminated. Anyway, I ranked the seven candidates from 1-7, with one being the best candidate from the taxpayers perspective. I ranked Bilbrey 6th. The unofficial winner of this seat on the Board of Directors of the worlds largest pension fund, of this Union dominated BOD, is Michael Bilbrey. I can assure you he has the union mentality that everyone in the private sector works for Google and have become millionaires from stock options. Here is his BIO:
Biography and Background
Michael Bilbrey is the Bookstore Operations Coordinator at Citrus Community College District in Glendora, Calif. Michael also serves as the 1st Vice President of the California School Employees Association (CSEA), which represents more than 220,000 classified employees in California’s public schools and community colleges. He has earned AA, BA and MBA degrees.
At CSEA, Michael is chair of the CSEA Investment Committee, where he oversees a multi-million dollar investment portfolio (60 million) for the union special fund and pension fund. He also chairs the CSEA Health and Welfare Taskforce, addressing health benefit issues at the local, state and federal levels. Chairing these committees has provided Michael the experience and skill to move seamlessly onto the CalPERS Board of Administration and deal with issues related to investment, corporate governance, asset management, health care benefits and cost containment. Michael also serves on the CSEA Budget Committee and as the State Administrator for Los Angeles Unified School District CSEA Chapter 500.
– Michael Bilbrey is the Bookstore Operations Coordinator at Citrus Community College …. no indication of a degree in finance or accounting, or even which schools he attended (online?). Now he is on the board of an entity that is managing 226 billion in assets (down from 237.5 on June 30).
Link: http://www.bilbrey4calpers.com/resources.html
August 27, 2011 at 1:43 am
More about the CalPERS truth Squad – actually this comes directly from the out of touch CalPERS (whose employees also receive these pension benefits – hardly an unbiased organization).
I consider CalPERS a big part of the problem for a number of reasons. Here is just one example of what I’m talking about, and this comes from the CalPERS website under the heading of CalPERS Responds (to criticism). From CalPERS:
Myth: Government workers don’t contribute to their pensions; taxpayers are on the hook to pay those costs.
Fact: All government workers contribute to their CalPERS pensions. For state employees, the range is five to eight percent of their monthly earnings; for public agencies it is five to nine percent. While the vast majority pay five percent, firefighters, peace officers, and the CHP pay eight percent.
Read it on their website: http://www.calpersresponds.com/myths.php/myth-Government-workers-dont-contribute-to-their-pensions
I live in a city that pays the entire cost of both the emploee & employer contribution – so I know this is a lie or stupid statement from CalPERS becaquse our employees contribute ZERO. In fact, three of the cities that border my city also pay both ends of the CalPERS contribution, and at least two of those cities are paying the additional cost of retroactive pension benefits.
August 27, 2011 at 2:29 am
There is no CalPERS Truth Squad–The Pension Truth Squads are from a Democrat-backed group, “Californians for Retirement Security”. The Pension Truth Squads actually go out into the public to communicate information on the public pensions. They are not connected with, or sponsored by CalPERS.
CalPERS has an Ambassador program where retired annuitant-volunteers attend an information/training meeting, and assist in communicating to the public, facts about public pensions in CA. The Ambassadors are not paid–they communicate with the public, via the internet. They do not engage in lobbying efforts on behalf of CalPERS. (Information is from the, “CalPERS Perspective”, newsletter.)
As for CaPERS employees receiving CalPERS pensions–do you have documentation on that? I really do not know if that is true or not.
We have discussed the employer-employee pension contributions, previously. So I will state again, that regardless of which pot the contributions are made from, they all originate from the same source–taxes. If the employee does not make his/her own contribution, it is part of the benefit package. There is a wide range of pension contribution, employer-employee splits, among the hundreds of public sector agencies, throughout the state.
August 27, 2011 at 2:39 am
Tough Love,
Calpers Confronts Cuts to Return Rate
Wall Street Journal, March 1, 2010
“Calpers is considering reducing the projected rate of return used by the giant pension fund to make investment decisions. A cut could force cash-strapped governments in California to pay millions more each year to cover their employee pension obligations.
Since 2003, the California Public Employees’ Retirement System has assumed that the value of its stocks, bonds and other holdings would increase by 7.75% a year. But the likelihood of an extended period of modest economic growth world-wide is fueling doubts inside Calpers that the pension fund can continue aiming so high.
Pressure to lower the target has been building for months. “You’ll be lucky to get 6% on your portfolios, maybe 5%,” BlackRock Inc. Chairman and Chief Executive Laurence Fink told Calpers board members last July.”
In response to the Black Rock warnings, CalPers considered reducing their discount rate from 7.75%, to 73/8 -7.5%. Based on their own consultants recommendations, and their own actuaries projections of 7.4% returns for the next decade (less than 7.75%) the CalPers Board elected to do NOTHING. As the head of the California Seiu said, we didn’t want to add more fuel to the fire. Not sure what that has to with “Fiduciary” responsibility but that’s what happened. Just another reason I think CalPERS is a pension fund “gone wild” (ly) corrupt.
August 27, 2011 at 2:55 am
Quoting SeeSaw …”There is no CalPERS Truth Squad–The Pension Truth Squads are from a Democrat-backed group, “Californians for Retirement Security”. The Pension Truth Squads actually go out into the public to communicate information on the public pensions. They are not connected with, or sponsored by CalPERS.”
Actually, you are correct on this one.
This group is actually connected to and supported/funded by the Public Sector Unions and members who benefit from this gravy train and don’t want it changed.
August 27, 2011 at 3:05 am
Captain, I agree 6% (perhaps even 5% or 5.5%) is more appropriate for discounting Plan liabilities.
The key is for CalPERS to stop valuing it’s liabilities using the same growth rate assumed for investment returns. These are 2 different issues.
Actually it looks like GASB is solving it for them with revised Public Sector accounting rules. Once implemented, Plans with significant unfunded liabilities are in deep trouble as the new rules will result in a significant increase in costs for the member cities. This will undoubtedly increase the pressure to reduce pensions for CURRENT workers.
That’s the VERY need objective.
August 27, 2011 at 3:08 am
Tough Love,
The previous post was relly just a precursor to the point I want to make. You said:
“So, you think 4.1 or 3.8% is in fact the more reasonable assumption. So do I, but THAT assumption would lead to CalPERS sending bills 2x as great to each city, a move that would certainly bring huge and immediate demands to seriously curtail these overstuffed pensions.”
The truth is that each 1/4 percentge point reduction in the discount rate increses the average employer contribution rate for safety plans by 4% of payroll. It increases the average cost of Misc. employee pension plans by 2% of payroll. This information came from a CalPers actuary. I have the link for the video interview but it isn’t active. I’ll try to find another link to the same info and post it later.
So, for the safety plans each 1% decrease in the discount rate increases the employer cost as a percentage of payroll by 16%. Reducing the discount rate to 5.75% would increase the employer contribution by 32% of payroll. That 32% contribution rate increase would need to be added to the current 30% contribution rate for a total contribution rate of 62% of payroll. If the city pays the employer “pick-up” of 9%, the total taxpayer contribution grows to 71% of payroll. In other words, for every 100K of payroll the city would pay 71K to CalPers. If CalPers weren’t using a taxpayer abusive smoothing policy, which hides the true cost, that 71% would be higher.
August 27, 2011 at 3:19 am
“Quoting SeeSaw …”There is no CalPERS Truth Squad–The Pension Truth Squads are from a Democrat-backed group, “Californians for Retirement Security”. The Pension Truth Squads actually go out into the public to communicate information on the public pensions. They are not connected with, or sponsored by CalPERS.”
BS
August 27, 2011 at 3:54 am
“CalPERS” “Californians for Retirement Security”, “Truth Squads”
they are all the same, just different sides of the same coin seesaw.
August 27, 2011 at 3:56 am
We’re at the sea change in CA right now.
We have had a $90 BILLION shortfall during the last 3 years, our state has rising Unemployment instead of shrinking UE, the gov employee pensions are getting bigger every year as the new neuvo rich gov employees retire at ever younger ages with 6 plus figure pensions.
Just cannot keep going with busienss as usual.
My prediction. Here it is.
Cedar Falls, RI will be the precedent setting case where BK Courts give muni’s the right of pension haircuts. Once it happens in Cedar Falls, RI it will spread to other muni’s in other states/circuits and the precedent of pension haircuts will grow wider, until finally a muni in one of the 13 states that the 9th Circuit encompasses gives a pension haircut and the 9th upholds the haircut. Once that HAPPENS 9and it will) the horses are off and running. Either the piglets take a haircut on their own or they will have it forced upon them from a BK court.
You heard it here first folks, from Rex the Wonder Dog!
Thnak you, tip your waitress, it has been a great show 🙂
August 27, 2011 at 3:58 am
The truth is that each 1/4 percentge point reduction in the discount rate increses the average employer contribution rate for safety plans by 4% of payroll.
====================
I think it is closer to 6+%, or a 25% increase for every full point the ROI is off the mark.
August 27, 2011 at 4:06 am
Captain, I just ran the impact (on funding requirements) of a 1% change in the interest rate through a spreadsheet I prepared.
First, the impact on funding is not fixed (even for a given pension formula) but depends on the magnitude of the initial assumed interest rate. But for purposes of this discussion, for a 3%/yr formula pension with the worker retiring at age 55 with 30 years of service, a 1% change in the rate of investment return changes the level annual % of pay cost of the Plan by 9-11%
For a 2% formula Plan, a 1% change in the rate of investment return changes the level annual % of pay cost of the Plan by 6-8%.
Our %s are a bit different, but there is no question that if CalPERS return drops by more a than a very small amount (from the 7.75% they are now assuming), the actual cost to fully fund these Plans will increase materially.
August 27, 2011 at 4:40 am
So get serious for a second… take all State of California debt (pensions, bonds, etc) and give it all the same haircut. 50% off pensions and 50% off all the munis principal and future interest. No special treatment anywhere.
August 27, 2011 at 4:59 am
“The truth is that each 1/4 percentge point reduction in the discount rate increses the average employer contribution rate for safety plans by 4% of payroll.
====================
I think it is closer to 6+%, or a 25% increase for every full point the ROI is off the mark.”
What I’m referring to is independent of ROI. It is the CalPERS actuary opinion that each 1/4 percent reduction in the discount rate increases the cost of the safety plan by 4% of payroll. That isn’t a 4% increase to to the contribution rate. It IS a 4% increase to the cost of payroll.
How far CalPers misses/exceeds their target rate of 7.75%, and how that effects the cost of the plan, is a separate issue.
August 27, 2011 at 5:04 am
When one doesn’t want to consider the truth when faced with it: Just say, “BS”.
August 27, 2011 at 5:07 am
“Captain, I just ran the impact (on funding requirements) of a 1% change in the interest rate through a spreadsheet I prepared.
First, the impact on funding is not fixed (even for a given pension formula) but depends on the magnitude of the initial assumed interest rate. But for purposes of this discussion, for a 3%/yr formula pension with the worker retiring at age 55 with 30 years of service, a 1% change in the rate of investment return changes the level annual % of pay cost of the Plan by 9-11%
For a 2% formula Plan, a 1% change in the rate of investment return changes the level annual % of pay cost of the Plan by 6-8%.
Our %s are a bit different, but there is no question that if CalPERS return drops by more a than a very small amount (from the 7.75% they are now assuming), the actual cost to fully fund these Plans will increase materially.”
TL,
Have you factored in that CalPERS is only 65% funded? I’m not an actuary but considering the person I’ve refrenced is, I’ll stick with what I’ve presented. Come back here on Monday and I hope to have the audio link that explains my position.
August 27, 2011 at 5:33 am
The point I was trying to make, Rex: The Pension Truth Squads that are appearing around the state, are not CalPERS people. They are from the Democrat-backed, “Californians for Retirement Security.” Yes, they are a politically backed group. They have my best wishes.
I, for one, am invested in telling the truth and providing information (like what the CalPERS Ambassador group is doing). You and Captain, just go, “BS”, and believe what you want to believe. Nothing short of CalPERS going down, would please you.
I will tell you this, right now, Rex: Whatever happens in Central Falls, RI, is going to be happening in Central Falls, RI–not in CA. I symphathize with the pensioners in Central Falls. I do not wish to see other people brought down, like you do, just so I can gloat and feel good.
August 27, 2011 at 5:41 am
“When one doesn’t want to consider the truth when faced with it: Just say, “BS”.”
Good one seesaw. No offense, but I haven’t seen much truth from you, your friends, or CalPERS. I’m beyond tired of tip-toeing around what I consider to be very serious issues regarding our state. If I sound impatient it isn’t because I haven’t tried to view both sides of the argument; I have. At this point, I have ZERO interest in listening to fools like David Low, the uninformed opinions of people that have commented on this topic, and the corrupt nature of both CalPERS and the union controlled board of directors.
While I do appreciate the opposing view, I’ve spent too much time studying this issue to get sucked into an argument with people that only regurgitate what they’ve been told.
Sorry, but I’m FED-UP.
August 27, 2011 at 5:46 am
I’m a CalPERS member, Captain. What is your excuse for being so involved in the operation of CalPERS? Do you think that if CalPERS were disbanded, you would all of a sudden have a pocketfull of money? By the way, what statements have I made, that are not true–let’s have it. (I have no connection with David Low.)
August 27, 2011 at 6:07 am
“What is your excuse for being so involved in the operation of CalPERS?
If you haven’t figured it out yet you should phone a friend, buy a vowel, ask the audience, or get in the cash-cab and ask for a shout out. I’ve already given you all the answers to your questions. Just read my last five last posts.
August 27, 2011 at 6:12 am
BS!
August 27, 2011 at 6:40 am
Captain, I have lived in CA for 54 years. You have no right to any more concern for this State, than I. But, I think the accountants, investment officers, actuaries, and other finance professionals at CalPERS, will be able to handle it.
August 27, 2011 at 6:47 am
Aye, the captain has interests he won’t disclose….
Between the captain, Tough Love, and john moore, we’ve seen this thread thoroughly hijacked by the same crowd that sends money to Greenputz’s reporting charade.
It’s still unclear what ends these self-proclaimed reformers are seeking, other than to entertain their own delusion of unique insight on both the general economy and the largest pension plan in the country, with a little bit of Crazy Rex thrown in for some spice in the discussion.
When someone like spension makes a reasonable comment, he/she is immediately accused of being some kind of undercover operative because their position couldn’t possibly be just the remarks of someone who’s interested in this topic but doesn’t suffer from the same level of OCD displayed by people like the captain, Rex, and sometimes even Tough Love.
Then we have crazy Rex, who decides to call me a liar because I apparently have a job with better pay and benefits than he’ll ever have. Oh well, you can’t teach a pig to sing – but you can put lipstick on one, so stick out those piggy little lips of yours captain.
By the way, what ever were you a “captain” of? It’s difficult to imagine someone with your brittle temperament being responsible for people, so perhaps you had a tugboat or something.
I’ll undoubtedly talk with you again, Tough Love, and also with SeeSaw, but the rest of you here have run this whole discussion totally off the rails. John moore won’t even look at his own city budget to see what the total annual costs are, proving that there’s no point in trying to reason with most of you.
Enjoy your weekend, as will I. My wife and I are preparing for a nice retirement vacation, and I assure all of you that I won’t think about you at all while we’re gone.
August 27, 2011 at 8:02 am
Skippingdog,
I’ve challenged several of your statements without any response. As far as I can tell you aren’t informed or relevant. The nonsense you wrote (above) is really pointless
August 27, 2011 at 3:45 pm
I will tell you this, right now, Rex: Whatever happens in Central Falls, RI, is going to be happening in Central Falls, RI–not in CA.
============
Wrong seesaw, it will be challenged to the 1st Circuti Court of Appeals, and posibbly the SCOTUS.
Once they give the pension haircuts a green light it iwll be binidng on all courts in the 1st, and will give persuasive precedent to the other 12 Circuit Court of Appeals.
As I stated, it will just be a matter fo time before a muni in the 9th gets a green light on pension haircuts.
Take that to the bank. So hard to deal with you deniers. Your delusions interfer with your ability to view the world in an unbiased manner.
August 27, 2011 at 3:46 pm
Skippingdog,
I’ve challenged several of your statements without any response. As far as I can tell you aren’t informed or relevant. The nonsense you wrote (above) is really pointless
=====================
Skippy is a denier.
I pity the poor old man.
🙂
August 27, 2011 at 3:50 pm
Then we have crazy Rex, who decides to call me a liar because I apparently have a job with better pay and benefits than he’ll ever have. Oh well, you can’t teach a pig to sing – but you can put lipstick on one, so stick out those piggy little lips of yours captain.
==============
Skippy, you made me cry 😉
/
My wife and I are preparing for a nice retirement vacation, and I assure all of you that I won’t think about you at all while we’re gone.
=======================
OK, now I KNOW you’re a lair Skippy! There is NO WAY any female could stand to be with some crazy hippy like you for more than 10 minutes. Nice try. I just called yoru bluff.
BTW-be appeciative of your gov workfare job, at least YOU can take a vacation (paid for via the taxpayers).
August 27, 2011 at 3:51 pm
Quoting SeeSaw …”Captain, I have lived in CA for 54 years. You have no right to any more concern for this State, than I. But, I think the accountants, investment officers, actuaries, and other finance professionals at CalPERS, will be able to handle it.”
Concern for the “STATE” ? Hardly, you only have concern for the roughly 15% of State residents that are (or were) Civil Servants. You have ZERO “concern” for the other 85%, the taxpayer’s who paid for the vast majority of your generous pension.
Those professionals can indeed propose solutions that will work, but those solutions must included huge pension reductions for CURRENT workers. Maybe, just maybe, you, as a retiree, will escape these cuts unscathed.
August 27, 2011 at 3:55 pm
But, I think the accountants, investment officers, actuaries, and other finance professionals at CalPERS, will be able to handle it.
======================
Are these the same accountants, investment officers, actuaries, and other finance professionals at CalPERS that in 1999 said SB400 would not cost a dime, refused to show the legislature the downside of SB400 if their fantasy fraud did not meet ROI, hid the ball and were OFF THE MARK by $500 BILLION???????
Are these the accountants, investment officers, actuaries, and other finance professionals at CalPERS you speak of seesaw???
Yes, I am positive they have never ripped anyone off or pulled a major Madoff scam 🙂
If fact, I suggest we start referring to CalTURDS as “West Coast Madoff” 🙂
August 27, 2011 at 3:56 pm
Its kind of a joke isn’t it–people who aren’t working, or former workers, in the public sector–telling people who have, and are members of the largest pension plan in the country–that they aren’t informed, or relevant.
August 27, 2011 at 3:58 pm
Ed Mendel Question;
Why are the time stamps on the posts off?
My above time stamp shows 3:55 PM when I posted it at 8:55 AM??? That is an 8 hour time difference.
August 27, 2011 at 6:10 pm
TL, I don’t know who you are, or where you come from. You claim to live in NJ, but I have seen posts of your’s on other forums, where you claim you are a resident, of the area you are writing about, ie, Menlo Park, for one. You have a lot of nerve coming on these forums and telling, me a long-time resident of CA, how I feel about my state. The only person qualified to tell anyone about my feelings for my State, is me. I do not post in NJ, while being a resident of CA, and misleading people in NJ, to think that I am among them. You are a total fraud.
August 27, 2011 at 6:34 pm
SeeSaw, Yes, I’m from NJ (cureent home to Irene … a nasty girl !).
The are a few sites (re: CA ) that REQUIRE that you pick a city location (and I do not believe “other” is among the choices) before accepting your comment. So, in order to comment, I randomly pick a location. No fraud intended.
By the way .. I need not inform readers how you feel. It is ABUNDANTLY clear that you do not give a hoot for ANYONE but current and past Civil Servants …. and taxpayers be damned.
You are the epitome of entitlement, greed, and avarice.
August 27, 2011 at 7:22 pm
If you do not feel a need to inform the readers how I feel, about my State of CA, why are you doing so then! I have been a good citizen all my life–lived in CA for three fourths of it. I will be damned, if a fraud from NJ, named TL, is going to tell my fellow CA’s, how I feel about my own state. I don’t think your fellow-NJersians have any desire, to hear from me, how you feel about NJ. So, TL, you can stuff it!
August 27, 2011 at 7:53 pm
You are the epitome of entitlement, greed, and avarice.
===============
BAM!…seesaw will never recover from that smack across the choppers 🙂
August 27, 2011 at 8:00 pm
If a vote of California Taxpaying non-Civil Servants were taken, I SURE, by virtue of your excessive unjust pension (relative to theirs) that they would classify you as a greedy pig.
August 27, 2011 at 8:25 pm
When I went to work in the public sector, I didn’t know what a pension was, and my employer was not on any such plan. I went to work to help support my family, not, because of greed. It would be better, if you stuck to debate points regarding the pros and cons of respective issues, rather than putting words in the mouths of others, and stooping to the personal attacks. What makes you think you can speak for any other citizen of CA, regardless of whether or not they have pensions. We have a lot more things going on in CA, than you evidently have in NJ. The only people on these forums, who are in your camp, are the jealous haters, like RWD, who twist and turn the facts, to suit their own, sick agendas.
August 27, 2011 at 8:31 pm
SeeSaw .. good response, back to calling those who legitimately disagree with the largess afforded Civil Servants to be …………. “jealous haters”.
August 27, 2011 at 8:35 pm
So, what were you a captain of?
If you or john moore or anyone has evidence that CalPERS isd a “corrupt organization” or has misstated the income and assets of the fund, post it.
All you have posted are your own nonsensical assessments based on self-manufactured data that doesn’t correspond to anything even the most ardent and knowledgable critics of CalPERS have claimed.
People such as you, “captain”, and john moore are far more interested in validating your own preconceptions and pique than in reviewing the readily available facts about this subject, so it is you who bring nothing at all valuable to the discussion except for your ignorance and bile.
In the meantime, CalPERS continues to represent its 1.5 million members pretty well for a large organization, and its fiduciary duty to them first will continue, no matter how much that fact may gall you.
Enjoy your lumpy oatmeal.
August 27, 2011 at 8:51 pm
john moore – the attached article, from your own Pacific Grove local news, says your city will have a $3 million reserve fund in the upcoming budget year. That’s 10% of your entire city budget, so it doesn’t appear that your claims concerning the city exiting CalPERS or seeking Chapter 9 bankruptcy protection are anything close to reality there.
Click to access June-15-2011.pdf
August 27, 2011 at 8:52 pm
I’m surprised at you, Tough Love. Stooping to name calling like Rex and the other dolts who post here. I’d thought better of you.
August 27, 2011 at 9:10 pm
To get back to your questions, “captain,” I know quite well how “smoothing” works. Among other things, it prevents the need for cities like Pacific Grove to pay for their entire UAAL obligation in one year when there’s been poor market performance, and allows the inevitable rise and falls of the market to be moderated on a long investment horizon. If you’re seeking another option, I would have to ask if you understand how it works.
Every CalPERS member pays their portion of the retirement contribution, one way or another. There are many agencies that have negotiated with their employees to provide payment for the employee share of the pension payment in lieu of salary. That’s long been considered a win-win for the city and employee, since it basically places the city in charge of the entire retirement program and the employee’s CalPERS payment doesn’t show up as ordinary income for tax purposes. That arrangement has been decried by people like yourself, which is why you’re beginning to see new contracts in which the municipality no longer pays the employee share of the retirement plan, but those same cities are often substituting that payment with a comparable salary raise for their employees in what is a cost neutral exchange.
At the same time, there are certainly municipalities that have obtained concessions from their employees due to the difficult economy we’ve all been experiencing, and those cities have effectively given their employees a 9% cut in pay.
If you’d take the time to review the MOU’s or MOA’s in your city and the neighboring cities you mention, you’ll find that what I’ve presented is both factual and, if you ask anyone in those cities for information, you’ll also find that it was considered both a cost saving device and a “good government” practice when it was implemented.
Outside of that, there’s no reason to trust the numbers you’ve run any more than I would have any reason to trust anything Rex might post. You clearly are much more interested in complaining about the things you disagree with and don’t understand than you are in finding out what the facts of those agreements might be, so it’s not surprising that people like yourself are relegated to shouting about the injustices you perceive on blogs like this and limited to a three-minute harangue at your city council meetings.
It’s wonderful that you are availing yourself of your First Amendment rights, but unfortunate that you are doing so with such a limited set of facts and, at best, a misguided and toxic approach to the government processes you claim you wish to preserve.
August 27, 2011 at 9:15 pm
Rex – your record for predicting the outcome of legal cases is perfect right now. I’m betting that you continue that streak, since you seem to know and understand so little of how that component of our system actually works.
Keep trying though. As they say, even a broken clock is right twice each day….
August 27, 2011 at 9:25 pm
The reserve is all borrowed money against next years revenues.Per your earlier comment about our pension costs increasing by only$500,000,we also have a $350,000 increase thru our contract for fire services. Keep in mind,it is a cash basis budget which does not show 1.3 million owed for accrued vacation and that we have not set a reserve for about one million in workers comp liability. We also pay 1.6 million per year for pension bonds and our Calpers unfunded deficit of 37 million grows and compounds at 7.75% per annum(doubling every nine years).We have Calpers rate increases over the next two years of a size similar to this year. We pay quadruple sewer fees to pay on a 40 million dollar sewer judgment. We just raised our sales tax a full percentage point and we will have deficits as far as the eye can see,even after borrowing against the next years taxes. Services have been eliminated to the bone except for police,which owns this village.I could go on. All of this started with 3@50. We are better off than most of our neighbors,except for Carmel and Pebble Beach.We adopted pension reform via an initiative. The POA is spending tons in defense,but if the city doesn’t prevail,it will either follow my suggestion of all part time except for one employee(to avoid the Pacific Grove Termination Penalty),or,part time with a mix of contracts with non-Calpers entities. Some mess Huh.It is almost unbelievable,until you see how staff makes it impossible to stop the deficit onslaught.
August 27, 2011 at 9:58 pm
Name calling and eye-poking like a 3-stooges movie here. No wonder California is a mess… were becoming Italy.
Seriously, I believe CalPERS, CalSTRS, and UCRP as well as many local public plans were too optimistic in their discount rate (or growth). You simply cannot count on the long-term average of US securities performance holding true for any 30 year or 50 year period. Gotta plan for fluctuations below the historical average, and and think 4% is a reasonable annual discount rate or annual return. 7.75% doesn’t allow for the fluctuations.
Public institutions unwisely entered into binding contracts guaranteeing life pensions but didn’t do `worst case scenario’ planning… and now the pay-ins to the pension systems, particularly safety pensions, are unreasonable.
I’d say… consider giving all pensioners the same haircut implied by, say, 8% Employee, 8% Employer contributions and the assumptions of a 4% growth or discount rate.
But then also give the same haircut to all holders of California debt.
Promises were made to all, and promises should be broken to all in the same measure.
Yes, sounds like bankruptcy. I’d not call it that, though. Call it an emergency budget reconciliation adjustment.
I simply don’t think there is institutional greed or fraud or whatever pejorative phrase you want to use. There is a constant push for `more’, though, because that is what groups of humans do.
I do contrast this with the private sector, where, `Greed is Good’ (or was it, `Greed is God’) as Gordon Gecko said.
August 28, 2011 at 12:53 am
Name calling and eye-poking like a 3-stooges movie here. No wonder California is a mess… were becoming Italy.
===========
I’m MOE 🙂
/
Public institutions unwisely entered into binding contracts guaranteeing life pensions but didn’t do `worst case scenario’ planning… and now the pay-ins to the pension systems, particularly safety pensions, are unreasonable.
====
The problem with your comment is that it is 100% false.
CalTURDS did indeed have a worst case scenario for SB400, aka 3%@50, and they HID IT from the legislature as well as the public, and the worst case did indeed materialize. That in the real world is called fraud, inducing someone to do a certain act and having them rely on that inducement knowing the inducement was false. CalTURDS can-AND SHOULD- be sued by their members, by the legislature, by theor own pensionsers for that fraud.
/
I simply don’t think there is institutional greed or fraud or whatever pejorative phrase you want to use. There is a constant push for `more’, though, because that is what groups of humans do.
====================
It cvertainly was greed, and the fraud I described above proves it. Take it to trial, see wha happens.
August 28, 2011 at 1:01 am
So give *everyone* with a claim on California Debt the same haircut? Every municipal bond, debt to a hospital, debt to a road contractor, pensioner, mediCal recipient?
August 28, 2011 at 1:53 am
I don’t think spension’s suggestion could happen (thankfully). It sounds like bankruptcy, with another name, and states may not claim bankruptcy.
August 28, 2011 at 4:03 am
We just raised our sales tax a full percentage point and we will have deficits as far as the eye can see,even after borrowing against the next years taxes. Services have been eliminated to the bone except for police,which owns this village.I could go on. All of this started with 3@50.
=============
Should have never raised your sales tax. That is why this is the gov employee piglets against the poor and middle class. They RAISE REGRESSIVE taxes to fudn their multi million dollar pensions. That sales tax is in reality a “pension tax”, it is to take form the poor and those who are the most needy and transfer it toGED educated gov cops and firewhiners so thye can get multi million retirements.
They tried that pension sales tax increase scam in San Diego-guess what-the public there voted it down 2-1. they destroyed it. The POA spent millions against it, but the jig was up, the public was onto the scam. San Diego is going tp be the first city in this state, the coutnry, to put their muni employees into a 401K.
August 28, 2011 at 4:08 am
I don’t think spension’s suggestion could happen (thankfully). It sounds like bankruptcy, with another name, and states may not claim bankruptcy.
=====================
Once more, states do NOT NEED bankruptcy seesaw-how many times do I have to drill that into your little head?????……States are sovereign, they can simply refuse to PAY YOU SEESAW, and there is not a single thing you would/could/can do about it.
States cannot be sued in state court or federal court without their consent, so if they say it is pension haircut time you seesaw you have NO RECOURSE, funny how con law works seesaw.
There you go, that will be $3K for your tuition costs in constitutional law seesaw. I do take paypal, send your payment to Rexthewonderdog@aol.com
August 28, 2011 at 4:22 am
I’m surprised at you, Tough Love. Stooping to name calling like Rex and the other dolts who post here. I’d thought better of you.
==================
Skippy, you are such a joke. This is the same Skippy that said I was a criminal, was mentally deranged, and a million other derogatory comments, and now Skippy complains about getting called out and says name calling is something he would never do.
OMG are you a pathetic little dork
http://orangepunch.ocregister.com/2011/08/18/as-we-tempt-a-second-recession-or-worse-have-we-heard-this-before/48283/
SkippingDog says:
August 20, 2011 at 1:07 pm “Because you’re likely to be a felon and addicted to illegal drugs. Those exclude you from legal firearm ownership.”
SkippingDog says:
August 20, 2011 at 1:34 pm “Okay, Rex. Even if those other things don’t apply to you, you’re clearly mentally incapacitated.”
SkippingDog says:
August 20, 2011 at 4:15 pm “So much anger, Rex? You know, there are a lot of newer medications that might help you with your inclination to lash out at those around you, but you’ll have to deal with your career jealously and pension envy on your own.I sincerely hope you recover your mental health one day, but you should never be allowed anywhere near a firearm. You’d just be breaking the law and might hurt yourself or someone else.Until that time, you’ll just have to be Rex-the-Stoner-Wonder-Dog.”
August 28, 2011 at 4:23 am
So Rex, do you support the same haircut for muni bond holders, contractors owed for state projects, etc as for pensioners? They all hold valid contracts with the State.
Maybe complete across-the-board equality of the haircut would keep the California Supreme Court from throwing out that solution.
Otherwise, just cutting pensions has in the past, as far as I know, not been supported by the California Supreme Court. A contract is a contract.
Is it bankruptcy, Seesaw? I dunno. If it is given another name with `Emergency’ in it, maybe not.
Or, there is another trick that could be played… restructure the payback for the hair that is cut, to using any future State surpluses. Again, structure it so that all debt holders get equal treatment. The State would win by not allowing adjustment for inflation. So, the dollar owed today could be paid back in 2111 with one dollar, which would be worth maybe 5 cents in today’s money.
August 28, 2011 at 5:00 am
So Rex, do you support the same haircut for muni bond holders, contractors owed for state projects, etc as for pensioners? They all hold valid contracts with the State.
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Sure do, bond holders should also get haircuts.
If you follow the brew -ha-ha in Cedar Falls RI, the state has passed legislation putting bond holders IN FRONT of pensioners. I do not agree with that at all.
I would certainly make the pension haircuts progressive, the bigger the pension the bigger the haircut. A fixed % applied to everyone (which is what I think you are advocating for) would be regressive and hit the lower end pensioner much harder than the top end pensioners.
A pensioner with a $200K pension will not be out on the street starving with a 50% haircut, but the opposite would be true of the pensioner receiving just a $15K-$20K pension-they would be out on the street starving.
In fact I would exempt pensions that were below the poverty line from any cuts whatsoever.
August 28, 2011 at 5:42 am
The State of CA will never default on its obligations–mark my world. We can compare notes on this five years from now.
August 28, 2011 at 6:38 am
The State of CA will never default on its obligations–mark my world. We can compare notes on this five years from now.
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You said the SAME THING about General Motors seesaw.
August 28, 2011 at 6:50 am
I never made any statements regarding General Motors. The State of CA has no comparative cohort.
August 28, 2011 at 2:37 pm
Yes, Rex, I thought bond holders have also been given rights senior to pensioners in Alabama… too lazy to surf the internet and dig up the correct info. I agree I’d prefer a progressive haircut. What gets hard is… some people of modest means purchase bonds, and some state contractors owed money aren’t rich either. How could the haircut be fair across the board ondebt?
Seesaw, maybe so, maybe not, it all depends on whether the US economy recovers. Seems like the difference between the 1930’s and now is that we’ve built a beast upon the assumption of growth forever. If the growth fluctuates down for a sufficiently long duration, all sorts of Ponzi schemes unwind, including pensions.
Assuming a smooth 7.75% was never, IMO, an educated assumption. That represents a 100 or 200-year average… (read Jeremy Siegal, Stocks in the Long Run). What really matters is the worst case on 30 or 50 years, and that can be about 4%, historically.
August 28, 2011 at 4:17 pm
The difference between my comment to Tough Love and my comment to you, Rex, is that Tough Love generally has proven he has a thoughtful and reasoned approach to these matters, even if we disagree.
In your case, all of the things you’ve reposted about yourself are clearly true.
August 28, 2011 at 7:33 pm
Skippy, the GED cop gets busted with his very own words 😉 I bet you were a wiz on the PD.
In your case Skippy, all of the things you’ve posted about others clealry shows you’re a delusional crack head with the intelligence of a circus chimp, and that is clearly true 🙂
August 29, 2011 at 4:58 pm
“Captain, I just ran the impact (on funding requirements) of a 1% change in the interest rate through a spreadsheet I prepared.”
TL, below is a link to an article & video (that I promised) on the topic of cost per 1/4 percent decrease in the assumed rate of return. The presenter in the video is a senior CalPERS actuary. The video is five minutes and is pact with information. I recommend reading the article first and then watching the video. Some key points:
– the office of the actuary was likely to recommend a rate reduction to the CalPers Board (they did that. The recommendation was to lower the rate to 7 3/8 – 7.5%).
– Calpers changed their smoothing policy in both 2005 & 2010, “The purpose is to defer loss into future.” ( I bet CalPERS cringed when they heard this staement made it into the media)
– lowering assumed rate of return increses average employer cost by 4% of payroll for safety plans, and 2% for misc. plans.
Actuary: I’m sorry to bring bad news but that is the facts.
The article: California State Pension System makes Madoff Proud – Video Reveals Gimmicks Used to Hide The Decline In Their Assets
http://biggovernment.com/gmcgrew/2010/11/25/california-state-pension-system-makes-madoff-proud-video-reveals-gimmicks-used-to-hide-the-decline-in-their-assets/
August 29, 2011 at 5:09 pm
From an Andrew Breibart log–the jerk who got Shirley Sharrod fired by taking her remarks out of context. What do you expect from the right-wing pundits of this ilk.
You still have not explained why you are so heavily involved in critiquing the business of CalPERS, when you are not even a member, of CalPERS. I, a member, am entrusting the running of CalPERS, to the professional finance people, who are actually running it. Why would expect anyone to take anything you say, about CalPERS, seriously.
August 29, 2011 at 10:53 pm
– lowering assumed rate of return increses average employer cost by 4% of payroll for safety plans, and 2% for misc. plans.
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When you say lowering, did you mean 7.75% to 7.5%=a 1/4 point decrease (250 basis points)?????
That would be 16% for a full 1 point decrease, which as I had stated earlier I think is low, I had read that for every full point reduction there is a 25% increase in a 3%@50 pension plan.
The 3%@50 pensions are funded over a relatively SHORT -very short-period of time for the payouts. 30 years is too short a period to fund a 90% pensions, and the rate of increase in public safety cash salary in the last 30 years has been far about inflation, many times in the 7-10% rage. The average public safety salary has increased 97% from 2000-2010, according to info I have previously read.
When you are receiving funding 90% pensions combined with LARGE cash salary raises the pensions MUST be funded over a longer period than 30 years, there is just simply not enough time during 30 years to fund a 90% pension, especially when the cash salary is increasing at 4-5 times the rate of inflation.
I take everything I hear from CalTURDS with a grain of salt, they simply have lied too many times in the past to trust.
August 29, 2011 at 11:23 pm
“When you say lowering, did you mean 7.75% to 7.5%=a 1/4 point decrease (250 basis points)?????
That would be 16% for a full 1 point decrease, which as I had stated earlier I think is low, I had read that for every full point reduction there is a 25% increase in a 3%@50 pension plan.”
Rex, that is what I’m saying the CalPERS senior actuary is saying – the number I’m going with. However, I think that number is significantly different if CalPERS joins the majority of pension systems that use a five year smoothing policy, or the three year year smoothinng policy they were using as recently as 2005. The cost would be significantly higher in my opinion.
The new GASB rules will at least require cities to get honest about their unfunded pension liabilities. Gasb is also working on new rules to address the almost completely unfunded healthcare liability (not a vested right).
Pay attention to the new GASB rule changes that are coming soon. Here is a link to Op-ED piece on the topic. The changes will make it difficult for cities to hide the problem: http://www.watchsonomacounty.com/2011/08/county/guest-opinion-major-changes-coming-concerning-north-coast-pensions/
August 30, 2011 at 4:15 am
What the heck do the wannabe, twin actuaries care about the administration of CalPERS, anyway, when they’re not even members. Like anybody is going to pay attention to anything they have to say.
August 31, 2011 at 12:46 am
“What the heck do the wannabe, twin actuaries care about the administration of CalPERS, anyway, when they’re not even members. Like anybody is going to pay attention to anything they have to say.”
Do you really not know the answer?