Posted on 07/26/2002 12:02:52 PM PDT by randita
CalPERS: Pensions need help
By Paul Schnitt and Loretta Kalb -- Bee Staff Writers Published 2:15 a.m. PDT Friday, July 26, 2002
The nation's largest public pension system has told public agencies in California that they will have to contribute more to employee retirements starting next year to make up for the fund's huge stock market losses.
Officials with the California Public Employees' Retirement System said Thursday it remained uncertain which of the more than 1,100 public agencies whose pensions fall under its management would be most affected.
But cities, counties and special districts that chose to use the gains from the 1990s stock market rise to improve employee retirement benefits could face the highest increases.
"It's been a good run, but we've known all along there would be years when investment returns aren't there to be able to pay the lion's share of employee benefits," said Pat Macht, spokeswoman for CalPERS.
Because CalPERS was able to accumulate a sizable surplus during the stock market boom, many local governments did not even have to make contributions to meet their pension plan obligations.
A letter distributed last month by CalPERS to the local agencies said their contributions to the pension system beginning next July, for the 2003-04 fiscal year, could rise by as much as 16 percent. Other increases would be less, perhaps as low as 2 percent.
"We need to brace ourselves and certainly plan for cost increases," said Leigh Keicher, finance director for the city of West Sacramento.
"Obviously, if you pay more for the employer contribution (for pensions), you have less money for other services," said Russell Branson, finance director for the city of Roseville.
The news also is not good for counties, said Steve Keil, legislative coordinator for the California State Association of Counties.
"Counties are being hit by a variety of forces," said Keil, pointing to weak revenues from hotel and motel taxes and increased costs for anti-terrorism efforts.
CalPERS provides health and retirement benefits to nearly 1.3 million state employees, non-teaching public school workers and public agency employees and their families, including 370,000 retirees.
According to the CalPERS Web site, the system paid out $5.8 billion in retirement benefits in the 12 months ending June 30, 2001.
Amid the euphoria of a soaring Dow that built huge surpluses for CalPERS, labor unions successfully lobbied the Legislature, with the support of the CalPERS governing board, to enrich members' retirement benefits. Some of the gains were dramatic.
Under a law enacted last year, for example, a local government worker with 30 years' experience who retired at age 60 would receive a pension benefit equal to 90 percent of his highest salary. Previously, that same worker would have received only 60 percent of his highest salary.
Even before that pension improvement took effect, however, the music stopped. The stock market cratered, wiping out billions in surplus that CalPERS had built during the unprecedented boom.
The value of CalPERS assets peaked at $178 billion in early 2000. But as the stock market faltered, CalPERS' assets fell below $145 billion. Annual returns on investment, which averaged well into double digits annually during the 1990s, turned negative the last two years.
"My feeling is and has been all along that (CalPERS) should have sat on their reserves, realizing the fact that the day of reckoning in the stock market was coming," said David Thompson, retired personnel director with the Sanitation Districts of Los Angeles County.
"Now employers are going to have to make significant contributions again -- that's taxpayer money that these cities need for other purposes," he said.
Geoff Davey, chief financial officer for Sacramento County, said the stock market gains were used to justify sweetening public employee pensions statewide.
"Claims were made that those (pension improvements) were being made at no cost to the taxpayers because of the investment gains," Davey said. "Now it would appear the retirement benefits enhancements that PERS and the governor agreed to for the state ... are going to cost the taxpayers after all."
Macht, the CalPERS spokeswoman, said there was "full disclosure that these benefits cost money."
"Everybody understood if there were periods of time when the market went down, it would have an impact," she said.
Also, local governments were not forced to increase employee retirement benefits, Macht said.
Perry Kenny, president of the California State Employees Association, acknowledged CalPERS "took excess reserves saved during the good times and helped elevate the state employees to the level of county and city employees." The CSEA represents about 260,000 state employees.
State agencies, already grappling with a $23.6 billion budget shortfall out of a $78 billion general fund, also are likely to pay more in pension plan contributions for the fiscal year that begins July 1, 2003, said Tim Gage, director of the state Department of Finance. "It's reasonable to think we'll see higher costs (in 2003-04), but the question is how much higher," he said.
The amount state agencies contribute to the fund will increase by more than $154 million in the current fiscal year, Gage said.
Typically, employers match the amount employees contribute to their pension -- 7 percent of their salaries. Law enforcement employees contribute 9 percent.
While CalPERS allows employers to reduce contributions in times of plenty or raise them during market downturns, the California State Teachers' Retirement System does not.
Sherry Reser, CalSTRS spokesman, said that consistency of contributions has helped CalSTRS meet its goals for 687,000 teachers, administrators and their survivors despite fluctuations in the market.
About the Writer ---------------------------
The Bee's Paul Schnitt can be reached at (916) 321-1102 or pschnitt@sacbee.com. Bee Deputy Capitol Bureau Chief Dan Smith contributed to this report.
Under a law enacted last year, for example, a local government worker with 30 years' experience who retired at age 60 would receive a pension benefit equal to 90 percent of his highest salary. Previously, that same worker would have received only 60 percent of his highest salary.
No further comment needed.
Under a law enacted last year, for example, a local government worker with 30 years' experience who retired at age 60 would receive a pension benefit equal to 90 percent of his highest salary.
90 % ???? I did 28 years for IBM, forced out before I could make 30 and only get about 40 % of the last 5 years average with some damn formula!
calgov2002:
 calgov2002: for old calgov2002 articles. calgov2002: for new calgov2002 articles. Other Bump Lists at: Free Republic Bump List Register |
So much for saving for a rainy day, just give it all to the unions NOW, and tax people more later.
http://www.freerepublic.com/focus/news/722892/posts
IN VERY SMALL PART to comply with rules-
NEWS ANALYSIS
Nest Eggs Cushioned From Market's Drop
Retirement: Diversified investments have kept pensions from falling as far as key stock indexes.
By JAMES FLANIGAN Times Staff Writer Story in LA Times
"In addition, pension funds typically invest with a long-term horizon. At the California Public Employees' Retirement System, the nation's largest public pension plan, investments are made on a 10-year perspective in accordance with strict ratios for allocating assets among bonds, stocks and real estate.
CalPERS is shifting more of its funds into stocks as part of a normal process to take profits and move money out of investments that have performed well (bonds) into those that have lagged (stocks). During the height of the stock boom, it shifted money from stocks into bonds.
These days "we are buying equities," said Mark Anson, CalPERS' chief investment officer. "We are selling our gains in fixed-income securities and buying $200 million to $300 million in equities with every 50 point drop in the S&P 500," Anson said. That index has fallen almost 400 points in the last year.
CalPERS' mammoth investment portfolio has lost only about 5% in the last year, going from $156 billion to about $149 billion at present, because gains in bonds and real estate reduced the overall losses.
How on earth was that sustainable? At age 60, you have a life expectancy of over 20 more years, and it's been increasing every year.
As the Boomers retire, that will increase the burden. Unbelievable.
Now the state wants more taxes, and so does my county.. they want to raise property taxes to pay for hospitals that help illegals who own no property and pay no taxes. Great freakin' system we got here in California.
To not have a Constitutional Amendment is to invite these disasters again in the future, assuming we can get out of this one with our pants on.
We had just such a proposition (the adjust for inflation/population part, anyway) in Proposition 4, which passed in 1979. Following is the summary (from California Ballot Propositions Database).
LIMITATION OF GOVERNMENT APPROPRIATIONS. INITIATIVE CONSTITUTIONAL AMENDMENT.
Establishes and defines annual appropriation limits on state and local governmental entities based on annual appropriations for prior fiscal year. Requires adjustments for changes in cost of living, population and other specified factors. Appropriation limits may be established or temporarily changed by electorate. Requires revenues received in excess of appropriations permitted by this measure to be returned by revision of tax rates or fee schedules within two fiscal years next following year excess created. With exceptions, provides for reimbursement of local governments for new programs or higher level of services mandated by state. Financial impact: Indeterminable. Financial impact of this measure will depend upon future actions of state and local governments with regard to appropriations that are not subject to the limitations of this measure.
Unfortunately, it hasn't acted as much of a brake on state spending. Here's what a Claremont Institute Report, California's Fiscal Condition (Google cache: the original seems to be gone from the Claremont site) said about Prop 4's limits:
A third element in the taxpayer's triad of defense was a constitutional provision of more recent origin. In 1979, voters approved Proposition 4, better known as the Gann Spending Limit, which placed a flexible restraint on the total amount of funds the government could spend without voter approval. The limit was hardly draconian (it expanded with population and inflation), and from 1979 to 1990 allowed state general fund spending to increase from $12.6 billion to $31.2 billion in current dollars.In 1988 and 1990, Propositions 98 and 111 changed the formula for calculating Gann, sending the spending limit into the upper stratosphere of government finance, where it still orbits unobtrusively today. For example, Proposition 111, which the Legislature titled a "Transportation Improvement and Spending Limitation Act," increased the spending ceiling by $53.3 billion over a decade for purposes unrelated to transportation.
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