Daniel Borenstein: CalPERS chief actuary silenced for telling truth

THE CALIFORNIA PUBLIC Employees Retirement System is trying to tamp down public concern after its chief actuary candidly said last month that government pension costs are "unsustainable."

The portfolio value of the nation's largest public pension fund, battered by the stock market and the real estate downturn, declined about 24 percent, or roughly $58 billion, in the fiscal year that ended June 30. The system serves 1.6 million public employees, retirees and their families across the state. They need not worry. Their pensions won't be affected.

Instead, state and local governments across California will have to cut services — or, less likely, raise taxes — to make up for the losses if the economy doesn't come roaring back. CalPERS is trying to soften the blow by forcing future generations to absorb a larger part of the hit. Nevertheless, the impact will start to be felt with the 2011-12 fiscal year.

Pension costs are typically measured as a percentage of payroll. Government agencies in CalPERS, for example, currently set aside for pensions about 17 percent of payroll for most workers, what are known as "miscellaneous" employees, and about 27 percent for police and firefighters. At a seminar in Sacramento, Ron Seeling, the chief actuary, described what's to come.

"I don't want to sugarcoat anything," Seeling said. "We are facing decades without significant turnarounds in assets, decades of what I, my personal words, nobody else's — unsustainable pension costs of between 25 percent of pay for a miscellaneous plan and 40 to 50 percent of pay for a safety plan (police and firefighters) "... unsustainable pension costs. We've got to find some other solutions."

...At CalPERS, my request to talk to Seeling about his comments was denied. Instead, public information officers told me that he misspoke

wow, sounds like this guy is an actual reporter, as opposed to a state media zombie. and how, exactly, does one misspeak in this scenario? misspeaking would be like, confusing the words concurrent and consecutive. this is BS that the fund would hide this guy and then just say he “misspoke.” if i was in CA i would not stand idly by while they continued to lie until they retire. our grandchildren are going to disown us all when they collectively realize what’s been done for the sake of political expediency.

Here is what is he is not saying. For at least the last decade, there has been a large and growing gap between retirement compensation in the public and private sector. The public sector has disguised the full value of its retirement compensation through non risk adjusted calculations of payroll costs. If the value would have been adjusted for risk, it would have been evident 10 years ago that public employee retirement compensation was outrageous for career employees. The problem with government pensions was a deliberate understatement of compensation.

The quit rate has long been used to subsidize benefits for long term employees. Employees who quit before a reasonable career length partially subsidize long term employees. Now many young people (and older workers) want to work for government because of the job security. The quit rate will no longer be available to subsidize benefits for long term employees.

I have strong medicine to restructure government pension plans. The hallmark of my reforms is elimination of early retirement subsidies. The retirement age should be increased to match the normal Social Security retirement age (currently 66). Retirement before the normal retirement age should be reduced at the same rate as Social Security (25% for 4 years early retirement). After an employee retires, a private sector annuity should be purchased to pay the benefits. The taxpayer should be out of the picture after the annuity is purchased.

The pension agencies should be radically reformed also. Pension agencies should not have standing to sue the taxpayer. All legal functions of the pension agency should be assumed by the state attorney general’s office. All employees of the pension agency should not be members of the retirement plan to prevent lobbying and undue optimism.

I know the lazy, greedy, arrogant, unionized, fat-arsed, can’t-hack-it-in-the-real-world government slugs have contract language and supporting legislation that would guarantee their platinum plated pensions even if all the real workers had to be taxed at a 110% rate. But surely there is a point where any sensible judge and jury would find this unsustainable giveaway to union thugs to be against public policy. Where is that point, my friends? How do we rid ourselves of this parasitic plague?

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