Sunday, January 26, 2014

It's Time to Take Our Medicine

Daniel Borenstein, columnist for the Bay Area Newsgroup, recently wrote a cautionary and sharp article on the California Public Employees' Retirement System (CalPERS) and the unrealistic life expectancies they use  in their retirement system calculations. By using shorter life expectancies in their calculations, CalPERS is (again) underfuding the retirement system, which will eventually result in increased contributions to the system by local governments to make up for the "error". (And, as Borenstein points out, this is already on top of the underfunding of the system through overly optimistic high rates of return on their investments, which has and will continue to result in rate increases for local governments.) Borenstein said:
"The California Public Employees' Retirement System hasn't previously factored future mortality improvements into actuarial calculations. As a result, it has not collected enough money to pay pensions when workers retire.
The fix, which the CalPERS board will consider in February, would further drive up rates for public agencies, which already face recent changes to correct for the system's unrealistic investment return assumptions and a dangerously slow paydown of debt."
The CalPERS board must stop playing games with the numbers to avoid reality and protect the pensions for current public employee union members. This is hurting our local governments because these unrealisitc calculations are resulting in a seemingly constant rise in payments to CalPERS and a decrease in services to local taxpayers. It will also hurt future retirees, because there simply won't be enough money in the system to fund their retirements.

While the proposed fix the CalPERS board will be considering would result in a rise in rates that local governments will have to pay, not approving the fix will hurt local governments even more in the long run in terms of even higher unfunded liabilities. We can't keep passing these liabilities on to the next generation. It's irresponsible and it's not fair.

I'm not sure when the change occurred from our grandparents' generation that believed in sacrificing for the betterment of the next generation, and the current generation's belief in taking care of themselves first and foremost, the next generation be damned.

But we need to go back to that belief in sacrifice for the next generation, "take our medicine," come to grips with the real costs of the CalPERS retirement system, and realistically fund it. There should be a mandate that local governments with unfunded retirement and OPEB (health care) liabilities develop a 10 or 15-year plan, depending on the size of the liability, to fully fund their employee retirement programs. These plans MUST be available to the public in simple, easy to understand language.

Perhaps by daylighting the additional costs of these unrealistic calculations to the taxpayers, it will show that the current system is simply not sustainable for local governments. If so, then we need to look at transitioning into a hybrid defined benefit/401(k) style system. Either way, we can't keep whistling past the proverbial graveyard when it comes to public employee pensions in California.

Read Mr. Borenstein's article here:

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