Details of a major federal-style overhaul of state and local public pension funds proposed by Gov. Brown last week are expected to emerge from a study, which could take about a year.
The goal is to replace 75 percent of pay with a “hybrid” retirement plan that combines a lower pension, a 401(k)-style investment plan and Social Security (if the worker is already in the federal plan), each part providing a third of retirement income.
Administration officials said the study would determine key parts of the plan needed to hit the 75 percent replacement target: employer-employee contributions, the formula for the lower pension and how the retirement age would be extended.
The governor’s proposal for new state and local government hires is similar to a cost-cutting reform that since 1987 has given new federal employees a hybrid retirement plan combining a pension, a 401(k)-style investment plan and Social Security.
“Twenty-five years ago, the federal government developed a breakthrough model for pension reform that is gaining renewed attention as states struggle to address rapidly increasing pension costs,” a Little Hoover Commission report said in February.
As of 2009 the three-part federal retirement was 100 percent funded actuarially, said the Hoover report, while the traditional pension plan for federal employees hired before 1987 was 39 percent funded.
The hybrid helps the employer by lowering costs and shifting the risk to employees if 401(k)-style investments fall short. In a pension, employers not employees make up the losses if there is a shortfall in investments expected to provide two-thirds of revenue.
“The devil is in the details,” said Dave Low, chairman of a labor coalition, Californians for Retirement Security. “We absolutely hate the mandatory hybrid thing.”
Low said many unions have agreed to increase employee pension contributions and give new hires lower pensions. He said asking union members who also have been hit by pay cuts and freezes to accept a weaker retirement plan would be difficult.
The proposal to make hybrid plans mandatory for new state and local government hires is the big change in a 12-point pension reform issued by Brown last week, fleshing out some things listed as “under development” in a 12-point plan issued in March.
Labor is likely to support several of the points, some already moving through the Legislature, that correct well-publicized pension abuses but only provide marginal cost savings for employers.
In pension “spiking,” for example, cashing out unused sick leave, vacation and other things boost the final pay in pension calculations. As notably happened with two Contra Costa fire chiefs, spiked pensions can be well above salary earned on the job.
Brown’s plan and pending legislation will be heard by a two-house legislative committee, which last week in Carson held the first of three planned hearings. The committee is expected to issue a reform package next year.
“This will be chewed on over in the Legislature — I certainly welcome that,” Brown said at a news conference last week when asked if his 12-point proposal was “all or nothing” or some parts could be left out by the Legislature.
Democrats, the traditional allies of labor, have big majorities in both houses. But several Republicans would be needed for the two-thirds vote required to place parts of the governor’s plan on the November ballot next year.
Current workers. Critics contend that soaring pension costs are eating up money that should be spent on basic government services, particularly in local government where personnel can be 80 percent or more of the general fund budget.
The Little Hoover Commission and others say that California’s public pension systems, like private-sector pension funds, need to be able to control costs by cutting pension amounts current workers will earn in the future.
Many believe the courts have ruled that pensions promised a worker on the date of hire cannot be cut, but there is a dispute. Brown said he thinks “some cities will experiment in this area,” causing the courts to clarify the issue in a few years.
He apparently was referring to an initiative on the June ballot in San Diego capping pay counted toward pensions, a proposal in San Jose to cap city pension contributions and perhaps competing ballot measures on Nov. 8 in San Francisco.
“I’m not sure there might not be greater latitude in terms of changing pension benefits, but I know we can do what I proposed,” Brown said. “If there is any more, that will evolve over time.”
The governor’s plan for current workers calls for equal sharing between employees and employer of the “normal” cost, what actuaries say is needed to pay for pensions earned during a typical year.
But that does not include the debt or “unfunded liability” that soared after the stock market crash and a weak economy dropped investment earnings well below the typical pension fund forecast, 7.75 percent, which critics say is too optimistic.
A Brown administration official told the Carson hearing that state workers currently pay a roughly equal share of the normal cost of their pensions. No figures were immediately available from the California Public Employees Retirement System.
But if state workers paid an equal share of the total cost including the unfunded liability, their payments would increase significantly.
For example, most state workers agreed last year to contribute 8 percent of their pay toward their CalPERS contributions under new contracts, up from 5 percent. The state contribution for these “miscellaneous” workers this year is 18 percent of pay.
The governor’s normal cost-sharing plan would have the biggest impact on local government, particularly for police and firefighters. Some cities currently pay all of the employee’s required pension contribution, up to 8 percent of pay.
In addition, some of these “employer paid member contributions” are counted as salary that increases the employee’s pension under formulas based on final pay, years of service and age.
Working longer. The governor’s plan would require new hires to work longer to receive full pension benefits, until age 67 as in Social Security. But how this would be structured depends on the study of what is needed to reach the hybrid pay replacement goal.
Most state workers are in a “2 at 55” plan (new hires “2 at 60”) providing 2 percent of final pay for each year served at age 55. But workers can retire at age 50 with 1.1 percent for each year served, gradually increasing to 2.5 percent at 63 or older.
After 40 years of service, the plan provides a pension at age 63 equal to 100 percent of salary, which can increase if the employee continues to work because there is no cap. Most state workers receive Social Security in addition to their pensions.
In the last year of his previous term as governor, Brown’s proposed budget in 1982 called for lower pensions because state workers could retire at 62 with more than 100 percent of their final salary from CalPERS and Social Security.
California is one of about 15 states where some government employees are not in Social Security. Among them are teachers in CalSTRS and some estimate more than 60 percent of local government employees, a cities’ representative told the Carson hearing.
CalSTRS. One point in the governor’s March plan missing in the new plan issued last week: a funding solution for the California State Teachers Retirement System.
Without a contribution increase, CalSTRS is expected to run out of money in about 30 years. But unlike most California public pensions systems, CalSTRS lacks the power to set contribution rates, needing legislation instead.
An agreement on a funding solution would probably require phasing in more money from the state, as well as school districts and teachers. As huge state budget gaps continue and schools struggle, the Brown plan avoids adding new costs for government employers.
The governor, perhaps wryly, held out hope that an improving economy will shrink the pension debt or unfunded liability by boosting pension fund investment earnings, which are expected to provide about two-thirds of pension revenue.
“We have to deal with it,” Brown said of CalSTRS funding. “But unfunded liability changes over time, and hopefully the Obama (jobs) plan is going to make everything go away.”
Retiree health. The state’s biggest retiree debt or “unfunded liability” is $60 billion owed over the next 30 years for retiree health promised current state workers. Last May, the unfunded liability for CalPERS was $49 billion and for CalSTRS $56 billion.
But unlike pensions, little or no money has been invested to pay for future retiree health care costs. It’s pay-as-you-go costing the state general fund $1.5 billion this year, up 60 percent in the last five years and expected to nearly double in the next 10 years.
By comparison the other state worker retirement costs this fiscal year are $3.5 billion to CalPERS ($2 billion from the deficit-ridden general fund and the rest from special funds such as transportation), Social Security $632 million ($297 million general fund) and Medicare $218 million (102 million general fund).
The state payment to CalSTRS is $1.3 billion, all from the general fund. Add them up and general fund state worker retiree costs this year are about $5 billion, more than 5 percent of the deeply troubled $89 billion general fund.
In better economic times, the governor might propose setting aside money to invest and begin “prefunding” retiree health care promised current workers. His proposal trims retiree health care for new hires.
New state employees would have to work 15 years, instead of 10 years, to be eligible for partial state payment of retiree health care premiums and 25 years, instead of 20 years, to get full state payment for the average retiree health care premium.
The governor’s proposal to require working longer for full pensions could shorten the length of time before retirees become eligible for Medicare, producing savings by reducing the time the state pays their premiums.
Labor proposal. Public employee unions are not a united front as former Gov. Arnold Schwarzenegger learned last year. Some unions volunteered to raise employee pension contributions and give new hires lower pensions.
Others had to be prodded by a record 100-day state budget deadlock. And some held out until the Republican Schwarzenegger administration was replaced by the new Democratic Brown administration.
Historically, there has been some competition among unions to represent bargaining units, producing a few changes. And labor leaders always have to worry about getting too far in front of their members.
In a joint news release last week, the president of the largest state worker union, Yvonne Walker of SEIU Local 1000, and the executive officer of the trendsetting California Highway Patrol union, Jon Hamm, did not blast the governor’s plan.
“Gov. Brown’s proposal starts the conversation on retirement security that will help shape the future for the millions of people reaching retirement age,” Walker and Hamm said.
The two union officials said they supported curbing pension abuses, but could not jeopardize the modest pensions of public employees. They pointed to a recent UC Berkeley study showing nearly half of all Californians may retire in poverty.
Then they made a proposal that would give the two-house committee even more to chew on: Look at ways to improve retirement security for private-sector workers, instead of only focusing on cutting benefits for public employee benefits.
“Vehicles like CalPERS that offer expertise in making sound investments and achieving returns higher than market averages should be available to public and private sector employers and their employees,” said Walker.
Initiative pressure. Brown also had some advice for legislators last week. He urged them to “rise above the pressures” and place key parts of his plan on the November ballot next year if they want a favorable response from the electorate.
“November could have some very profound measures on the ballot, profoundly impactful,” he said. “So I would say that the Legislature is well-advised to take this very seriously, get it on the ballot in November when other things may be on that they are quite interested in.”
The governor didn’t say whether he was referring to a tax proposal he is expected to make, a “paycheck protection” initiative aimed at curbing public employee union political campaign funds or a rumored pension reform initiative.
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 1 Nov 11
Calpensions 
November 1, 2011 at 1:07 pm
Quoting …”The governor’s plan for current workers calls for equal sharing between employees and employer of the “normal” cost, what actuaries say is needed to pay for pensions earned during a typical year.”
This will HONESTLY happen when Pigs Fly. …. Read on:
The ONLY part of Brown’s proposals which “might” make a dent in this financial mess is the 50-50 cost sharing of future service pension accrual for current
workers.
Why … because the full total cost of these excessive pensions is HUGE.
As an example the cost (expressed as a level annual percent of pay) to a safety worker (with the 3%/per year COLA-adjusted pension) who survives to and retires at age 55 after a 30 year career is 58% of pay.
YUP … no joke…… 58% of pay EVERY years throughout one’s career.
Now to be fair, the real “average” cost is somewhat lower (about
45-50% of pay) because some workers will terminate without vesting, some will retire before 30 years with a smaller pension, and some will retire at a later age … all costing a bit less (again, as a level annual % of pay).
So….. for such pensions, we need just about 45% of pay EVERY year to fund their pensions. Now if there is 50-50 sharing, these safety workers would need to contribute 22.5% of pay.
As they say, there is not “a snowball’s chance in hell” this will
happen. The Unions will put forth innumerable distortions and lies to understate the true total cost of their pensions so that their share
will be as low as possible.
Of course, an HONEST change to force the 50-50 sharing could be
constructed … by keeping track of any future service surpluses or
unfunded liabilities and annually adjusting the annual contributions to bring it to zero of the working careers of these workers.
I’d guess that the chances this will actually be implemented so that
workers actually pay 50% of total Plan costs is near zero …. as this is still Democratically-controlled California.
Insolvency will unfortunately precede the actual solution.
November 1, 2011 at 4:32 pm
“November could have some very profound measures on the ballot, profoundly impactful,” he said. “So I would say that the Legislature is well-advised to take this very seriously, get it on the ballot in November when other things may be on that they are quite interested in.”
This is Jerry Clown sending up the Bat signal to Dems that tax hikes are going to be tied to pension reform. Don’t kid us Jerry. Won’t work. There are not going to be any tax increases in a depression when GED government employees are getting $3-$10 million pensiosn at age 50.
JIg is up. Vote against tax increases even if it means voting against a sorry and pathetic pension Jerry Clown reform plan.
We can elect Carl DeMaio as Gov in 3.5 years and he will fix the state 😉
November 1, 2011 at 4:53 pm
Same old talking point dull normal comments above from the usual polarizing pinheads—- classic— these clowns would be good in congress !
November 1, 2011 at 5:01 pm
Ted, when did you get promoted to janitor? Are you qualified for that job? I know you still comp over $100K, but I was hired on at Pelican Bay, in the SHU, I am now getting $500K per year with overtime for babysitting pot smokers. Pretty easy job.
November 1, 2011 at 5:39 pm
zzzzzzzzzzzzzzzzzzzz zzzzzzzzzzzzzzzzzzzzzz please try harder…zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz
November 1, 2011 at 6:14 pm
For heavens sake! Jerry said during his campaign, that he favored the DB pensions, but he wanted to be assured, that they are actuarially stable. If all the principals were forced to sit down at the table and hash out all the details, and come to solutions, for making the DB pensions systems stable, the problem will be partly solved. Employment, to the fullest extent possible, would end this silly sniping, back and forth, between the public and private sectors. The hybrid plan, as it has been presented, should be DOA. I have already written my letter to JB, giving him my best advice.
November 1, 2011 at 6:22 pm
Just dropped mine in the mail as well SeeSaw– I see it as you do—-
November 1, 2011 at 6:22 pm
Quoting SeeSaw …”If all the principals were forced to sit down at the table and hash out all the details, and come to solutions, for making the DB pensions systems stable, the problem will be partly solved.”
What planet do you live on ?
Want a “solution” …. got $500 BILLION ?
End the DB Plans for FUTURE service …. and THAT’s only step #1 ….. unlikely sufficient as it does NOTHING to address that $500 Billion shortfall associated with PAST service accruals for these ridiculously excessive pension Plans.
November 1, 2011 at 6:26 pm
lol — TL—- funny thing though is that if you stopped the db now—- in 2045 when calpers dried up— taxpayers would be 100% on the hook for the balance for the very old retirees….as it is now 75% or more is paid by the very stable pension fund….sadly you misunderstand that the unfunded “liability” is just like your mortgage– in time it gets paid off, just not all today because the buill aint due yet amigo! God bless your heart I understand you guys will never accept that and that’ ok by me!
November 1, 2011 at 6:51 pm
One could also make better choices, about which Study to believe. CalPERS says that the Stanford Study is flawed, because it uses outdated research methods. The SS was done for GAS, and came to conclusions, that GAS wanted. Why not read some of Robert Reich’s articles, TL–of course you won’t, because he would not say what you want to hear. Its all pretty simple–who do you trust?
November 1, 2011 at 9:10 pm
Ted Steel, Ending the DB Plan for future service is a plus under ANY scenario. Not doing so just ADDS to the taxpayers burden because the workers pay such a very small (10-20%) of the cost of their pension.
It’s smoke and mirrors to think the continued contributions of workers do anything to lesson or alleviate that burden. Just another Union/worker tactic to confuse the taxpayers
You need to study up on finance/economics.
November 1, 2011 at 9:14 pm
SeeSaw, Please direct me to a link the the Robert Reich article(s).
I’ll bet I can point out it’s flaws.
November 1, 2011 at 9:17 pm
Jerry Brown has stated some obvious reforms that need bi-partisan approval. But this legislature will take the obvious and turn it into bargaining chips for the absurdly ridiculous items they want.
Even now, the proposals being discussed are short of real solutions.
The biggest issue is that we do not require contributions that pay for the benefits as they are earned. For example, when a govt worker retires with lifetime health benefits, has the employer created a fund adequate to pay those benefits? If not, then they are making someone else pay for people who don’t provide any services, another way of saying they lied.
November 1, 2011 at 9:36 pm
SeeSaw, what are the outdated research methods? What CalPERS and the unions seem to object most to is usingg a risk free discount rate to determine unfunded liabilities. As a taxpayer (not expecting a government pension) that is STUCK guaranteeing the absurd rate of return of 7.75%, on the unfunded liabilities that have partly been created by allowing these ridiculously excessive pensions, I wan’t these unfunded liabilities discounted at a risk free rate. I also want to end the ever increasing use of smoothing policies that hide the true cost. That is the only way to clearly understand the devestating potential impact of what has been promised to public employee unions.
CalPERS has no trouble using less than the 4.1% discounted rate used in the Stanford Study to discount unfunded liabilities of agencies wanting out of CalPERS. They’re using 3.8% to discount those liabilities. While I understand why that is so, and I don’t have a problem with it, I do have a problem with your/CalPERS argument/dismissal of the Stanford Study, which is more than a bit hypocritical.
CalPERS BOD isn’t even willing to listen to their own actuaries, preferring instead to string taxpayers along in a fashion that would make a loan shark proud. For the record, I also don’t want CalPERS to use taxpayer money to pursue their political agenda. They are a state agency in charge of managing contributions from taxpayers and employees. Let them stick to doing that!
Regarding Jerry Brown’s 12 point pension reform plan, I like #11: Increase Pension Board Independence and Expertise
This is way overdue but doesn’t go far enough, IMO.
November 1, 2011 at 9:38 pm
Pension Actuary,
I’m convinced the future generations to which virtually all of the retiree healthcare costs, and perhaps 50% of current pension costs are deferred (past the worker’s retirement), will renege on those promises.
The easiest way of which is to just move away. There is no exit tax and a few States, (e.g., Nebraska, Utah) have not promised the sun, the moon, and the stars to their Public Sector workers.
In fact, the future hold very bright for these States. Where do you think businesses will want to expand ? There, or in the dumps like CA, IL, MI, and NJ which will either tax their residents and business to death, or renege on the promises to the Public Sector workers with the years of accompanying litigation and conflict when pensions simply cannot be paid ?
November 1, 2011 at 9:38 pm
CalPERS says that the Stanford Study is flawed
Is this the same CalTURDS who said SB400 would not cost a DIME?
Bwhahahahahahaha….that is ALMOST as funny as the CalTURDSReponds website!
Seesaw, you and Teedy Steals should team up in a comedy ropitune, like Hope and Crosby, or Aboot and Costello, or the Odd Couple….you two are the best!
November 1, 2011 at 9:41 pm
Captain & PensionActuary, excellent points.
CalTURDS using a 7,75% discounted rate when the true return is under 4% is a scam.
November 1, 2011 at 9:55 pm
I’m convinced the future generations to which virtually all of the retiree healthcare costs, and perhaps 50% of current pension costs are deferred (past the worker’s retirement), will renege on those promises.
TL, the top pensioners with $100K pensoions at ages below 65 WILL certainly be cut. For more modest retirees like seesaw there will be no cuts. No one getting an $18K-$25K will see pensions cut, but there will be progressive cuts going up the ladder, just like what we’re seeing in Central Falls RI.
As for public unions “negotiating” reasonable pensions, that will never happen-ever. We have already seen that in Central Falls-where they refused to negotiate and instead had 55% cuts imposed on them,/b., as well as San Jose where they took no cuts and 100 police and fire were fired. Also Vallejo- where they took no cuts either-promting the BK filing in Vallejo.
November 1, 2011 at 11:18 pm
TL: robertreich.org/post/2615647030
November 1, 2011 at 11:31 pm
Captain, I have attempted to cut and paste a CalPERS press release, regarding the Stanford Study, dated April 10, 2010. If the moderator does not allow it, you can go to the CalPERS Website.
November 1, 2011 at 11:32 pm
Captain, I am not a member of the CalPERS Board. I think the meetings are open to the public. If you want them to consider your “demands”, you should attend a meeting, and speak.
November 1, 2011 at 11:37 pm
TL: http://www.robertreich.org/post/2615647030
From the midgets website;
“They say public employees earn far more than private-sector workers. That’s untrue when you take account of level of education. Matched by education, public sector workers actually earn less than their private-sector counterparts.”
The truth;
Government pay ahead of private industry
By Dennis Cauchon, USA TODAY
Updated 3/8/2010
Government employees earn higher average salaries than private-sector workers in more than eight out of 10 occupations, a USA TODAY analysis of government data finds.
http://www.usatoday.com/news/nation/2010-03-04-federal-pay_N.htm
So much for the midgets talking points. In JOB TO JOB comparisons gov employees make FAR MORE.
November 1, 2011 at 11:37 pm
TL: robertreich org/post/2615647030
From the midgets website;
“They say public employees earn far more than private-sector workers. That’s untrue when you take account of level of education. Matched by education, public sector workers actually earn less than their private-sector counterparts.”
The truth;
Government pay ahead of private industry
By Dennis Cauchon, USA TODAY
Updated 3/8/2010
Government employees earn higher average salaries than private-sector workers in more than eight out of 10 occupations, a USA TODAY analysis of government data finds.
http://www.usatoday.com/news/nation/2010-03-04-federal-pay_N.htm
So much for the midgets talking points. In JOB TO JOB comparisons gov employees make FAR MORE.
November 1, 2011 at 11:40 pm
Rex, get in your basket, and lay your little head on your pillow, while you dream about all the things, you want to happen, to public pensioners–your opinions and dreams are all you have.
November 1, 2011 at 11:51 pm
Pension Actuary: CalPERS has investment officers and actuaries on its staff. Why would I go to outside sources, for information on whether or not my employer and I have made enough payments, to take care of my pension. The investment returns on the funds, that we have, respectively, paid into the fund, are supposed to be used in the payment of approximately 3/4, of the required benefits. I am not an actuary, and I take my information from those, that administer my Plan.
November 1, 2011 at 11:54 pm
Making fun of the physical stature of Robert Reich–so typical of you, RWD.
November 2, 2011 at 12:11 am
Pension Actuary, I aplogize, I was skipping over all the posted rhetoric, and I did not take time to, properly understand your post. I know that my own health care stipend was an unfunded liability, from the beginning. My benefit, in that regard, is subject to the CB process, conducted between my former employer and my still active, former colleagues.
November 2, 2011 at 12:21 am
The point is a 4% or so discount rate allows for market fluctuations… bad 30 or 40 year stretches that historically have happened.
The 7.75% is a long term average. But you only get it if… during the 30 or 40 years stretches where *high returns are achieved*, you *save the money so earned*, while continuing to make contributions during that period.
Instead, the CalXXXX systems reduced contributions during the up years, and now they are screwed long-term. And they upped benefits too during the 1980-2000 period. Just frightfully bad actuarial planning.
My solution is simple: sovereign default, like Argentina and many other countries (including Germany, once upon a time), for California. Haircuts (hey, Greek bond holders are getting cut!) now for everyone, pensioners and bond holder, same in each case (except for very low $ pensioners who also worked >20 years).
Will mess up California’s ability to borrow for 5 years or so. Too bad, the same politicians messed up all California debt, both bond and pension. Haircuts for all who trusted California pols.
November 2, 2011 at 12:35 am
Spension,
Agree with what you said just above, except …”Just frightfully bad actuarial planning.”
No, the actuaries knew what was going on (perhaps downplaying it a bit for the paymasters). More accurately, it was “frightfully bad politics as usual”.
****************************
By-the-way, just thought I’d ask….
Since you oppose pension haircuts for those with >20 years service, might you be in that group now or soon ?
November 2, 2011 at 2:17 am
SeeSaw, Following up on my offer to critique Robert Reich’s post I offer the following with, for each numbered item below (taken from his post), my critique in CAPITAL letter (only to help distinguish MY critique from his commentary):
(1) Public servants are convenient scapegoats. Republicans would rather deflect attention from corporate executive pay that continues to rise as corporate profits soar, even as corporations refuse to hire more workers.
WHILE WEALTHY REPUBLICAN’S ARE CERTAINLY LOOKING OUT FOR THEIR OWN INTERESTS, I FIND IT EQUALLY ARGUABLE THAT PUBLIC SECTOR UNIONS CLAIM THE ABOVE AS A DIVERSION FROM HOW THEY ARE FINANCIALLY STRANGLING PRIVATE SECTOR TAXPAYERS VIA THE GROSSLY EXCESSIVE PENSIONS GRANTED CIVIL SERVANTS.
(2) They say public employees earn far more than private-sector workers. That’s untrue when you take account of level of education. Matched by education, public sector workers actually earn less than their private-sector counterparts.
THE US GOV’T BUREAU OF LABOR STATISTICS (BLS) PUBLISHES SUCH STATISTICS WITH AND W/O ADJUSTMENT FOR LEVEL OF EDUCATION, AND THEIR CONCLUSION IS THAT WITH THE EXCEPTION OF CERTAIN HIGHLY PROFESSIONAL OCCUPATIONS SUCH AS DOCTORS, LAWYERS, ETC., CASH PAY ALONE IS GREATER IN THE PUBLIC SECTOR AND PENSIONS/BENEFITS ARE FAR GREATER IN THE PUBLIC SECTOR.
(3) Public sector workers now earn 11 percent less than comparable workers in the private sector, and local workers 12 percent less. (Even if you include health and retirement benefits, government employees still earn less than their private-sector counterparts with similar educations.)
SEE #2 ABOVE. THIS DIRECTLY CONFLICTS WITH US GOV’T STATISTICS. THE BLS HAS NO REASON TO BE BIASED.
(4) After a career with annual pay averaging less than $45,000, the typical newly-retired public employee receives a pension of $19,000 a year. Few would call that overly generous.
ON IT’S FACE, THIS STATEMENT MAKE NO SENSE. ASSUMING 30 YEARS IS A “CAREER” AND EVERY YEAR HE/SHE GETS A 4% WAGE INCREASE, AN EMPLOYEE WITH AN “AVERAGE” SALARY OF $45k WOULD HAVE A FINAL 3 YEAR AVERAGE SALARY OF SLIGHTLY OVER $72k (I CREATED A SPREADSHEET TO CALCULATE THIS). THE TYPICAL PENSION AFTER A 30 YEAR CAREER WOULD BE ABOUT 75% OF THAT FINAL 3-YEAR AVERAGE OR 0.75 X $72,000 = $54,000 NOT $19,000. THIS ERROR SO BLATANT IT IS HARD FOR ME TO BELIEVE IT WAS NOT INTENTIONAL. A PROFESSOR AT A UNIVERSITY SHOULD NOT MAKE SUCH ERRORS.
(5) And most of that $19,000 isn’t even on taxpayers’ shoulders. While they’re working, most public employees contribute a portion of their salaries into their pension plans. Taxpayers are directly responsible for only about 14 percent of public retirement benefits.
THIS GETS BACK TO WHO PAYS FOR THESE PENSIONS. CLEARLY (IN MOST PLANS) BOTH THE EMPLOYEE AND TAXPAYERS CONTRIBUTE. MR. REICH FEELS THAT “INVESTMENT EARNINGS” IS SOMEHOW A CONTRIBUTOR TO THESE PENSIONS. I DO NOT SINCE THESE EARNINGS ONLY REFLECT THE CHOSEN TIMING OF CONTRIBUTIONS TO PAY PLAN COSTS. AS A SIMPLE EXAMPLE SUPPOSE THE EMPLOYEE WAS PROMISED A LUMP SUM OF $1 MILLION 10 YEARS HENCE AND 25% WAS TO COME FROM WORKER CONTRIBUTIONS AND 75% FROM TAXPAYERS. IF NEITHER THE WORKER NOR THE TAXPAYERS CONTRIBUTED ANYTHING UNTIL THE DUE DATE 10 YEARS HENCE CLEARLY (WITH THE WORKERS PAYING $250k AND THE TAXPAYERS PAYING $750k) NO ONE WOULD ARGUE THAT THE TAXPAYERS PAID 75% OF PLAN COSTS.
NOW KNOWING THAT $363,895.45 INVESTED TODAY AT 7.5% INTEREST WOULD GROW TO $750,000 AT THE END OF TEN YEARS, THE TAXPAYERS HAVE THE (MATHEMATICALLY EQUIVALENT) OPTION OF CONTRIBUTING $363,895.45 TODAY INSTEAD OF $750,000 IN TEN YEARS ….. BUT IN DOING SO, THEY WILL (SINCE THEY HAVE GIVEN AWAY THE FUNDS) NO LONGER EARN INTEREST FOR THEMSELVES FOR THAT 10 YEAR PERIOD ON THAT $363,895.45.
SIMILARLY THE WORKERS COULD HAVE CONTRIBUTED $121,298.48 TODAY INSTEAD OF $250,000 IN 10 YEARS, WITH THEM ALSO LOSING INTEREST ON THAT CONTRIBUTION FOR 10 YEARS.
MR. REICH WOULD LIKE TO SAY THAT OF THE $1,000,000 TOTAL PLAN COSTS $121,298.48 (12.13% OF THE $1 MILLION) CAME FROM THE WORKERS, $363,895.45 (OR 36.39%) FROM THE TAXPAYERS, AND THE BALANCE OF THE $1 MILLION, $514,806.10 (OR 51.48%) FROM INVESTMENT EARNINGS.
THINK ABOUT HOW WRONG-HEADED SUCH THINKING IS. THE 51.48% SIMPLY REFLECTS THE TIMING OF THE PAYMENTS, THAT INTEREST BELONGING (IN PROPORTION) TO THE TO THE ORIGINAL SOURCE CONTRIBUTIONS FROM THE WORKER AND THE TAXPAYERS. “INVESTMENT EARNING” IS NOT A “SOURCE” OF CONTRIBUTIONS.
(6) Remember also that many public workers aren’t covered by Social Security, so the government isn’t contributing 6.25 of their pay into the Social Security fund as private employers would.
MR. REICH IS STATING THIS IN THE CONTEXT THAT PRIVATE SECTOR WORKERS ARE GETTING SOMETHING THAT THEY (THE PUBLIC SECTOR WORKERS) ARE NOT GETTING. i DISAGREE WITH THAT SINCE CLEARLY PRIVATE SECTOR EMPLOYERS LOOK AT TOTAL COMPENSATION COSTS, AND IF THEY DID NOT HAVE TO GIVE THE GOV’T THAT 6.25 % THEY WOULD LIKELY BE PAYING THEIR EMPLOYEES 6.25% MORE … AS THEY WOULD BE IN THE EXACT SAME FINANCIAL POSITION.
(7) Yes, there’s cause for concern about unfunded pension liabilities in future years. They’re way too big. But it’s much the same in the private sector.
DEFINITELY A FALSE STATEMENT WITH RESPECT TO MANY PUBLIC SECTOR PLANS. THE FASB ACCOUNTING STANDARDS APPLICABLE TO PRIVATE SECTOR PLANS ARE MUCH STRICTER THAT THE GASB STANDARDS APPLICABLE TO PUBLIC SECTOR PLANS. IN FACT, THE INTEREST RATE USED FOR DISCOUNTING PRIVATE SECTOR PLAN LIABILITIES IS JUST ABOUT A FULL 2 PERCENTAGE POINTS BELOW THAT USED IN PUBLIC SECTOR PLANS. NOTING THAT PUBLIC SECTOR PLAN MAKE A BIG BIG DEAL ABOUT EVEN LOWERING THIS RATE BY 1/4%, IF THEY HAD TO CALCULATE PLAN LIABILITIES WITH AN INTEREST RATE 2 FULL PERCENTAGE POINT LOWER, THEIR UNFUNDED LIABILITIES WOULD RISE SO SIGNIFICANTLY THAT UNDER PRIVATE SECTOR ACCOUNTING RULES MANY PLANS WOULD BE REQUIRED TO FREEZE ANY FURTHER PENSION ACCRUALS.
(8) Don’t get me wrong. When times are tough, public employees should have to make the same sacrifices as everyone else. And they are right now.
NONSENSE. WHILE PRIVATE SECTOR PLANS ARE MOSTLY OF THE DEFINED CONTRIBUTION TYPE, WITH THE EMPLOYEES TAKING ALL THE INVESTMENT RISK, ALMOST ALL PUBLIC SECTOR PLAN ARE OF THE DEFINED BENEFIT TYPE WITH THE EMPLOYER (MEANING TAXPAYERS) ASSUMING ALL THE INVESTMENTS.
ADDITIONALLY, THE FORMULA BENEFITS ARE SO STRIKINGLY GREAT (OFTEN REQUIRING 40, 50, EVEN 60% OF PAY ANNUALLY TO FULLY FUND THESE PLANS OVER THE WORKING CAREER OF THE EMPLOYEES) THAT THE VERY MODEST 1% OR 2% INCREASE IN EMPLOYEE CONTRIBUTION GRUDGING GIVEN, IS PUNY AND LITTLE MORE THAN A TOKEN IN ADDRESSING THE BURDEN PLACED UPON TAXPAYERS.
(9) But isn’t it curious that when it comes to sacrifice, Republicans don’t include the richest people in America? To the contrary, they insist the rich should sacrifice even less, enjoying even larger tax cuts that expand public-sector deficits.
HERE WE AGREE, THE WEALTHY CITIZENS AND CORPORATION SHOULD PAY MORE …. QUITE A BIT MORE.
November 2, 2011 at 2:23 am
Captain, my cut and paste, has not passed moderation, yet–I also quoted the wrong date. So, just in case:
April 7, 2010
External Affairs Branch
(916) 795-3991
Pat Macht, Director
Contact: Brad Pacheco, Chief
pressroom@calpers.ca.gov
CalPERS Responds to Stanford Policy Brief on Public Pension Funds
November 2, 2011 at 2:38 am
TL, Poodle boi et al— just skimmed your wasted day’s posts—- lol— non worthy of comment. Carry on trolls!
November 2, 2011 at 2:40 am
TL, at least you took the time to read and critique. IMO, Mr. Reich has credibility on the subjects, about which he writes, by virtrue of his credentials.
November 2, 2011 at 3:04 am
SeeSaw,
Unless you or someone else can tell me how my critical review is in error, I think Mr. Reich’s credibility is what should be questioned …. along with whether there is a hidden agenda behind such nonsense writings.
November 2, 2011 at 3:40 am
TL, you have a right to critique anything you want–just as I do. I was just saying that I personally give some people more crediblity over other people, simply because of their credentials–eg, I certainly do not pay any attention to something that Anne Coulter writes, because I don’t consider her credible. (Mr. Reich does have the benefit of conducting scientific studies, for use in writing his books and articles. He possesses credibility with me. The average CalPERS pension is about $25,000, so I would have no reason to doubt his statement that the average, new public pensioner, receives $19,000.)
November 2, 2011 at 3:42 am
Tough Love, The Midget (Robert Reich) is nothing but a mouthpiece for piblic unions, and you DESTOYED him. And seesaw.
November 2, 2011 at 3:45 am
SeeSaw Says:
The average CalPERS pension is about $25,000
The AVERAGE CalTURDS pension for a full career employee is $68K at age 53. The AVERAGE Social Security pension is $12K at age 66.
Seesaw, don’t even try to spin here, I can destroy you (and nurse Steal) all day long, you know that 😉
November 2, 2011 at 3:50 am
SeeSaw Says:
Making fun of the physical stature of Robert Reich–so typical of you, RWD.
seesaw, RR has “Little Man” complex, and that shows up in his ridiculous rants that have no basis in fact to support them.
He is trying to compensate for his 4’8 stature, and he fails miserably.
November 2, 2011 at 4:00 am
No, I get no pension like that. I just think someone who, say, worked a long time for relatively little pension should not get the same haircut as someone who gets a lot for fewer years of service… the latter case might be a prison dentist.
Actually, I wonder why government pensions should ever be a percentage of salary. Social Security does not work that way… you can’t get above the max (per person who paid in). Something similar for California pensions would be good… maybe 2X the median California wage should be the max.
November 2, 2011 at 4:07 am
SesSaw, Help me here …
You said …”The average CalPERS pension is about $25,000, so I would have no reason to doubt his statement that the average, new public pensioner, receives $19,000.”
The average pension is so low only because that “average” includes part-time workers, short service workers, workers who retired LONG ago when salaries were much lower, and surviving spouses of workers with 50% survivorship pensions.
Just including for “recent” retirees (as Mr. Reich stated) would raise that considerably because the “average” retiree likely retired 10+ years ago at a much smaller salary. In addition, Mr. Reich specifically stated “after a career”. “Career” workers would also seem to exclude short duration retirees (and arguably part-time workers) …. considerably raising that “average” pension even further.
His $19K figure for the average pension of a new, “career” Public Sector worker is patently absurd.
November 2, 2011 at 4:47 am
TL, there are about 500,000 CalPERS retirees, at present. I’m sure that CalPERS has many different stats, covering, certain groups that are cherry picked for many different details. The average figure includes all the retirees, not just those in any specific, demographic group. The average yearly pension for all CalPERS retirees is about $25,000. (My former CM makes six times more than I. We are both in that group.) Mr. Reich’s $19K figure is absolutely believable.
November 2, 2011 at 5:15 am
SeeSaw,
How could $19K be believable for NEW (not “averageing in” those that retired long ago) and for CAREER (not short duration workers).
Stop and think for a moment. It no sense whatsoever.
November 2, 2011 at 6:19 am
The more things change the more they stay the same. Argue about demographics, median incomes and average incomes all you want. SB 400 added 13 and 1/2 % to my retirement.
The rest has been the same since 1969. Take back your 13 and 1/2 percent. I donate more to charity than you can take from me.
If the State of California wants to make promises to the people who work for them then they must honor them. Otherwise the State has no recognition for paying their bills and bonds will be a thing of the past.
Why would anyone in private enterprise wish for State workers to take the same retirement as private? Are you HAPPY with your 401(k)?
Wishing that others were cheated by Wall St. as you were is not beneficial to anyone. All workers in these United States should have a retirement plan that works for the employee, not banks and stockbrokers who get rich with government bailouts while the average worker has to pay the bill in taxes.
Wake up and smell the coffee.
November 2, 2011 at 6:59 am
TL, I don’t know the specifics of Reich’s particular Study, that resulted in a benefit, of $19,000, for the average, newly retired career worker. I believe that the average length of career, for all retiring CalPERS service members, is 20 years, and the average age, is 60. A typical worker in CA, retiring with a 2% at 60 formula, after a 20-year career, would net an unmodified pension, of $18,000, on a final salary of $45,000. Then, that person probably loses about 15%, of the unmodified amount, to name a beneficiary. Such a hypothetical scenario, is completely believable. I worked for 41 years–11 part-time, and 30 full time; my service time, for retirement calculation, was 36.4 years. My final salary, for retirement calculation, was on the left side, of $50,000.
November 2, 2011 at 2:39 pm
Charles Sainte Claire Says:
The more things change the more they stay the same. Argue about demographics, median incomes and average incomes all you want. SB 400 added 13 and 1/2 % to my retirement.
Charles St Dork, you’re such a clown it isn’t even funny. SB400 added 50% to every GED cop, FF and prison guard in CA.
It added tens of thousands of more to every other CA gov employee, who saw their wagaon get hitched to SB400.
Go back to CO and try to work that sales tax there where you live clown, won’t work here in CA
November 2, 2011 at 2:41 pm
Why would anyone in private enterprise wish for State workers to take the same retirement as private? Are you HAPPY with your 401(k)?
No Charles, we just do NOT want to pay for YOUR $10 million DB reitrement plan.
Why would ANYONE in the private sector want to pay for the $10 million pension of a gov employee when they have SS??????
November 2, 2011 at 2:44 pm
We need OCobservere to come over here and get on board, and give Teddy Steals and seesaw an old fashioned spanking like he used to on the OCR 🙂 :p 😉
November 2, 2011 at 2:44 pm
😛
November 2, 2011 at 3:06 pm
Charles Sainte Claire said (two quotes and my thoughts) ……
(1) “If the State of California wants to make promises to the people who work for them then they must honor them. Otherwise the State has no recognition for paying their bills and bonds will be a thing of the past.”
Sorry, but full payment of bond debt is quite different than full payment of pensions (or salaries). The former is absolutely necessary if you want to be able to continue borrowing and California cannot function w/o borrowing.
Failure to pay full pensions, while pissing-off your workers has few other consequences. In fact a haircut is quite likely as there will never be sufficient money to pay for the incredibly excessive promised pensions.
(2) “Why would anyone in private enterprise wish for State workers to take the same retirement as private? Are you HAPPY with your 401(k)?”
That ones a non-brainer …. it’s because Private sector taxpayer contributions (and the investment earnings thereon) pay for 80-90% of the cost of your grossly excessive pensions. With your “cash pay” being at least equal to your private sector counterparts, there is zero justification for ANY greater pensions, let alone the current structure which ROUTINELY yield pensions, the Taxpayer paid-for share of which is 2, 4, even 6 times (for safety workers) greater than what THEY get from their employers.
November 2, 2011 at 4:11 pm
my God this is dull.
November 2, 2011 at 4:31 pm
Teddy Steals, wait until OCO appears…….you will have a heart attack buddy 😛
November 2, 2011 at 4:58 pm
Rex, you are taking us down the same road, that you did on the OCR. If you keep it up, we will all lose our priviledges here. These issues are serious business, that affect all of us. If you can’t refrain from the personal insults, please leave your comments at home.
November 2, 2011 at 5:16 pm
If Charles says that the pension enhancment added 13 and one-half percent to his own pension calculation, that is what it added. If I recall looking at past comment forums, he was a professional engineer, with a long career, at the State.
Every individual’s situation has different details. My own increased benefit, did not yield 50% more, either–it yielded 20% more. My previous 2% at 55 formula, would have topped out at, 2.468% at age 63. I will probably never receive a total of one million dollars, in pension benefits, over the course of my retired life. The benefits are used to pay bills along the way. There will never be one million dollars in a little pot, at my house. Your “multi-millioin dollar” charges at retired public employees, are not true, for the whole group. Please keep in mind, that the CalPERS retirees who receive $100,000 or more, compose 2% of all CalPERS beneficiares. Please have the true facts, if you want to make a counter-argument.
November 2, 2011 at 8:36 pm
Poodle boi—- fyi— the ocODDball is child’s play– like you he has zero substance. I have slam dunked him so many times that to be honest, it’s getting old. ZZZZZZZZZZZZZZ
November 2, 2011 at 10:57 pm
Your “multi-millioin dollar” charges at retired public employees, are not true, for the whole group.
Right now only 2% of CalTURDS is in the $100K club, but they account for 10% of the money being [paid out.
Once that 2% becomes 10% and the amount going out for that 10% is 50% of the total costs the system will be BK.
Do the math seesaw, I know you can, even with a GED 😛
Teddy Steals, OCO best you down so many times you have brain damage lil buddy 😉
November 3, 2011 at 12:30 am
A respective public entity’s liability, to CalPERS, is a percentage of payroll. The amount paid, for public safety workers and upper management, is higher than that for miscellaneous, rank and file workers. The money put in, is geared, for the money, that is expected, to go out. The sustainabiity problem has resulted from the world financial collapse, and the corresponding lack of revenue needed, to pay for the contracted plans. Future efforts, on the part, of the principals, involved, with the pension reform issues, should be aimed at, doing what is needed, to sustain the plans, that are now in effect, and setting up fair plans, for future workers. Taking benefits away from workers, who have obeyed the rules, should not be the aim, of pension reform, in CA.
November 3, 2011 at 2:14 am
Poodle boi…Have you ben eating your doggy doo again? LOL Yikes!
November 3, 2011 at 2:16 am
Hey Poodle boi– What till your daddy theocODDball gets home! LOL hey—- why haven’t you answered my questions yet?? Do you think I will go away? LOL Bam !
November 3, 2011 at 2:18 am
to quote Poodle boi—“once the 50 becomes 20 the 409 will be the 11” Poodle are you high again? What part of the 225 billion about calpers do you still not get?
November 3, 2011 at 5:55 am
Nurse Teddy Steals, you are just a GED dork, you have the brain power of a rock and could never possibly undertsand this stuff-over your head lil buddy .
Leave this conversation to the big biys and girls, now go back to your moms basement, put the Batman jammies back on and get your mind off this thread by playing your X-box 🙂 😛 😉
November 3, 2011 at 5:57 am
A respective public entity’s liability, to CalPERS, is a percentage of payroll. The amount paid, for public safety workers and upper management, is higher than that for miscellaneous, rank and file workers. The money put in, is geared, for the money, that is expected, to go out.
Totally FALSE.
For a GED cop to get a $5-$10 million pension at age 50 they would need to put into $200k per year, every year, for 30 years. That is 2 times more than the GED even makes. Why do you think CalTURDS is bankrupt seesaw??????
Nice try seesaw 😛
November 3, 2011 at 6:58 am
Who is going to retire at age 50 and collect a five to ten million dollar pension? How many of those can you bring forth?
If you don’t grow up and start calling our pension plan by its correct name, you might as well stay home, and just play with your coloring book.
November 3, 2011 at 7:07 am
Further more, the earnings on the investments are supposed to pay for approximately 75% of the respective employee’s benefits. The Plan is not actuarially set up, so that the employee is expected to have paid in, every penney, they are projected to receive, over the entire, retired time-span of their pension. SS doesn’t work that way either.
November 3, 2011 at 7:25 am
I just saw an item that Vallejo’s bankruptcy officially ended, Tuesday, Nov. 1. The City of Vallejo spent 12 million dollars in legal fees on the bankruptcy. The City is on a road to pay back its creditors, and the employees still have pensions.
November 3, 2011 at 7:32 am
SeeSaw
I thought you were responding to my questions/comments. What happened?
November 3, 2011 at 8:23 am
Captain,
I posted a cut and paste of the CalPERS press release, dated April 7, 2010, on the Stanford Study. I can view it, but the moderator is holding it up–probably because it is copywrited material. I am just sharing information, and I am not seeking any payment.
There are three other posts, of mine, on this thread, in response to your remarks–are you telling me you can’t view them? I see them, and there is no moderator note.
November 3, 2011 at 1:49 pm
LOL poodle lad—- I knew you couldn’t answer my questions– so I will leave this post as I started with the first comment—zzzzzzzzz you bore us little buddy ! Sorry !