CALIFORNIA: State retirement systems placing risky wagers at taxpayer expense

Contra Costa Times ^ | 12/17/11 | Daniel Borenstein - Staff columnist

[SmithL]

California taxpayers should ask themselves, in the words of Clint Eastwood's famous movie character, "Do I feel lucky?"

We're not staring down the barrel of "Dirty Harry" Callahan's gun wondering whether there's a bullet in the chamber. Instead, we're gambling our financial future on whether public pension fund investments will surpass reasonable expectations.

If state Treasurer Bill Lockyer, union leaders and the state's largest government employee retirement funds have their way, they'll continue betting against the odds. It's not surprising. It's not their money at risk. They won't have to cover the losses. Taxpayers will.

Last week, a study led by Joe Nation, a Stanford public policy professor and former Democratic assemblyman from Marin County, made explicitly clear the magnitude of the risk. He found that there's a better-than-even chance we're going to lose the wager.

It was an insightful analysis of the high-stakes gamble we're taking by counting on unrealistic investment returns for the California Public Employees' Retirement System, the nation's largest government pension fund; the California State Teachers' Retirement System, No. 2 in the nation; and the University of California Retirement Plan.

If Californians understood their risk exposure, and Nation's findings, most would be outraged.

Here's how it works: Public-employee pension systems are supposed to be pre-funded. That means employees and employers should contribute enough money in advance, when combined with investment returns on those funds, to pay those workers in retirement.

The assumption about the investment returns is critical. The higher the expected return, the less money must be contributed now. But here's the kicker: If investments don't meet expectations, the employer -- the taxpayer -- must make up the entire shortfall. The employee has no risk.

So labor groups typically push for high return-rate assumptions.

[SmithL]

[the invisib1e hand]

is this a flashback?

calpers is probably RICO qualified.

[Wally_Kalbacken]

I don’t live in CA, never have and seldom visit. The critical question is - how do you prevent the lack of discipline in one state from becoming the responsibility of taxpayers in other states? I’m perfectly happy for CA to do what it wishes, but only so long as they gamble with their own money. If they raise taxes high enough to ensure that every retired prison guard can have two homes, then many of the higher income earners will leave the state, which means they’ll come looking for the pockets of the federal taxpayers, either by hook or by crook.

[dragnet2]

If state Treasurer Bill Lockyer, union leaders and the state’s largest government employee retirement funds have their way, they’ll continue betting against the odds.

It’s not surprising. It’s not their money at risk.

They won’t have to cover the losses. Taxpayers will.

[blam]

WAKE UP: There's A 82% Chance That California's Public Pension System Will Run Out Of Money

[GOP Poet]

Wow. Just wow.

[anglian]

STATE BUDGET SOLUTIONS
Just How Big are Public Pension Liabilities? http://www.statebudgetsolutions.org/doclib/20110304_StatePensionLiabilityMarch4.pdf Home Page http://www.statebudgetsolutions.org/

[GOP Poet]

well the good news is those liberals won't one have a gun nor know how to use one. So everyone else (except those east coast libbies will have an advantage :). This is coming from a Californian.

One day I was talking with a woman who is often out on the trails alone in the desert and often feels scared. I said buy a gun. Her eyes got huge and just about every women in the place looked horrified. I couldn't believe it.

I finally talked her into mace. Haha. Needless to say Californians are very vulnerable in the real world when it comes to force.

[SkyPilot]

The critical question is - how do you prevent the lack of discipline in one state from becoming the responsibility of taxpayers in other states?

The unions and their mafia leaders in every state where the pensions are underwater have indicated they want the Federal Government to "bail" them out.

Guess how many states do not have fully funded pensions?

Forty six.

Yup - only four states have fully funded pensions: New York, Wisconsin, Florida, nad Washington State.

More bad news:

Two years ago, a report found nine states had pension funds with less than 70% of the assets needed to meet their long-term obligations: New Hampshire 68%

Kentucky 64%

West Virginia 64%

Massachusetts 63%

Connecticut 62%

Rhode Island 61%

Oklahoma 61%

Kansas 59%

Illinois 54%

Seven had funding levels in excess of 95%:

New York 107%

Florida 101%

Washington 100%

Wisconsin 100%

North Carolina 99%

Delaware 98%

South Dakota 97%

Do you think the greedy teachers unions, the overpaid school administrators, the police and fire that pad their pensions with "overtime" their final year, and all the rest are going to just give up and say "Well, I guess there is no money!"

No - they will demand the rest of the nation pay for them.

[Jim Noble]

This is misleading, because there is NO possibility of these pensions being paid, even with incredibly UNreasonable assumptions.

State pensions are not going to be paid - period.

[KC Burke]

Actually the Pension Funds through their trustees do the same search for a viable deep pocket in all industry pension fund issues.

When you get underfunded with your fund, it is called “unfunded liability.” If you sign on with a union agreement with a union that has a pension fund that has unfunded pension liability, you are opening yourself up to a never ending obligation that can follow the officers of your company even if your company is a corporation that ceases operations.

Pension funds are very hard to manage in poor economic times as the administrative costs, even at a small percentage and reasonable, are rarely factored into setting the contributions — just the pensions itself. In setting those contributions, actuarial statistics are often used and we find that our long lived populations are making monkeys out of actuarial charts and studies.

[jimfree]

Mutual insurance companies deal with a similar funding variability all the time. They pay claims and administrative costs and then they refund to the policy owners proportionally. Would that a similar model be followed for defined benefit pension programs.