CalPERS faces steep climb to rebuild its funding

Last year was one of the best ever for the CalPERS investment fund, a gain of $47 billion that boosted the total to $350 billion. But pension funding only increased from 68 to 71 percent of the projected assets needed to pay future costs.

A CalPERS report last week said investments earned 15.7 percent last year, nearly double the 7 percent target. Now after a lengthy bull market experts predict CalPERS returns will average 6.2 percent next decade, then increase to average 7 percent in the long term.

That a $47 billion investment gain only makes a small change in pension funding shows the difficulty CalPERS still faces in recovering from a $100 billion investment loss a decade ago, when the funding level nosedived from 101 percent to 61 percent.

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23 Apr 18
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During the financial crisis and stock market crash, the California Public Employees Retirement System investment fund plunged from about $260 billion in 2007 to $160 billion in 2009. How debt outpaced funding since then is shown in a chart in the new report (see below).

The failure of CalPERS funding to recover to the traditional level of 80 percent or more leaves little cushion to absorb another big investment loss. Experts have told CalPERS that if funding drops below 50 percent, recovery becomes even more difficult if not impossible.

CalPERS is at the mercy of the market. Most of the money needed to pay future pensions, 61 percent, is expected to come from investments. Employers are expected to provide 26 percent of the funding, employees 13 percent.

Even if there is another major market crash, CalPERS would be far from danger of running out of money. It paid $21.4 billion in pension benefits last fiscal year, while employers contributed $12.3 billion and employees $4.2 billion.

The new report, “A Solid Foundation for the Future,” shows CalPERS no longer has “negative cash flow” requiring the sale of some investments to help pay pensions each year. For two decades, employer-employee contributions and investment income will cover the cost.

Three changes are expected to strengthen CalPERS funding. The investment earnings forecast used to discount pension debt was lowered from 7.5 to 7 percent, triggering a local government employer rate increase of about 50 percent for cities over the next seven years.

The 3,000 local governments in CalPERS (half are schools) have a range of funding from high to low. The new rates may force some service cuts, employee reductions, tax increases and test the “sustainability” of current pensions.

A new CalPERS investment allocation increased predictable bonds or fixed income from 19 percent to 28 percent of the portfolio. Riskier but higher-yielding stocks are 50 percent, private equity 8 percent, and real estate 13 percent.

California pension systems were originally limited to bond-like investments. Voters approved Proposition 1 in 1966 allowing 25 percent of investments in blue-chip stocks. Proposition 21 in 1984 allowed any “prudent” investment.

The third change is a cost-saving reform that shortens the payment period for new debt or “unfunded liability” from 30 to 20 years. The debt is usually from below-target investment earnings, the adoption of a lower discount rate, or longer expected life spans.

The new debt payment, possibly requiring a small employer rate increase, is a fixed dollar amount that doesn’t change. It replaced a fixed percentage of pay that began too low to cover the debt interest and slowly grew with the payroll.

The new policy ends “negative amortization” under the old 30-year payment that allowed the debt to grow for the first nine years and did not begin paying down the original debt until the 18th year.

As a maturing pension system, CalPERS faces another funding difficulty. The pension fund has become much larger than the payrolls on which rates are based. So a larger employer rate increase is needed to replace investment losses.

A California State Teachers Retirement System risk report two years ago gave an example. When the payroll and the pension fund were about equal in 1975, a loss of 10 percent below the investment target could be replaced by a 0.5 percent of pay increase over 30 years.

Now when the CalSTRS investment fund is about six times larger than the total member payroll, replacing a 10 percent loss would require a rate increase of about 3 percent of pay over 30 years.

An annual report on state pension funds issued by the Pew Charitable Trusts last week said the average nationwide funding level in 2016 was 66 percent, a little below the CalPERS 68 percent funding then.

“In 2016, the state pension funds in this study cumulatively reported a $1.4 trillion deficit—representing a $295 billion jump from 2015 and the 15th annual increase in pension debt since 2000,” said the Pew report.

The report listed five states with funding below the 50 percent CalPERS regards as a redline: Colorado, Connecticut, Illinois, Kentucky and New Jersey, which had the lowest funding level, 31 percent.

Pew listed four states that were at least 90 percent funded: New York, South Dakota, Tennessee and Wisconsin, which had the highest funding level, 99 percent. The Pew state pension fund report in 2010 called Wisconsin a “national leader.”

That year former Wisconsin Gov. Jim Doyle told a Milken Institute conference in Los Angeles that all of the Wisconsin state and local government pensions, except the city and county of Milwaukee, were consolidated in the 1970s.

An unusual dividend feature allows Wisconsin retiree payments to be cut in hard times and increased in good times. After strong returns last year, the Employee Trust Funds department said retirees will receive an increase of at least 2.4 percent beginning in May.

Doyle said Wisconsin tries to keep the system fully funded. When the funding level fell to 82 percent after the stock market crash in 2008, the state added a contribution of about $200 million to bring the funding level back up to near 100 percent.

“I would love to take credit for this,” said Doyle. “But this is something that’s built into our culture for a long period of time. I will take credit for, even in these very dire times, we have never deferred payments. We pay them in.”

The first of four CalPERS employer rate increases after the 2008 crash did not come until 2012, when the discount rate was lowered from 7.75 to 7.5 percent. The second rate increase was the adoption of the 30-year debt payment.

CalPERS had been using a rare 15-year period to “smooth” investment gains and losses, far beyond the typical three to five-year period, and a “rolling” or “open” debt payment that was refinanced every year and theoretically might never pay off the debt.

Gov. Brown put the spotlight on the need to more quickly pay pension debt with a $6 billion extra payment to CalPERS last year for state workers. This week the CalPERS board is expected to set employer state worker rates for the new fiscal year beginning July 1.

The staff recommendation, routinely approved by the board, is a $6.4 billion payment, up $424 million from the employer contribution for state workers in the current fiscal year. The payment was reduced $177 million by the extra $6 billion contribution.

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 16 Apr 18

61 Responses to “CalPERS faces steep climb to rebuild its funding”

  1. Larry Stirling Says:

    And the reason they have any hope of doing so is the investment discretion my and Lou’s constitutional amendment gave them.

    And it took me two tries to make that happen.

    Otherwise they would have continued to be bled by the arbitragers , “borrowers,” and outright thieves that had been sneaking out millions of taxpayers money right under the trustees dummass noses.

  2. rstein171 Says:

    CALPERS needs to support DEFINED BENEFITS to keep their jobs.

    Those unfunded pension liabilities are SUPPOSED to continually increase due to the cause of those unfunded liabilities, Defined Benefits. We’re constantly trying to put band aids over the wound, but the only way to heal the wound is to change Defined Benefits to Defined Contributions, like the rest of the world.

    Since the public pension system is severely underfunded, city governments need to fund the retirements of former employees by taking money from government services as the increasing pension costs will likely continue to crowd out resources that otherwise would go to public assistance, recreation, libraries, health, public works, and in some cases public safety. Benefit costs are slowly crowding out the discretionary money available for states, districts, and schools to spend on other priorities.

    “Defined retirement benefits” are creeping into budgets, especially when those benefits are underfunded. The unintended consequences are that it’s unfortunate that future generations, unable to vote today, will bear the costs of many enacted pension programs, entitlements and boondoggle projects, requiring the younger generations to pay higher taxes and work later into their lives to pay for these promises.

    The international business world is intelligent enough to know that DEFINED BENEFITS, neither capped nor precisely quantifiable in advance financial disasters to any business, thus all businesses focus on the known, i.e., defined CONTRIBUTIONS alone.

    Stealing from the young who have no votes, but silently shoulder the costs and bear the burden of unfunded promises of these programs to enrich the old seems to describe the Governments expansion of entitlement benefits and other government services, along with the taxes young people will have to pay to support them, mostly to subsidize older Americans.

    Even before those young folks can vote, our Golden State schools are on track to force substantial budgetary cutbacks on core education spending, as public schools around California are bracing for a crisis driven by skyrocketing worker pension costs that are expected to force districts to divert billions of dollars away from education and other government services.

  3. S Moderation Douglas Says:

    The graph is from a CalPERS publication…

    https://www.google.com/url?sa=t&source=web&rct=j&url=http://www.letstalkpensions.com/sites/default/files/CalPERS%2520%2526%2520Pensions_is_7.10_IS.pdf&ved=2ahUKEwj9ksCpjr_aAhVQQq0KHdSbASkQFjAAegQIBhAB&usg=AOvVaw0JuaLIIQ8dyHiHLQ7nseVz

    But in the orange box at year 1999, it states “the unfunded liability from SB400 has been paid off”

    With no further explanation. What does that mean CalPERS?

  4. Kris Hunt Says:

    I cringed at the phrase “to recover to the traditional level of 80 percent or more” because 80% is way too low a level. However, the public employee unions have pushed that level to keep their contributions low and CalPERS was happy to oblige. At this point in this extended bull market, CalPERS should be over a 100% funded to cover the inevitable market downtown. Instead it is having to raise rates to cover its previous financial fantasy world.

  5. larrylittlefield Says:

    “That a $47 billion investment gain only makes a small change in pension funding shows the difficulty CalPERS still faces in recovering from a $100 billion investment loss a decade ago, when the funding level nosedived from 101 percent to 61 percent.”

    The idea that pension funds were 100 percent funded in 2000 is the elder-lie, the lie that begat all the lies told since.

    What you had in 2000, and today, was a stock market bubble. Assuming a typical long term return from already inflated asset levels was and is a lie.

    Frankly, the 6.2% is another lie. That would require a 4.0% return on U.S. Treasuries, which would tank the economy and stock prices.

    https://larrylittlefield.wordpress.com/2013/11/29/pensions-the-nature-of-the-lie/

    Past returns have nothing to do with the pension crisis. It is caused Generation Greed’s unfunded retroactive pension increases, and underfunding of the pensions public employees had been promised to begin with, with the distribution of the guilt varying from the place to place.

    That same lie was used to justify the unjustified explosion of executive pay in the 1990s, which was never reversed. It is the executive/financial class, the political/union class, and the serfs.

  6. Pete Smith Says:

    So, in other words Ed, with the new CALPERS discount rate of 7%, and an amortization period of 20 years for the unfunded liability, CALPERS will be 100% funded in 20 years should they hit their rate of 7% a year for the next 20 years.

    If they perform better than 7% in a given year, that will shorten the 20 year period to full funding; should they underperform that will lengthen the years to full funding. And, should the over performing and underperforming years balance out during that 20 year period, they will likely be fully funded in 20 years.

    Now, that’s a shorter and less alarming column—maybe that’s why it wasn’t written.

  7. spension Says:

    “In 2016, the state pension funds in this study cumulatively reported a $1.4 trillion deficit—representing a $295 billion jump from 2015 and the 15th annual increase in pension debt since 2000,” said the Pew report.

    Page 22 of the following link: the US Military Pension system has a $0.9316 trillion deficit:

    http://comptroller.defense.gov/Portals/45/documents/cfs/fy2017/13_Military_Retirement_Fund/FY2017_MRF_AFR_Final.pdf

    Never see any drumbeat of concern about the military DB system, which allows retirement at age **37**.

    Most likely: pension hawks only hate DB pension debt in the US States… they are unconcerned about DB pension debt for the military. Which shows how completely political (and not fiscal) their concerns are.

    Me… treat *them all the same*. Default at the Federal level and at the State level should be considered, including default on all *other* Federal and State debt instruments. Debt to pensioners is no less important than debt to foreign or domestic bondholders.

  8. moore Says:

    A couple of points: First, for a contrary analysis of the effect of the 2007-8 crash see the March 26, 2018 post of David Crane(Medium) “More Pension Math: Ca. Pensions Didn’t Lose Money in the Great Depression”, and Second, the analysis does not include pension bonds in the funded level(in many agencies that drops the funded level by more than ten percent).

    If a city or county had a pension reform legislative majority, it could freeze salaries until the unfunded deficits disappeared, or, it could get the unions and staff to agree that any raises would not constitute compensation for pension purposes.
    I note that the city of Vallejo had frozen salaries since 2004, but is now trying to raise salaries for two job types. Recall that it went thru a “suicide bankruptcy” (one that did not reject its defined pension plan).

  9. Marco Says:

    Wow, 15.7% last year! The unmanaged S&P 500 index total return was 21.14%

    Looks like another year of CalPERS underperforming the unmanaged index.

  10. S Moderation Douglas Says:

    CalPERS doesn’t put all it’s eggs in one basket…

    50% in Global Equity
    28% Fixed Income
    13% Real Assets
    8% Private Equity
    1% Liquidity

    And I believe they do use a variety of index funds.

  11. spension Says:

    Marco, no sensible investor is 100% in the US Stocks like the S&P. The volatility is too high and the years of higher returns don’t pay back the risk. That is why S. Mod Doug points out the more balanced, diversified investment pool that CalPERS uses.

    Nobody should ever judge any fund on 1 year of performance either. At least 30 years of performance is necessary for a sensible evaluation.

  12. moore Says:

    Another important point is that last years investment returns were 15.7% of 69% of the PERS liability. Not 15.7% of its [resent value of benefits(the true base requiring 7.25% compounded)

  13. burkmere Says:

    Marco’s point, I think, is that CALPERS engages in market timing by active management, etc. By doing one mouse click forever, the S&P beats the pants off of CALPERS. In fact, I would have to be personally trying to do as crappy as they have done. They could also use the Total Stock Market index fund, fire all it’s managers and since CALPERS and it’s agencies will be around forever, forget a out it’s incompetent investment team.

  14. Marco Says:

    Spension, asset allocation and diversification matter if you have a limited number of years to work. You must then be more conservative with your investments as you age, because you do not have the time to recover from a bear market.

    CalPERS has a lifespan and investment horizon of forever. The pension fund does not need to worry about what the market does over the short term.

  15. CalPERSon Says:

    Two thoughts —

    Last year CalPERS had a -$5 bil net drawdown paying benefits out of $351 bil in assets. That’s it? At that rate it’ll take CalPERS 70 years to run out of money… except by then every member and retiree will be on PEPRA and all of the legacy members will be dead and gone. What are the pension alarmists all up in arms about again? I think Pete Smith has it right: CalPERS has set in motion course corrections that will result in a much healthier pension system in 20 years.

    Is rstein171 a sock account of Tough Love? Same repetitive posting style.

  16. Tough Love Says:

    CalPERSon,

    No. Even I can’t stand his repeating of the SAME thing over & over!

  17. acc Says:

    @CalPERSon So if we have 70 years of play in the steering wheel, why force a “ramp up” that is already costing public services, schools, safety and jobs? We so flush.

  18. SeeSaw Says:

    Mr. Moore, PEPRA does have a cap on pensionable income.

  19. Tough Love Says:

    The PEPRA pensionable income cap ONLY applies to new hires starting 1/1/13, which means it likely excludes 80-90% of the current workforce. And how many workers with such short service are making high enough wages to currently be “capped”? 1% would likely be a high guess.

    An even though the % of workforce subject to the PEPRA cap will SLOWLY increase over time, given that the cap increases with the CPI, It’s going to be a VERY VERY long time (decades) before it has any material impact on reducing CA’s now LUDICROUSLY excessive Public Sector pensions.

  20. spension Says:

    Marco, I disagree. The regular updating of debt projections makes too much volatility a political nightmare, as we’ve seen from 2009. Pension hawks revel in throwing up huge debt numbers a stock cycle bottom.

    Indeed, it may be that you are trying to stop DB plans by encouraging them undertake extreme volatility.

    Of course in the 30-60y time frame, portfolios of nearly pure stocks have the best performance and the least volatility. But in any one year Black Swan events might cause political termination of the plans.

    Tough Love… how about limiting all military post-employment benefits, including perks like PX, golf course fees, transport for retired generals, etc… to the PEPRA cap? Doubt you advocate that. Because in your opinion, military brass deserve all the taxpayer gravy they can grab.

  21. Kristine Hunt Says:

    CalPERS own experts are looking at a 6.2% rate of return over time, the 7% they are gliding down to is a fallacy but as usual, CalPERS is playing politics instead of finance which is how they got in this mess. CalPERS rates build the assumed rate of earnings into their rates, so a 15.7% has to have the assumed rate deducted so it is not the massive earnings it appears to be. If the CalPERS retirees were so confident that CalPERS would earn the rates, they should agree to fund the shortfall themselves. Oops! They don’t seem to want to jump on that wagon.

  22. S Moderation Douglas Says:

    between scylla and charybdis

    CalPERS -could have- reduced the discount rate immediately after the 2008-2009 crash*, and immediately begun bringing the fund back into balance, but at what cost to local governments?

    During the Greatest Recession, when unemployment is high, government revenue is at an all time low, and social welfare needs are greatest, double the required contributions. What could go wrong?

    It can be done…

    See “New York pension systems outperform California”,. Calpensions May 1, 2017

    * Of course, they could have reduced the discount rate before the crash, and been better able to weather the losses. More conservative assumptions. That would be real pension “reform”.

  23. SeeSaw Says:

    TL, PEPRA just entered it fifth year–that means that hundres, I don’t know–may thousands of workers have retired and a like number has replaced them. And,, unfortunately because of the financial problems of some entities, the new workers are not getting pension benefits. How would you like to work 39-hours per week with wages alone? That is what is now happening in my former entity.

    Prior to PEPRA. respective, entities had and still have the ability to enact their own pension reforms within the guidelines of statutory law on the books. My own entity reformed its FF forumla for new hires in 2005 and its miscellaneous formula prior to PEPRA. That is the only meaningful way that reform is going to happen in CA. Looking back, I certainly would not have been happy if my pension formula had been arbitrarily lowered by my employer before I retired. My medical benefit which was not vested via the CA constitution like the pension, was capped, one-year before I retired, behind my back, via collusion between management and my union, and I am still privately fuming about that.

    I just filed our tax returns for 2017. The out-of-pocket medical premiums including employer group PPO Plan, Medicare Part B, and Part D prescription drug coverage for both me and my spouse totaled 87% of my spouse’s gross income for 2017. Without my very reasonable pension, we would not be sustainable and would probably be on Medicaid and receiving food stamps. So it would be kinder of you, if you would stop referring to CA public pensions as ludicrously, excessive! It is obvious that you hate public employees. There are almost 900,000 retirees receiving CalPERS benefits now–the average benefit is about $2800/mo. There is nothing I can do about people who get 100+–I would rather see people sustainable even if they are so much better off than me, than to have to continue walking by those that I walk by every day–people are without shelter and really hungry, TL. For goodness sake, give thanks to whomever you give such because you are not one of them–I do, with an aching heart!

  24. Tough Love Says:

    Seesaw,

    (1) Please clarify, what new workers aren’t getting pension any longer under PEPRA ?

    (2) Quoting ………… “How would you like to work 39-hours per week with wages alone”

    Oh, you mean like the MAJORITY of Private Sector workers ?

    (3) Quoting ………. “: Looking back, I certainly would not have been happy if my pension formula had been arbitrarily lowered by my employer before I retired.”

    Oh, like MOST Private Sector DB Plans have ALREADY done ?

    (4) quoting ……. “My medical benefit which was not vested via the CA constitution like the pension, was capped, one-year before I retired”

    Oh, did you know that employer-subsidized retiree healthcare in the Private Sector Plans is extremely rare ?

    (5) Quoting …………….

    “Without my very reasonable pension, we would not be sustainable and would probably be on Medicaid and receiving food stamps. So it would be kinder of you, if you would stop referring to CA public pensions as ludicrously, excessive!”

    LUDICROUS is not determined by how big (in $$$) the pension is, but by it’s relationship to what a similarly situated Private Sector workers would typically get in retirement benefits from his/her employer…… and Public Sector DB pensions are ROUTINELY 3 to 4 times (4 to 6 times for Safety workers) greater in value upon retirement than those of Private Sector workers who retire at the SAME age, with the SAME wages, and the SAME years of service.
    —————————————————–

  25. CalPERSon Says:

    Seesaw: the new workers are not getting pension benefits. How would you like to work 39-hours per week with wages alone?

    This doesn’t sound right. CalPERS allows membership for part-time employees that work more than half-time (20+ hours).

  26. SeeSaw Says:

    Yes CalPERSon, I know of that policy. I asked my former HR manager about that and was told that they are exempt from that requirement. (I assume this is in the legislative statutes somewhere because CalPERS does not make the laws). There is also a special “hybrid” plan now being used for some new full-time employees–they get benefits that do not include CalPERS.

  27. SeeSaw Says:

    TL, yes I know all about what happens in the private sector. My spouse has a DB pension which was frozen in 1986 because of the illegal invasion in the residential construction industry–it doesn’t pay the medical premiums–how would you like to try to sustain that way? That is why what happened in the private sector was wrong and should never happen to any worker. So your thought that, since the private sector has lost DB pensions, public sector should be treated the same is ludicrous. As to your question about what new workers are not getting pensions under PEPRA, see my reply to CalPERson.

  28. Tough Love Says:

    SeeSaw,

    Where do you think the money comes from to pay for Public Sector worker pay, benefits, and about 85% of the total cost of their pensions ?

    It comes primarily from PRIVATE Sector taxes. Sure, “you pay taxes too”, but it a small piece of total taxes collected.

    There is ZERO justification for greater Public Sector compensation, now a HUGE problem due to their yes ……. LUDICROUSLY excessive pensions & benefits.
    —————————-

    Lets try it this way:

    Quoting SeeSaw ……. ” So your thought that, since the private sector has lost DB pensions, public sector should be treated the same is ludicrous.”

    No it’s not becuase it our (the Private Sector’s ) SMALLER income that you want to pay for your LARGER pension & benefits.

    And you don’t see a “problem” with that ?

  29. S Moderation Douglas Says:

    Who says the private sector has a smaller income?

    It is a given that the public sector has “LARGER pension & benefits.” It’s called “deferred compensation”.

    But, stop me if you’ve heard this before…

    It is invalid to compare pensions outside the context of total compensation.

    Don’t be invalid.

  30. Tough Love Says:

    S Moderation Douglas,

    Stop me if you’ve heard this before ………

    Per the AEI compensation study, In BOTH our home States of CA and NJ, the PUBLIC Sector has a Total Compensation (all inclusive INCLUDING wages, pensions, and benefits) ADVANTAGE equal to 23%-of-pay, rising to 33% if the far greater Public Sector job security is included……….. and BOTH those %s would assuredly be even higher if Public Sector Safety workers (with far greater than average pay, and the richest pensions & benefits) were not excluded from that Study.

    Even taking the lowest %, the 23%, how much MORE would Private Sector Taxpayers have for THEIR retirement needs if they had an additional 23%-of-pay to save and invest in every year of their career …….. $500K, $1 Million, even $2 Million for some ?

  31. S Moderation Douglas Says:

    So, you’re willing to bet the farm on one study with data up to ten years old?

    Sorry, on -one page- of one study.

    And it’s not even your farm.

    “Private Sector Taxpayers” literally can not take that 23% to the bank, Mr. Love. It is not income, it’s “ifcome”.

    And you fell for it.

  32. Tough Love Says:

    S Moderation Douglas,

    I didn’t write THIS………….

    https://patriotpost.us/articles/55404-public-employees-resist-pension-reform-as-crisis-looms

    Are you right and EVERYONE else wrong ?

  33. spension Says:

    Naturally https://patriotpost.us/articles/55404-public-employees-resist-pension-reform-as-crisis-looms makes no mention of the $0.9 trillion crisis in military pension funding….

    because *public employees* in the military deserve retirement at 37, lavish health care, PX privileges, and in some cases free golf courses, transportation, etc… according to Tough Love, and also the “patriot US” folks.

    They and Tough Love just want to tax, spend, tax, spend, tax, spend. They love *their* public employees.

  34. Tough Love Says:

    Spension,

    Still more of the same ….. never an answer and always diverting attention away from the need to address the ludicrously generous pensions & benefits granted ALL Public Sector workers.

    *************************************

    FYI, there are exactly 10 current 4 star generals (only about 230 in America’s entire history). But yes, after a full career they do get about a $210K-$220K annual pension.

    But drop their rank to 2 stars and the Pension is about $150K, and to 1 star and it’s close to $125 K …………… just about what the hundreds of thousands of full career CA Safety-worker pensions will average in just a few years.

    Which has a bigger impact … perhaps by a multiple in the 10,000’s?

  35. Tough Love Says:

    Quoting from S. Moderation Douglas’s response to me above (at April 18, 2018 at 1:17 am) …….

    “So, you’re willing to bet the farm on one study with data up to ten years old? ”
    ——————————

    But on the Blog-article:

    https://calpensions.com/2017/04/17/another-court-setback-for-protectors-of-pensions/

    at April 19, 2017 at 2:45 pm, you stated, quoting:

    “Heritage Foundation…
    Military Pensions: How Scandalous?
    http://www.heritage.org/defense/report/military-pensions-how-scandalous

    to which I responded:

    “Yikes SMD,

    Your linked Heritage Article was written 32 years ago.”

  36. spension Says:

    Tough Love… you never answer and always divert attention from the… *** $0.9 trillion public deficit in the military pension system. ***

    Almost equal to the deficit in the entire US State public pension system… you explicitly stated you exempted the deficit in the military pension system from “public” debt… you only include the State public debt.

    Sorry, you pick on one thing, and you even get that wrong. There are currently 41 active 4-stars across the entire military. You missed a factor of 4, which actually on the more accurate side of your innumerate discussions… you usually miss by a factor of 10 or 100.

    You omit the 230 active 3-stars.

    You omit the lavish golf-course benefits and health benefits.

    You omit the military’s allowance of retirement with DB pension at age 37.

    But all that is **JUST FINE WITH YOU**. Soaking the taxpayer is just fine with you, as long as your friends get the benefits.

  37. Tough Love Says:

    spension ……………..

    We have the right to choose what WE want to advocate for or against. OTHERS do not have the right to make that choice FOR US.

    I have CHOSEN to strongly advocate for very material reductions in what I see as LUDICROUSLY excessive State & Local Public Sector pensions & benefits that are negatively impacting Public services and resulting in untenable tax increases.

    You can (and obviously do) choose to advocate against what you see as excessive Military pensions. That is you right, but you don’t have the right to demand that I join you in that advocacy.

  38. spension Says:

    TL…. I have never demanded that you join me in anything….

    I have every right to point out your inconsistencies:

    Public Pension system A:
    Allows retirement with DB benefits collection at age 37.
    2.5% per service year. Has an unfunded liability of $900 billion.
    Allows perks like… free golf courses, subsidized stores free of local sales tax. Huge health care benefits. Mainly male retirees.

    Public Pension system B:
    Allows retirement with DB benefits collection at age 60.
    2.0% per service year. Has an unfunded liability of $100 billion.
    None of the perks like free golf courses, evasion of local sales tax. Mostly female retirees.

    TL… you assert system B is corrupt, excessive, and ludicrous. You say it needs “very material reductions”.

    System A… you explicitly say you don’t even categorize it as a public pension, and you never make any negative comments about it.

    Everyone here gets it. You love taxing and spending for your military buddies, and hate doing that for the women who labor in our public schools.

    Me? I want ***ALL PUBLIC DEBT TREATED EQUALLY***. Military, bonds, pension debt, etc. Seems to me to be the only way to be rational.

    TL, you have employed every emotional, hysterical comment to goad me… say I hate the military, or police, or whoever your emotion guides you to bring up at the moment.

  39. Tough Love Says:

    spension.

    Just from your above comment ALONE, you stated:

    (1) Tough Love… you never answer and always divert attention from the… *** $0.9 trillion public deficit in the military pension system. ***

    (2) Almost equal to the deficit in the entire US State public pension system… you explicitly stated you exempted the deficit in the military pension system from “public” debt… you only include the State public debt.

    (3) You omit the military’s allowance of retirement with DB pension at age 37.
    ———————————

    Certainly looks to me like your demanding that I join you in supporting what YOU advocate for, reduced Military pensions………. or at least castigating me for not also doing so.

    Like I stated above……… we DON’T get to tell OTHER people what they must advocate for or against.

    ———————————-

    And then AGAIN in THIS comment you stated ………

    “Everyone here gets it. You love taxing and spending for your military buddies…”

    I challenge you to find anywhere in my hundreds of comments where I have supported “taxing and spending” for the military.

    You just MAKE THIS STUFF UP as you go along ……….. much like Pres. Trump.

  40. spension Says:

    TL… Stating that you never answer something, commenting about your exemptions, and your exceptions simply do not amount to “demanding that you join me”.

    When a State DB public pension system is 2%@60, $100 billion unfunded, and is mostly female retirees (CalSTRS)… you say is corrupt, excessive, and ludicrous. You say it needs “very material reductions”.

    When a Federal DB public pension system is 2.5@37, $900 billion unfunded, is mostly male retirees, and provides other expensive benefits like subsidized golf courses and shopping without local sales tax, you have no criticism.

    When I point that out, you accuse me of demanding something of you.

    I don’t. I just point out your inconsistency.

    And all fair-minded, numerical, and financially thoughtful people note your incredible inconsistency… huge taxpayer costs for one public DB system that you simply never comment on.

    It is fair to conclude that you don’t actually object to huge taxpayer subsidies for that Federal DB public pension system. You certainly never say you object to those huge taxpayer subsidies.

    Silence is consent, consent is support, and it is totally reasonable to conclude that support is support for tax, tax, tax to spend, spend, spend on the public DB system you like, which has far richer benefits than and is far more in debt that some public DB systems that you make very negative comments (usually corruption) about.

  41. Tough Love Says:

    Quoting spension ………

    “…. and it is totally reasonable to conclude…”

    Only in YOUR mind.

  42. CalPERSon Says:

    CALPENSIONS SUSPENDS PUBLICATION
    Thanks for your readership
    23 Apr 18

    No, thank you Mr. Mendel for the thoughtful, detailed and well-written articles. I hope this suspension is temporary and not permanent.

  43. spension Says:

    TL… you are free to criticize the vast Federal DB pension system for military retirees, which allows retirement at 37 and 2.5%/service year, has a $900 billion unfunded liability, and allows other rich benefits like subsidized golf courses, PX w/o local sales tax, etc.

    That you do not criticize that DB system, while you harshly criticize California State DB systems that are both less generous and better funded, is quite noticeable… indicates that your concerns are not financial, and likely political.

    Only *in your own mind* do you think you are fair.

    CalPERSon… second your comment.

  44. Tough Love Says:

    spension,

    I’m also free to criticize perhaps 100 other injustices that exist in our society. Wha tif 100 persons (like you) each with their own pet-peeve wanted me to comment on THEIR issue. Should I be required to do so?

    No, and as I stated above………..

    We have the right to choose what WE want to advocate for or against. OTHERS do not have the right to make that choice FOR US.

    I have CHOSEN to strongly advocate for very material reductions in what I see as LUDICROUSLY excessive State & Local Public Sector pensions & benefits that are negatively impacting Public services and resulting in untenable tax increases.

    You can (and obviously do) choose to advocate against what you see as excessive Military pensions. That is you right, but you don’t have the right to demand that I join you in that advocacy.

  45. spension Says:

    TL, I don’t demand you join me. You are obsessed with a strawman of your own invention over that demand.

    I do point out that financially, the military DB pension system is way worse funded and way more generous than what you call the “ludicrously excessive State & Local Public Sector pensions which are negatively etc etc etc”

    Any negative consequences of State & Local Public sectors are far less negative than the negative consequences of the Federal Public Sector military DB pensions.

    You are the one who keeps bringing up the “negative consequences”. That is *your free choice*. What we all notice is that the much worse negative consequences of the problems in military DB pensions *don’t bother you at all*.

    As for 100 injustices, well, those 100 are not *PUBLIC DB PENSIONS WITH DIRE FINANCIAL CONSEQUENCES*. The financial wreck in the military pensions are definitely just a micron away from the financial problems in State and Local public sector DB pensions.

  46. Tough Love Says:

    spension,

    If not, then why do you continue to REPEAT the SAME thing …….. “military” appearing in the last 4 of only 5 paragraphs ?

  47. spension Says:

    Uh… TL… a half-truth is worse than a lie… I REPEAT the SAME phrase “military DB pension” 4 times, not just “military”. Your edit is like the folks who claimed Nixon said the words “I am a crook” by omitting the word “not” between am and a.

    TL… if you love the “military DB pension” system, why don’t you just come right out and say so? I’m not demanding that, but your silence on the issue is deafening.

    Then we’d all know that there is at least one public DB pension system you stand foursquare behind… the one that permits retirement at age 37 with 2.5%/service year, subsidized golf courses, no local sales tax on retail purchases, and which has $900 billion in unfunded liability… an unfunded liability in the same ballpark as the **ENTIRE US LOCAL + STATE GOVERNMENT DB PENSION UNFUNDED LIABILITY**.

  48. Tough Love Says:

    spension,

    I believe think the current Military DB pension structure is too generous (especially with respect to the very young age at which some can “retire”) EXCEPT for those who have spent a majority of their service in dangerous combat roles.

    Happy now ?
    —————————————————
    P.S. I’m assuming that you are aware that the Military Pension structure is being revamped as we speak.

    https://www.cnbc.com/2018/01/05/us-service-members-face-big-changes-to-retirement-plan.html

  49. spension Says:

    Well, everything seems to be personal to you, TL, eg, “Happy now”… just the fact that most men are highly emotional and can’t be mathematical and/or logical.

    About 10% of military are in combat. 90% are in support roles not a whole lot different than regular folks. And many of the 10% currently get no DB benefits because they don’t stay 20 years. Far more of the 90% in support roles stay 20 years.

    Of course we treat military far better now than my grandfather, who got his WW1 bonus delayed, got treated. Gen. D MacArthur burned down the depression-era Hoovertown of the WW1 vets who were protesting in the District to get their delayed benefits. A really dark chapter in US history.

    So I’m all for an honest, modest DB system for the military.

    The new BRS reduces the annual factor to 2.0%/service year, just like CalSTRS, but, still allows retirement at 37. And most of those who get it are not combat vets.

    Of course the BRS introduces a partial DCP… good idea for savers to have that *added* mechanism. DC plans were always supposed to be an “extra” for parsimonious good planners. DC was never supposed to be the core retirement benefit. And that is how the military is treating it… an add-on to the DB which will remain.

    But the 0-20 year (often combat) vets will *only* get the DC. Something is better than nothing, that is for sure. I’d have preferred service credit years for DB benefits available at age 62, however.

    In the end, though, the military DB system is way worse funded and way more generous than many State and Local DB systems in California and elsewhere.

    I will always find it illogical to lambast the State and Local systems while not applying identical criteria to the military system.

  50. S Moderation Douglas Says:

    spension,

    If only it were so simple. Some of the rational for military pensions is the same as for public sector safety, including often the “twenty and out” (at half pay.) It’s not quite so simple as “many officers die within 5-10 years of retirement” or “do you want a 60 year old cop chasing down 25 year old thugs”.

    And yes, the times they are a changin’.

    Someone didn’t just wake up one morning and say “why don’t we let cops retire early?” (Or, in some cases, _make_ cops retire earlier.)

    Here is a 2008 analysis on military retirement, and keep in mind early retirement is not just a New Jersey or U.S. military phenomenon. Similar systems are in most OECD countries, both in military and police systems.

    https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.cna.org/CNA_files/PDF/D0017798.A1.pdf&ved=2ahUKEwi_777Yk9faAhVJ8IMKHcEoBVYQFjAEegQIAxAB&usg=AOvVaw2LHtxhTr8cfS4N38VJ7MEe

    excerpt…

    * Attract and retain. The system must be able to attract and retain the requisite number of people who have the ability to do the tasks required by the organization.
    • Train. The system must encourage people to acquire the skills needed to be productive within the organization, recognizing that some skills have more value outside the organization than others. Since much training is on-the-job and the skills required to perform specific tasks are learned by doing, assignments must be sequenced and timed so that people have the proper incentives to learn their jobs and effectively use the skills they acquire.
    • Sort. The higher the position within the organization, the more performance or productivity depends on the ability of the person filling the position. As a result, the system must be able to sort people by ability and fill the upper-level positions with the most able personnel. The system must avoid adverse selection, whereby the organization loses the more able, and retains the less able, personnel.
    • Motivate. The system must motivate all personnel to work hard and effectively. It must avoid moral hazard, whereby workers shirk because effort is difficult or costly to observe.
    • Separate. At some point, all personnel—including the most productive—must leave the organization. When people reach that point, the system must encourage them to leave voluntarily and on good terms.

    A common theme is that early retirement schemes are explicitly _not_ an entitlement. They are a personnel management tool.

  51. spension Says:

    S Mod Doug… all very interesting… I’m trying to think of how any of that differs from just about any career in the nation, though.

  52. S Moderation Douglas Says:

    “Youth and vigor”

    “Theoretically, a retirement system’s distinctive purpose is to induce personnel to separate voluntarily, and on good terms, when it is in the best interest of the services that they do so. The 1948 Hook Commission stated this purpose well [5, p. 40]:”

    “a sound retirement system is essential to solving the superannuation problem. The services must be kept young, vigorous, and efficient: a sound retirement plan with a proper compulsory retirement age will permit youth and brains to rise to the top in time to be effective…. Other
    concepts of retirement for those taking up the profession of arms are also important and have been taken into consideration but the Commission does not consider them to be controlling.”

    Earlier retirement is not an entitlement or reward, it is a personnel tool “to induce personnel to separate voluntarily, and on good terms, when it is in the best interest of the services that they do so.”

    For the military _and_ for safety workers. One may disagree, but should at least consider the concept before making radical “reforms”.

  53. Tough Love Says:

    Quoting S. Moderation Douglas ………….

    “A common theme is that early retirement schemes are explicitly _not_ an entitlement. They are a personnel management tool”

    That like saying money grows on trees. For every 10 years that you allow someone to retire at an earlier age, the VALUE of that pension DOUBLES.

    No, money doesn’t grow on tree, Taxpayers are FORCE to pony up so a select few can UNJUSTLY benefit………. certainly among those being bedroom community Police Officers.

  54. spension Says:

    S Mod Doug… remain puzzled why only for military and safety workers. Why not for everyone.

  55. S Moderation Douglas Says:

    For the safety of the public. Most other workers are protected from age discrimination. Police and fire are exempt from age discrimination laws and may forced to retire early for public safety (along with commercial pilots and air traffic Controllers). Ergo may be “encouraged” to retire early with retirement incentives.

    “Police officers and firefighters must be qualified and com-
    petent to do their jobs, just as employees in other professions
    must be duly competent. However, because police officers and
    firefighters are involved with public safety, job fitness is a par-
    amount concern; age, therefore, is liberally asserted as a
    BFOQ in these professions.”

    http://scholarship.law.marquette.edu/cgi/viewcontent.cgi?article=1870&context=mulr

  56. S Moderation Douglas Says:

    spension,

    Sorry, I did not mean to be evasive. It is partly because I don’t have a problem with the separate retirement systems for safety and non- safety, except there is obviously room for meaningful reform in both.

    Looking at your question this way… New cities are continuously being incorporated. Someone, or some group has to make a conscious decision to set up a pension system. They could set up one system which includes both safety and non-safety with similar formulas and retirement ages, etc. Why do they universally, as far as I know, set up unequal systems? Answer, I don’t know, that’s why I did some web searching. Other answer, if it’s because “That’s the way it’s always been done”, then you have a very good point.

    The military response, I thought was logical. Keeping the average age younger while still allowing later retirements for those in support positions makes sense. And it is not a simple question. They are balancing youth, and training and promotions, and separating on good terms. I don’t think they take any of these decisions lightly. Hey, it’s the military. They don’t have to use the “carrot and the stick”. They can just use the stick. Except even they know that doesn’t work. Not for long, anyway.
    —————————

    Second, we may be getting a very skewed view of the cost of safety pensions. Very expensive, no doubt, but keep in mind that although the usual horror stories of retiring at 50 with $100,000 a year are not the norm. The average age, I believe, for CHP is 54, and not all officers retire with a “full” (90%) pension. Higher salaries may be more responsible for increased safety costs than pension formula are.

    CHP received hefty raises in 2004-2008 (see Figure 4)
    http://www.lao.ca.gov/analysis_2007/general_govt/gen_21_9800_anl07.aspx

    The raises were 15-20% above CPI because they were indexed to the five highest LEO agencies in CA.

    In other words, as far as I know, most safety workers received substantial increases during that period, partly or mostly in response to 9/11 and the influx of federal money.

    Question: are safety workers overpaid now, or were they underpaid before?

    IDK

  57. S Moderation Douglas Says:

    Brother Love @ 5:10 pm…

    Don’t blame me because your town made a _conscious decision_ to pay their cops more than almost any other city in New Jersey. Talk to Mrs. Smith…

    “There isn’t much violent crime here,” he said. “I wanted that smaller community. I wanted to know Mrs. Smith who lives on Main Street.”

    “N.J. police salaries rank highest in nation with median pay of $90,672”

    nj.com Sept 19, 2010
    ————————————

    Pensions are like snowflakes; they aren’t all the same.

    “That _not_ like saying money grows on trees.”

    The median salary for LEOs in Bergen County is about $150,000, compared to about $100,000 for the state as a whole, and as low as $75-80k in some cities. Ceteris paribus, the pensions in the more expensive towns will be proportionally larger than the lower paid cities. And that is a big deal.

    “The highest median salaries, however, tend to be in suburban and affluent municipalities that can better afford to pay them.”

    Nothing but the best for Mrs. Smith.
    —————————————
    Did you know?…

    In addition to spellcheckers, there are now grammar and syntax checkers. They are free. Bulls hit checkers are probably available for a nominal fee.

    “No, money doesn’t grow on tree,”… That a fact.

  58. S Moderation Douglas Says:

    Back on topic…

    “CalPERS faces steep climb to rebuild its funding”

    “During the financial crisis and stock market crash, the California Public Employees Retirement System investment fund plunged from about $260 billion in 2007 to $160 billion in 2009.”

    We learned a lot of lessons then, with 20-20 hindsight, reduced discount rates as early as 1994-2000 probably could have alleviated much of CalPERS unfunded liability today. But most of the reason todays New Jersey “Taxpayers are FORCE to pony up”, is because they did not pay in even the minimally calculated ARCs for over _twenty years_.

    CalPERS, and many other systems face a steep climb. For states like New Jersey, Illinois, Kentucky, etc. the climb is next to impossible.

    DON’T PAY THE BILLS, THE DEBT GETS LARGER

  59. S Moderation Douglas Says:

    “DON’T PAY THE BILLS”, unabridged version…

    I’ll give it away at the beginning: they’re in trouble because they’re not making the “required” contributions to the pensions.

    Yes, there are all sorts of other reasons as well, such as spiking, early retirements, sluggish payroll growth, optimistic valuation assumptions, etc.

    But ultimately the reason the pensions are so little funded is because the state didn’t put in enough funds.

    And they knew it.

    They knew it for years.

    It’s not because of investment fees, though those should be more transparent. It’s not because of part-time board directors who get a lifetime pension for very little work, though that doesn’t help. (I’ll address why these aren’t significant problems in a later post.)

    DON’T PAY THE BILLS, THE DEBT GETS LARGER

    Mary Pat Campbell, 24 February 2016
    ———————————————-
    A tale of two states…

    New York state and New Jersey, both among the highest compensated employees in the country (New York slightly higher)

    Both impacted by the huge market loss in 2008-09.

    Both affected by lower state revenue during the ensuing recession.

    Today. New Jersey 30-40% funded, optimistically speaking.
    New York, near one hundred percent.

    NY current annual pension costs are _much_ lower than NJ, for similar benefits.
    NJ “Taxpayers are FORCE to pony up”. Not “so a select few can UNJUSTLY benefit”, but for the magic of “negative amortization”, the evil twin of the “magic of compounded interest.”

  60. spension Says:

    To me the weird thing about military pensions… grunts who are out in 3, 5, or 7 get no pension. And they often are subject to the most risk of injury, PTSD, etc. It is not about stress/job difficulty.

    Internal politics result in folks getting fired at 19.9 years of service on purpose.

    I’d suggest something like 1.5% per service year at age 62, universal. Pay for it by moving all mil retirements to minimum age of 62. And never pay pensions to beltway bandit double-dippers; have a sliding scale where you only get a partial pension if you have a second job… no “cliffs”… always encourage work but just be reasonable that retirement means retirement, not a second career on the taxpayer’s dime.

  61. S Moderation Douglas Says:

    They are changing. I don’t know if they have finalized the new system.

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