Capitol and California – Dan Walters
By Dan Walters
dwalters@sacbee.com The Sacramento Bee
Published: Monday, Feb. 28, 2011 – 12:00 am | Page 3A

Transparency is a bedrock principle of effective governance and consumer protection; one cannot make rational political, personal or financial decisions unless one has information about their potential consequences.

That’s why we have open election, meeting and records laws, that’s why food and over-the-counter drug packages have extensive data about their contents and that’s why banks must tell borrowers what interest rates they will be paying, to cite just a few obvious examples.

It’s in that vein that Rep. Devin Nunes’ legislation about public employee pensions makes perfect sense.

Nunes, a Visalia Republican, wants state and local governments to provide more extensive information about assets and liabilities, particularly the potential effects of their assumptions on future pension trust fund earnings.

By and large, pension funds, including those in California, now assume a “discount rate” in the 7 percent to 8 percent range when calculating how much, if any, unfunded liability they may have for future pension payments.

That assumption appears to be confined to the United States, as a recent Wall Street Journal survey of international practices indicates. Public pension funds in other Western nations, including Canada, use more conservative – and thus more predictable – rates in the 4 percent to 6 percent range, which also is the general practice of private corporate pension funds in America.

Nunes’ Public Employee Pension Transparency Act would have funds report their conditions two ways – the way they do now and using a discount rate tied to ultra-safe investments, around 4 percent. Using a lower rate would sharply raise potential unfunded liabilities – and thus raise the specter of higher pension fund contributions by taxpayers and employees.

A Stanford University study of California’s three major state pension funds last year concluded that using a 4 percent rate (tied to government bonds) would push their unfunded liabilities to about a half-trillion dollars, several times their officially adopted levels of exposure.

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