The California Public Employees Retirement System (CalPERS) just admitted that the state-managed pension plan, that provides retirement for the state and almost 1,600 local government agencies, is 52% underfunded and will be forced to jack up taxpayer-funded contribution rates by about $1.518 billion.
But this increase will still leave the pension plan $986.1 billion underfunded. To adequately fund pensions, the state and local governments need to more than quadruple annual taxpayer-funded contributions by $11.3 billion.
As the nation’s largest public employee pension plan, CalPERS stands out as the most irresponsible for having failed to prevent government pension spiking and for not forcing their government clients to pay for the spikes. But the pension fund’s $277.2 billion of investments leaves a $144.3 billion unfunded debt to cover 1.6 million state employees and retirees’ pensions, according to CalPERS’ October 31, 2013 report.
California public employees now enjoy the highest benefits of any state in the nation. To pretend to fund this largess, CalPERS has become the worst “outlier” among public pension plans in using creative accounting to blur their grossly underfunded status. This has allowed its government clients to short-check their annual payment for the nation’s most lucrative pension benefits.
CalPERS creatively makes the “assumption” it will have 30 years to compound investment returns to fund their 52% funding shortfall to pay for the retirement of “current” employees. CalPERS then guesstimates they will compound investment returns every one of those 30 years at a 7.5% rate. This allows CalPERS to “assume” investments will grow by over 900% in 30 years.
Most people attack CalPERS’ assumption that they will make the 7.5% compounded return, but CalPERS did earn 16.9% last year; and a 2011 study found the plan had earned an average of 3.41% for five years, 5.36% for ten years, 6.97% for 15 years, and 8.38% for 20 years. Although this would seem to justify the 7.5% assumption, the returns took place during a period of record inflation. Given CalPERS’ guaranteed inflation increase protection for benefits, the taxpayer obligation would rise and wipe out most of the investment performance gain.
But the real scam in CalPERS’ “assumptions” is not just the highly dubious estimate of superior investment returns; it is the scam of the public pension plan having 30 years to compound those returns by that 900% to pay for the pension funding shortfall. The “current” average for California government workers seniority is more than 16 years. That means that CalPERS only has 14 years of investment return opportunity to make up their funding shortfall.
Assuming CalPERS makes 7.5% per year, their compounded investment return will only go up by 300% in 14 years. Consequently, CalPERS needs to triple their pension funding to get to that 900% growth of assets. Tripling the number of assets means CalPERS’ pension underfunding is not the admitted $260.9 billion. They actually have a $986.1 billion underfunded pension.
To adequately fund the pension plan, the state and local governments would have to more than quadruple their current $3.7 billion annual cash contribution to $15 billion. The Democrat politicians that control the State of California could care less about the $986.1 insolvency of the pension plan. But could you imagine the firestorm if state and local governments were forced to cut spending by $11.3 billion to pay for their pension promises?
One has to wonder when the people will wake and rise up!
It’s never been more clear. The states and cities in the biggest financial troubles have been run into the ground by progressive Democrat leadership…and the people keep electing them!
Democrats in unions making greedy deals with Democrat politicians for themselves and against the taxpayers. Greedy, power hungry politicians making deals and promises they can’t keep to stay in power. And neither of them with a dimes worth of common sense or real life experience to serve as a fiscal guide. Together they have built empires of “haves” and are only now beginning to experience the “uh oh” as they bring the nation, their cities and states, and the rest of the citizenry down with them.
It’s no accident that California still has unemployment as high as 8.1% overall while in Texas and Louisiana unemployment has dropped to 5.5% and 4.5% respectively…North Dakota is at 2.6%. Better management in the leadership.
Seems to me the deal makers in CA need to get together and rethink their agreements.
I was struck by a few figures used as justification:
See Calpers Investment information here.
The left always argues that we should not let the private sector worker invest even a small portion of his SS contributions in the stock market or related investment in a private account because the market is too risky. (The almighty state knows best)
But if Wall Street is good for the goose that works in government why is it not good for the rest of us working honkers? What is this, slave labor out here in the private sector? Is it jewels and finery for the well connected that work in government and only tolls, tariffs, taxes and redistribution for private sector serfs?
The SacBee reports:
Is it any wonder that the brains in Silicon Valley have plans to create a new, separate state.
Tim Drapers plan proposes six states including Silicon Valley and Jefferson. See map at link.
“… taxpayer-funded contribution rates ….”
This would be referring to money coming out of the salaries of state employees, would it not? Which rather belies this:
“California public employees now enjoy the highest benefits of any state in the nation.”
Not if they’re having to pay more out-of-pocket for said benefits. Nobody’s going to rise up until you can make a coherent statement of your case. All these posts just seeth with unfounded resentment.
The fact is that a UC clerical employee makes about $10K less than they can get in the private sector. It’s the bennies, the paid time off and pension, that make the jobs attractive.
There’s nothing heinous about any of this, and we’re not going to abolish the UC system, and you should really just take a pill.
And …
“Is it any wonder that the brains in Silicon Valley have plans to create a new, separate state.”
Brains, my butt. They’re libertarians, and libertarians, tending to lead lives of appalling privilege … lack any understanding of the nuts and bolts of a civil society. They don’t do their own laundry, never have, and seem to believe that their laundry is cleaned with cash, when there is, in fact, a good deal more to it.
Libby, Libertarians lead lives of appalling privilege? That’s an odd thing to say, especially since there is no showing that Libertarians are any better off than Democrats, Greens or Independents. That aside, please tell me you don’t resent people just because they’ve been successful with money? -Jack
Seriously Libby? You’re complaining about “unfounded resentment” after liberals have pushed resentment as a theme for fifty years?
All of it is taxpayer money…all of it. salaries are higher, the bureaucracy is bloated, and the benefits are negotiated past the point of cities and states being able to meet obligations. The private sector does not enjoy such “guarantees”. They invest and takes their chances…they are more likely to lose a job…they work much longer at the job.
Injustice might be a better word.
Glad to have you back again Libs.
“at’s an odd thing to say, especially since there is no showing that Libertarians are any better off than Democrats, Greens or Independents.”
You said Silicon Valley brainiacs. And they are big Libertarians. And they may be terribly clever techies, but they live their lives is a bubble full of other clever people who can also pay for anything they want. They 1) seem to think everybody lives this way, and 2) are appallingly ignorant about the infrastructure that supports their privileged existence.
And they do annoy me on that account.
Okay Libby, I see where you are coming from. You won’t get any further argument from me.
Silicon Valley Libertarian?
Maybe some of the younger upstarts are but the bulk have been solidly Democrat.
And among the young that vote Democrat, a few are overtly active!
The declined to state affiliation seems to be surging…my guess is that its partly due to disillusionment and partly due to the rabid progressives that refuse to let diversity rule the day when it comes to politics and opinions…radical progressive leftists will ruin your career if you don’t tow the line and they find out.
And I got news for you Libby. A lot of the companies that made Silicon Valley what it is paid for that infrastructure. They paid in personal and business taxes and in property taxes for their expensive homes and the buildings they built. The builders also paid for the infrastructure as part of the deal with the cities and towns. They put in curbs, gutters, sewers, parks, sound barriers, roads, sidewalks, green spaces, and helped build schools!
You always act like these people have been given a free ride when they are the ones who produce the wealth for all of it! They provide the products and investments that create the jobs, the infrastructure and the tax base. Public workers would not have jobs and be contributing at all except for the tax base that wealth producers make possible. AND how do you know they are “ignorant”? Certainly they are no more “ignorant” than anyone else.
The government has no money that it doesn’t take from others. Even when they print money they devalue our dollars thus making what we have worth less…a taking by policy.
I’d like to see a person in America who isn’t privileged in some way. The poor in America are privileged beyond belief compared to the poor in other countries and often do absolutely nothing for their privilege. Poor folks from other countries think our poor are crazy…they come here and can’t believe the opportunity they have to earn and grow their own wealth.
Maybe Americans have just had it too good and easy.
We Americans are blessed…in every single class. It’s time we started feeling some gratitude just for being born in a land of opportunity…if we ever get back to the land of opportunity.
Well, yer making me say it: privileged Libertarians are ignorant … non-privileged Libertarians are stupid.
Either way, one must hope that they never carry the day, as that will be the end of the republic.