Bankruptcy judge may rule pensions can be cut

A federal judge handling the Stockton bankruptcy may be moving toward a landmark ruling that CalPERS pensions can be cut, possibly while allowing the city to exit bankruptcy in October without cutting its pensions.

U.S. Bankruptcy Judge Christopher Klein yesterday outlined an argument, a “summary from 50,000 feet,” for treating CalPERS pensions like other debt, then invited CalPERS, Stockton and other parties to respond with written briefs.

The judge said he wanted to share his “preliminary thoughts” to give the lawyers in the case a chance to “straighten me out before I make some dramatic boneheaded mistake” about a simple understanding of the law.

Klein emphasized at the end of his remarks that his view of the “jigsaw puzzle” of how state pension law fits with federal bankruptcy law is still tentative. “I could be persuaded of opposite propositions,” he said.

Klein

Klein

A federal judge ruled in the Detroit bankruptcy that public pensions can be cut in bankruptcy. But CalPERS has argued, among other things, that Detroit has a city-run plan and an “arm of the state” like CalPERS cannot be impaired in a federal bankruptcy.

Klein said the implication of his remarks is that he might conclude the CalPERS contract with Stockton is being rejected, and the $1.5 billion CalPERS would charge for terminating the contract is unenforceable.

“But that does not necessarily mean that this plan of adjustment (of debt to exit bankruptcy), which is proposed without any change to pensions, is necessarily not confirmable,” he said.

Stockton does not want to cut pensions, arguing they are needed to be competitive in the job market, particularly for police. Stockton voters approved a ¾-cent sales tax increase last November to add more police and other public safety measures.

After filing for bankruptcy in June 2012, Stockton reached agreements with three bond insurers, all city unions and other major creditors. But in closed-door mediation the city could not reach an agreement with two Franklin bond funds, triggering a rare trial.

The city exit plan would pay Franklin $135,000 for a $36 million bond debt. Klein yesterday put a value of $4 million on the loan collateral the city said was of little value to Franklin due to use restrictions and other problems: two golf courses and a park.

A Franklin attorney told the judge $4 million in cash would be acceptable, but two other options mentioned by the city would be an issue: payment over time or giving Franklin the property.

The judge set a schedule for receiving briefs and responses before the next hearing Oct. 1. “Ideally, I would like to be able to make findings that conclude the matter,” he said.

A decision to confirm the debt-cutting plan of adjustment, allowing Stockton to exit bankruptcy, would have to find that creditors are being treated fairly. The judge questioned whether the California Public Employees Retirement System is a creditor.

If a city pension plan is terminated and there is not enough money to cover obligations, Klein said, state law authorizes CalPERS to close the funding gap by cutting the pensions of workers and retirees.

“It seems to me if you are going to take away part of an individual’s pension, the individual is the creditor and CalPERS is in effect a servicing agency,” the judge said.

Klein mentioned that when ruling Stockton was eligible for bankruptcy, despite opposition from two big bond insurers who later settled, he found that workers took a “de facto haircut” through employment reduction and collective bargaining.

The judge also made an important ruling in 2012 that retiree health care can be cut in bankruptcy, allowing a debt valued at $544 million by Stockton to be replaced with a one-time payment of $5.1 million.

Klein may have been addressing the CalPERS “arm of the state” argument when he said the big system has “two different pieces” to the puzzle: state workers and cities and other local governments that contract for pension services.

The local governments voluntarily contract with CalPERS, he said, even though under state retirement law they can form their own retirement system or contract with county retirement systems or private providers.

“It looks like a city could bow out of CalPERS without necessarily being thrown out of CalPERS,” he said, although that would be difficult.

Klein said he would like an explanation of two state laws that allow CalPERS to put a lien on the property of bankrupt cities and prevent bankrupt cities from rejecting their CalPERS contract.

He said a state law enacted in 1982 appears to be a response to a federal law in 1979, enacted in the wake of New York City’s financial crisis, that allowed more than bond debt to be cut in a municipal bankruptcy.

“All of a sudden all sorts of debt potentially could be discharged,” he said. “So it’s no surprise … this lien is created.”

Klein said the state lien law appears to conflict with federal bankruptcy in several ways. “As against that, it makes me wonder if this so-called lien is the kind of thing that could be enforced,” he said.

The judge said exhibits filed during the trial show that a 1996 state law preventing bankrupt local governments from rejecting CalPERS contracts, prompted by the Orange County bankruptcy in 1994, was intended to protect CalPERS from losses.

Under his reading of state law, said Klein, the employees are at risk of losses in a bankruptcy, not CalPERS. “So I’m kind of wondering who was pulling the wool over the eyes of the California Assembly and state Senate,” he said.

The judge said he would need a good explanation of what authority allows the California Legislature to revise the federal bankruptcy code. “My usual answer is none, unless specifically provided by the bankruptcy code,” he said.

In addition to urging CalPERS to respond, the judge said a “helpful” city brief would show why the Stockton exit plan should be confirmed despite “what I have been hearing about CalPERS and the inviolability of the CalPERS contract and the lien.”

A CalPERS statement issued after the hearing yesterday said: “In fulfillment to our fiduciary duty, CalPERS will continue to protect the benefits promised to our members.

“We welcome the opportunity to respond to the questions Judge Klein raised in court today, to discuss the implications of the California laws that govern pensions and that create a stable retirement system that provides significant value to cities and their employees.”

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Calpensions.com. Posted 9 Jul 14

56 Responses to “Bankruptcy judge may rule pensions can be cut”

  1. Chanty Says:

    Seems to me if a municipality can bankrupt out from under pension debt regular citizens should also be able to bankrupt out from under municipal parking and court ordered fine debt. How come too big to fail banks and cities can bankrupt out from under their obligation to citizens. To me this stinks of fascism. And gosh, everyone just can’t imagine where all this income inequality is coming from. Such a mystery!!!!

  2. Tough Love Says:

    Sock-it-to-em judge !

  3. SeeSaw Says:

    According to the Chapter 9 Bankruptcy Code, the judge can only render an opinion–he cannot force a specific course of action to be taken by Stockton. He could tell the City of Stockton to cut the pensions, but he cannot order Stockton to do that. It would be up to the City of Stockton if it decides it wants to cut the pensions.

  4. John Moore Says:

    Judge Klein has simply described the nature of the antagonism between a pension system(defined benefit plans funded via anticipated investment gains) that inherently have unlimited liability for entities(cities, counties,..)that do not have unlimited revenues. Here in Pacific Grove, the City has an unfunded pension liability of about 48 million dollars, a termination liability of 120 million dollars and a pension bond liability of about 22 million dollars, plus interest(about 1.6 million dollars per year thru 2029). It has annual revenues of about 16 million per year and already spends about 20% of the revenues for pension costs. Its 48 million dollar unfunded pension deficit grows at the investment rate of 7.50% per year(3.6 million dollars per year). Municipal services are minimal and will continue to decline.

    If Ca. CaLPERS Agencies could terminate prospectively for work not yet performed, provide a limited liability pension plan, and continue to pay CaLPERS without Termination, it could limit liability going forward while paying its annual contributions on the same basis as all other plan Agencies(cities, counties,..)Chapter 9 could be averted. But if CaLPERS continues to hold the “termination” penalty(which prevents such action) over the heads of cities like Pacific Grove, Pacific Grove will have no choice but to file a Chap 9 and request a modification of pensions. Such a modification could cause severe hardship to the oldest retiree’s who typically have the smallest pensions and no social security..

    And in view of its history of untruthfulness, who can believe anything that comes from CaLPERS management?

  5. BOPRN Says:

    Chanty –

    That was very well stated.

  6. Berryessa Chillin' Says:

    I like the idea that the judge appears to be seeking inputs from the interested parties in good faith. As we’ve seen with Vallejo and Stockton, CALPERS’ sacrosanct status was never challenged legally because the bankrupt cities lived with the threat of ruinous legal action by CALPERS. This judge does not have that threat hanging over his head. Now, for the first time, CALPERS is going to have to explain under the guidelines of the federal bankruptcy code why it should be treated as an touchable sacred cow.

  7. Berryessa Chillin' Says:

    That would be “untouchable sacred cow.” Mooo.

  8. Gopichand Jasoos Says:

    One can always rely on SeeSaw to quote the part of a regulation that she likes and ignore other parts!

  9. Gopichand Jasoos Says:

    SeeSaw apparently does not realize or chooses to ignore that the judge can reject the plan that the city has proposed. Meaning the city would remain in bankruptcy which no city wants to be in cause either they would not be able to borrow or borrow at much higher rates. From a practical perspective, Stockton would have to cut pensions. Or challenge the opinion in a higher court which I am unsure is possible. Calpers anyway does not want this to go higher because with the current composition of the SC, Calpers will get smacked.

  10. SeeSaw Says:

    Yes, I realize that the judge can reject the Stockton plan. He can tell Stockton it is okay to cut pensions, but he cannot force it to do so. It is up to Stockton whether or not to cut the pensions.

  11. Tough Love Says:

    SeeSaw, Actually SAYING doesn’t hurt … try it as follows:

    If the judges strongly believes that pensions must be cut for a fair Bankruptcy resolution, while he cannot order the City to put these cuts in the plan, he can simply tell the City that no plan will be approved w/o these cuts and they will stay in Bankruptcy untill they do so.

  12. SeeSaw Says:

    He will seal his place in infamy if he does that.

  13. spension Says:

    Of course in general, court decisions go to whichever party hires the best lawyers, and who figures out how to get money under the table to judges’ families & friends… there is a sort of tyranny by often corrupt lawyers in this country. I sometimes think we’d end up with a more fair system if computers decided everything… at least filing deadlines and logic would be respected.

    Still it is interesting to ask how CalPERS insinuated itself between pensioners and cities/special districts. Maybe CalPERS is just a servicing agency for such pensioners. For direct State employees, the situation may or may not be different. Seems to me this judge is asking the right questions.

  14. SeeSaw Says:

    I realize that bribery exists in all areas of politics, but to suggest that such is a natural course in all things political is quite unfair to those who have chosen to work in those sectors and are very proper in their dealings. I doubt you or most people have ever been a witness to political collusion, with money being exchanged for certain favors. I have seen a situation in my own municipality where the employees association voted to give a particular council candidate $300 to help with his campaign. If that is the type of thing you refer to, you are way off base in looking at such as bribery. What about billionaires like Adelson and Soros using their private millions to put their candidates of choice in certain political positions! Would you rather see that, as opposed to groups of poor-middle class workers individually pooling their funds in unions so that they too can have a voice on the same issues?

    Cities, counties, and special districts are eligible for PERS membership; most are members, but many others have their own pension plans. CalPERS has not injected itself into the dealings of these other entities–they have chosen to become members of CalPERS. CalPERS is a gatekeeper for the funds of those entities. You are possibly right about any affect that certain bankruptcies could have on state employees; CalPERS is the state and states cannot claim bankruptcy.

  15. Captain Says:

    Tough Love Says: “If the judges strongly believes that pensions must be cut for a fair Bankruptcy resolution, while he cannot order the City to put these cuts in the plan, he can simply tell the City that no plan will be approved w/o these cuts and they will stay in Bankruptcy untill they do so.

    SeeSaw Says: “He will seal his place in infamy if he does that.”

    That is a VERY BOLD and SELF-SERVING STATEMENT, Seesaw. Are you condemning the judge for a decision yet to be made? Actually, while I think that is exactly what you’re doing, I don’t think you really mean it. Like always, I think you just believe anything CORRUPT CalPERS tells you to believe and the above response is all you know. :~(

  16. CalPERS is Corrupt - a response to SeeSaw Says:

    SeeSaw Says:” As for you calling my argument a broken record, what do you think your continuing argument is? “CalPERS is Corrupt”, “CalPERS is Corrupt”. I’m still waiting for you to give proof, and I certainly have no respect either for your point of view. So likewise, Captain–sit there and have your ongoing snit-fit.”

    – I guess we can start here, SeeSaw: ” A Former CalPERS CEO Is Finally Pleading Guilty to Conspiracy Charges, So Let’s Take Stock of the Damage He Did”

    It isn’t just the former CEO of CalPERS that is Corrupt. It is also A Former Board Member of CalPERS, as well as the Culture of CalPERS, that is in in Question/CORRUPT. Here is how the article about CalPERS CORRUPTION starts – AND IT IS NIETHER THE BEGINNING OR ENDING OF THE CalPERS CORRUPTION STORY/CORRUPTION:

    “For years, CalPERS—the largest public pension fund in the country— was a hotbed of backdoor scheming, shady dealings and outright fraud.

    That was thanks to two long-time friends, Fred Buenrostro and Alfred J.R. Villalobos, who we now know (well, allegedly) profited greatly from greasing the wheels on billions of dollars of CalPERS investments from behind the scenes in 2007-2008, and probably years before.

    Buenrostro was CalPERS’ CEO from 2002-2008, and Villalobos sat on the fund’s Board from 1993-1995….

    The True Cost?

    This isn’t nearly the first time corruption and fraud has made its way in the public pension system, and it won’t be the last. That’s why its important to assign some numbers to these news stories—if only so we can appreciate the tangible costs that this type of cronyism incurs to the system, its members and taxpayers on the whole.”

    Read the rest here: http://pension360.org/a-former-calpers-ceo-is-finally-pleading-guilty-to-conspiracy-charges-so-lets-take-stock-of-the-damage-he-did/

  17. Cyrano Says:

    Infamy, A comparison to Japan’s bombing of Pearl Harbor. Ok, a fair comparison in historical perspective. I am astounded by the intellectual discourse here. Tora, Tora,,Tora…

  18. SeeSaw Says:

    Yes–fraud by individuals who were corrupt. It was not CalPERS–it was the two people who formed the conspiracy, and also pulled in three more board members. The corruption was by individuals for their own sakes; it was not corruption by CalPERS. Sorry, but your story is nothing but a rehash of one that is five years old and is finally playing out to its conclusion.

  19. SeeSaw Says:

    Which was a terrible movie!!!!

  20. SeeSaw Says:

    They were not exactly long-time friends. Their acquaintance began through CalPERS at which place Villallobos had obtained a Board position because of his relationship with L.A. Mayor Riordin who had appointed him as a Vice-Mayor.

  21. SeeSaw Says:

    It was Villallobos, Buenrostoro, who made the money and the three other board members who enjoyed the round-the-world trips at the behest of Villallobos. It was not corruption on the part of CalPERS–it was corruption on the part of the two principal conspirators–Villalobos and Buenrostoro.

  22. SeeSaw Says:

    Bold and self serving–how? I am on the side of the law–the one that you haters are cheering the judge on to break. I do not stand to lose or gain anything, personally, regardless of the outcome.

  23. CalPERS is Corrupt - a response to SeeSaw Says:

    SeeSaw, you wanted proof. I gave it to you.

    “- I guess we can start here, SeeSaw: ” A Former CalPERS CEO Is Finally Pleading Guilty to Conspiracy Charges, So Let’s Take Stock of the Damage He Did”

    It isn’t just the former CEO of CalPERS that is Corrupt. It is also A Former Board Member of CalPERS, as well as the Culture of CalPERS, that is in in Question/CORRUPT. Here is how the article about CalPERS CORRUPTION starts – AND IT IS NIETHER THE BEGINNING OR ENDING OF THE CalPERS CORRUPTION STORY/CORRUPTION:

    “For years, CalPERS—the largest public pension fund in the country— was a hotbed of backdoor scheming, shady dealings and outright fraud.

    That was thanks to two long-time friends, Fred Buenrostro and Alfred J.R. Villalobos, who we now know (well, allegedly) profited greatly from greasing the wheels on billions of dollars of CalPERS investments from behind the scenes in 2007-2008, and probably years before.

    Buenrostro was CalPERS’ CEO from 2002-2008, and Villalobos sat on the fund’s Board from 1993-1995….

    The True Cost?

    This isn’t nearly the first time corruption and fraud has made its way in the public pension system, and it won’t be the last. That’s why its important to assign some numbers to these news stories—if only so we can appreciate the tangible costs that this type of cronyism incurs to the system, its members and taxpayers on the whole.”

    Read the rest here: http://pension360.org/a-former-calpers-ceo-is-finally-pleading-guilty-to-conspiracy-charges-so-lets-take-stock-of-the-damage-he-did/

  24. CalPERS is Corrupt - a response to SeeSaw Says:

    Unfortunately, SeeSaw, the CalPERS CORRUPTION doesn’t begin or end with the above mentioned criminal activity that extends well beyond what’s mentioned above. We are talking about a culture that is BLIND at best – even if it means employees just look the other way (“Fred’s Friends”).

    Unfortunately business as usual, CalPERS style, also equates to CORRUPTION. I hope some of the employees look into the fact that they are potentially eligeble for 100’s of thousands dollars in cash for for sounding the alarm. Because they are dealing with CalPERS, I would suggest they take their information to a private attorney first.

    CalPERS is CORRUPT!

  25. SeeSaw Says:

    Blah! Blah! Blah! Blah!

  26. Tough Love Says:

    Captain,

    While corruption has indeed occurred in CalPERS operations, the REAL problem is the absurd membership of a Board that has such great responsibility.

    As you stated in a prior post, it includes …….. an assistant book store cordinator for the Glendale community college district and a glass installer for the Sonoma County School District.

    How absurd !

  27. Cyrano Says:

    Blah, blah, blah..it is not over till the fat lady sings….

  28. SeeSaw Says:

    The Board members do not have to be actuaries and investment managers. They are educated people who have the ability to comprehend and make decisions. That is what a Board Member does.

  29. SeeSaw Says:

    There was no corruption in the operations of CalPERS, TL. If you are going to propagandize, do it factually. The two people who participated in the conspiracy to produce fraudulent letters were two dishonest individuals; one was the CEO of CalPERS and the other was a former Board Member who bribed the CEO with secret money from his own resources–not CalPERS money–so that the CEO would produce the letters. CalPERS is not being charged with anything in this corruption episode, because CalPERS was not aware of the secret dealings between the two dishonest individuals. Those two individuals are the story–not CalPERS, that was evidently taken in by the resume of the CEO–of course that type of thing has never happened before in corporations and organizations has it!

    CalPERS has since adopted rules that require full disclosure and details of all transactions involving placement agents.

  30. Tough Love Says:

    Quoting SeeSaw … “The Board members do not have to be actuaries and investment managers. They are educated people who have the ability to comprehend and make decisions. That is what a Board Member does.”

    Oh yea, real “educated” ……….an assistant book store coordinator and a glass installer … to run a pension Plan with $300+ Billion in assets.

    Really SeeSaw ???

    How about 20+ years in a job with comparable responsibility.

  31. spension Says:

    Yes, SeeSaw, there are clean and honest politicians. Just as in Tour de France cycling, where there are always a few cyclists who never dope, like Christophe Bassons:

    http://en.wikipedia.org/wiki/Christophe_Bassons

    But I do believe the default assumption, that is >90% accurate is that the leaders of American politics, from City Councils to the President and including judges and justices, is that they are like Lance Armstrong. They say they are clean; when there is evidence against them they (or their surrogates) attack those who bring the evidence; when the evidence is overwhelming and unequivocal they beg for forgiveness. For every one we catch and convict there are probably 100 who get away with it.

    And the leaders of the American Private Sector are the same, only 100X more venal. Read the `Retirement Heist’ by Ellen Schultz, a Pulitzer winner, http://www.retirementheist.com .

    It is not me that damns the honest ones, it is the dishonest ones.

    Once again, out in the DB pension world, not in California, there are the `Christophe Bassons’ plans, both private and public. In the private investment business, there is only a few `Christophe Bassons’ that I know of… Vanguard; American Funds.

    There is no doubt that there are pensioners of modest means (my 95 year-old Kindegarten teacher, for example) for whom CalSTRS is an absolute godsend.

    It is not people like her who drove CalSTRS and CalPERS into crushing debt. It was a combination of senior administrators who didn’t understand and study the volatility of the US securities markets (for which there is amazing historical data like CRSP http://www.crsp.com), and venality of some groups like those that demanded 3% at 50, pensions up to 120% of pay, spiking, City of Bell, etc. All the corruption has falsely besmirched the superior DB system and caused uneducated people to turn to the much more corrupt and expensive DC systems. That again is the fault of the corrupt in CalXXRS and in other systems that drove them into unsustainable debt.

    If those of modest means lose some of their pensions due to the poor management of CalXXRS, it is not my fault for pointing out the truth. It is the fault of those who mismanaged the system.

  32. SeeSaw Says:

    There are 13 Board members, TL. They are not individually charged with running the pension system. All of them have advanced degrees or certificates pertinent to their being able to do the duties required as Board members. I am pretty happy with the makeup of the current Board–they are all honest from what I see–unlike a few Board members of the last ten years. As a CalPERS member, I have a vote regarding some of the positions on that Board. Since you are a non-CalPERS member and someone who lives in NJ, at that, you do not have a vote–fitting.

    Sure, Spension, don’t place any blame on the sub-prime mortgage brokers and the wall street guys for bringing down the whole country in 2008 and wiping out one-fourth of CalPER’s portfolio. The 3% at 50 formula tops out at 90% and you will not find very many safety retirees getting that at the age of 50. The 3% at 60 for miscellaneous does top out at 120% for 40 years service–not all public entities in CA adopted that formula for their miscellaneous workers, including the State. (I do not know anyone who made it to that top rung.) Another thing–virtually nobody goes into retirement with the whole calculated pension amount, due to the naming of beneficiaries, and there is quite a forfeit off the top, if retirees want to leave something for their spouses, children, etc. The younger the beneficiaries, the larger the amount forfeited. And, another thing, PEPRA was passed, and nobody coming in will get the 3% at 50 and 3% at 60 formulas. And, another thing–due to PEPRA, there is a cap on the amount of income that is pensionable.

  33. spension Says:

    Huh Seesaw, as I said…“And the leaders of the American Private Sector are the same, only 100X more venal. Read the `Retirement Heist’ by Ellen Schultz, a Pulitzer winner, http://www.retirementheist.com .”

    I repeatedly bring up the facts that AIG executives got $10 million per person bonuses from the US taxpayer, after those same executives drove their company into financial chaos. I repeatedly bring up that the SIGTARP found the ultimate liability for the Wall Street bailout, after all the bells and whistles are accounted for, may well reach $23.7 trillion. http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aY0tX8UysIaM

    What I am saying is that the venality of the private sector in the US is entirely predictable. CalXXRS willingly got into bed with those fraudsters when CalXXRS got out of purely bond investments in the 1970s. It is like smoking crack… you can criticize your dope dealer for supplying you bad crack, but that is not really the problem.

    And other public DB systems in the US did not follow CalXXRS’s lead. Like Christophe Bassons did not dope.

  34. SeeSaw Says:

    There was an initiative and a vote of the people, in the 90’s, that determined CalPERS was going to take more risk. As I keep saying–CalPERS is just the messenger. As far as getting into the more risky investments–it worked until the global collapse of 2008-2009. I would guess that if it had not taken those financial risks, and had stayed in safe investments, it would probably be worth a hundred billion today–instead of 300 billion. So what’s the difference!

  35. Tough Love Says:

    How interesting spension that you quote without qualifications the following .. “I repeatedly bring up that the SIGTARP found the ultimate liability for the Wall Street bailout, after all the bells and whistles are accounted for, may well reach $23.7 trillion.” …. when your linked source is from a July, 20, 2009 article (with the S& P then at 951), and not even remotely how things ultimately turned out.

    So it wasn’t relevant to mention how that didn’t materialize and in many instance the Gov’t actually MADE money on the “bailouts” ?

    Sounds to me like your anger with the Private Sector is a guise to push your pro Public Sector interests (notwithstanding your protestations to the contrary).

  36. Tough Love Says:

    SeeSaw, I’m sure you’re… ” pretty happy with the makeup of the current Board”

    After all, they support participant interests with a total disregard for the Taxpayers who pay for almost the full cost of these grossly excessive pension promises.

    And the reduced payouts for survivorship annuities do not represent a “forfeit” of anything. While they are supposed to represent an actuarial equivalence based on the longer expected payout (for 2 lives), as all things associated with CalPERS, I’m quire sure the reductions are less than what a proper actuarial calculation would show, effectively being just ANOTHER unjust Taxpayer subsidy.

  37. SeeSaw Says:

    You are nobody elite as a taxpayer, TL. The CalPERS Board members are all taxpayers, and I am a taxpayer. I was merely trying to point out to Spension that those “grossly unjust pensions” you keep referring to are not as big as you like to make people believe. The plan does have actuaries–they don’t need to have you school them. I had a benefit calculation, and accepted 13% less in order to leave my beneficiary whole if I should pass on first. In my book it is a “forfeit”–you call it whatever you want.

  38. spension Says:

    That the government made money on the bailout is a myth. One small corner of the bailout perhaps, but vast expanses of it, documented by SIGTARP, never got paid back.

  39. spension Says:

    The $700 billion that got paid back was a tiny fraction of the total:

    http://www.forbes.com/sites/traceygreenstein/2011/09/20/the-feds-16-trillion-bailouts-under-reported/

  40. spension Says:

    SeeSaw, you mean Proposition 21 in 1984? If so, it was not an initiative, it was placed on the ballot by the Legislature.

    https://calpensions.com/2010/07/01/pension-crisis-did-prop-21-pave-the-way/

    Once again you only focus on the funds CalPERS has accumulated. Payments need to be made with those funds. It is the difference between funds accumulated and funds that must be paid out that is the problem.

    Having $300 billion and owing $450 billion still means CalPERS is short $150 billion, or about $4,053 per California resident. So far your only solution has been that I sell my home, leave my husband & family, and get out of California. Geez.

    If CalPERS had been well-managed, the 16-33% employer contributions would not be necessary. http://www.calpers.ca.gov/index.jsp?bc=/employer/actuarial-gasb/emp-contrib-rates.xml&pat=STER

  41. SeeSaw Says:

    I don’t know. I was probably thinking about the initiative that was on the ballot to stop Governors from raiding CalPERS like Pete Wilson did in the 90’s.

    It is not my job to know everything–basically, as a member of CalPERS I am not required to run the plan, criticize the plan, and come up with solutions for the plan, because I am not an actuary or investment manager for CalPERS.

    It has 300 billion–I say, “Whoopee”. If every member were to file retirement papers today, CalPERS would not have enough money. So sad. Fortunately that is not going to happen.

    You are not going to get a bill for $4,000+, but if it makes your day to proclaim it, be my guest! As citizens, and residents of wherever we are, we will pay taxes. If you don’t like your taxes in CA, move!! Its a free country.

  42. spension Says:

    SeeSaw, odd.. you seem to overlook the inquiry and thought that has been the hallmark of US politics since the beginning. You may want to avert your eyes, but I don’t want to.

    It is not about everybody retiring today. It is about the system managing itself poorly, allowing retirement benefits (which are 40+ year commitments) on upward 2 or 5 year glitches of the stock market.

    It is about Prop 21 being passed in 1984 with promises that CalPERS Board Members would be held `personally responsible’,
    but when the inevitable downturn in the stock market came, they were not held personally responsible.

    Instead, CalPERS and CalSTRS’s unsustainable increases (like 3% @ 50, 120% of salary pensions, etc) eat away at the State’s budget, and destroy California’s ability to do all the things that once made this State great, like, great infrastructure, University, schools, etc.

    Your solution? Move away, leave my husband & family. Geez. You’re no different than the right wing who support the freedom to starve.

    Not a bad article… a bit rabid, but…

    http://www.city-journal.org/2013/23_1_calpers.html

  43. SeeSaw Says:

    You are hopeless at this point–I am playing the violin.

  44. Tough Love Says:

    Quoting SeeSaw (referring to CalPERS) ….”It has 300 billion–I say, “Whoopee”.

    Big Woop indeed. I suggest you read how LOUSY financial condition CalPERS is really in here:

    http://www.sacbee.com/2014/07/15/6556159/calpers-remains-in-a-deep-hole.html

  45. Tough Love Says:

    SeeSaw, Here is another article you should read. Perhaps you’ll then begin to understand why I say that Public Sector Unions are a CANCER inflicted upon society.

    http://www.thedailybeast.com/articles/2014/07/11/why-progressives-shouldn-t-support-public-workers-unions.html

  46. SeeSaw Says:

    You and I will both expire before CalPERS does, TL. In the meantime you can go on and pontificate. I am going to continue leading my best life.

  47. spension Says:

    well, playing music is always a great respite. But it won’t cover CalPERS $150 billion hole, or get checks written for the $4,053/california residents need to cover that.

    You, SeeSaw, are the one who keeps suggesting that I leave my native state and move elsewhere. Not a very palatable solution, but I do see how music could console you after your rather extreme outbursts, which is good.

  48. spension Says:

    Good Sac Bee reference, Tough Love. And it says CalPERS is now 76% funded… a number hard to find on their website. So the liability is down to $94 billion, only $2,493 per California resident. So that *is* progress. But of course there is still CalSTRS.

  49. SeeSaw Says:

    Anything to keep you whining and sputtering–normalcy would not be your cup of tea.

  50. Tough Love Says:

    Spension, A re-valuation using Moody’s current procedures would bring that 76% down to just about 55%;

  51. spension Says:

    Tough Love, got a reference for that calculation? Moody’s ruined their reputation by rating junk Aaa during the 2000’s.

  52. Tough Love Says:

    Spension, You need to be a Moody’s subscriber to get their actual report, but here are some links:

    http://www.segalco.com/publications/bulletins/april2013moodys.pdf

    https://www.moodys.com/research/Moodys-announces-new-approach-to-analyzing-state-local-government-pensions–PR_271186

    http://www.segalco.com/publications-and-resources/public-sector-publications/bulletins/?id=2353

    http://www.gabrielroeder.com/moodys-publishes-new-approach-to-analyzing-public-pensions-for-credit-rating-purposes/

  53. Tough Love Says:

    spension, Another 2 good sources and both with Moody’s adjustment formula:

    http://californiapolicycenter.org/are-annual-contributions-into-orange-countys-employee-pension-plan-adequate/

    Look under the sub-section …. “HOW DO LOWER RATES OF RETURN AFFECT ORANGE COUNTY’S UNFUNDED PENSION LIABILITY?”
    ————————————————–
    http://californiapolicycenter.org/evaluating-total-unfunded-public-employee-retirement-liabilities-in-20-california-counties/

    Look under the sub-section …”TOTAL UNFUNDED PUBLIC EMPLOYEE RETIREMENT LIABILITY”

  54. spension Says:

    Thanks. So the main difference is assuming 5.5% and not 7.5% for future returns? The paradox is that 7.5% is by no means a bad assumption….

    The issue is more: volatility is what spoils the funded ratio, *not assumption of return rate*. Assuming that the 7.5% is *smooth* , or, that the 5.5% is *smooth* is the mistake.

    Serious analysts don’t use the smooth approximation in the first place. That is the real mistake.

    In California PERS, the added idiocy was: when the stock market was high, increases in lifetime pension payouts were made, like, 3% at 50. So the upside volatility got used improperly.

  55. Tough Love Says:

    Quoting Spension … “Thanks. So the main difference is assuming 5.5% and not 7.5% for future returns? The paradox is that 7.5% is by no means a bad assumption…. ”

    It sure as hell is (a bad assumption) when those BENEFITING from the use of that assumption (via understating the Plan’s true risk-adjusted cost) have no skin in the game if it don’t materialize ….. i.e. they get the SAME benefits ANYWAY, with not THEY, but Taxpayers making up the shortfall.

  56. spension Says:

    TL, you missed the point entirely. 7.5 or 5.5 is not the biggest shortcoming. Both are failures in that they assume a smooth growth when the much bigger effect in the stock market is volatility.

    I would only say a pension fund is 100% funded the following condition is satisfied: imagine the stock market today is like September 3, 1929. The crash and 16 years of depression follow. Does the fund survive *with no increase in employer or employee contributions*?

    CRSP allows such studies to be done.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: