By Dan Walters
Published: Tuesday, Jun. 26, 2012 – 12:00 am | Page 3A
Last Modified: Tuesday, Jun. 26, 2012 – 7:55 am
A few days ago, the Pew Center on the States released a report on the nationwide gap between promises made to public employees for pensions and what states are spending to close the gap.
On paper, California isn’t in awful shape. Its major pension program, with $516.3 billion in liabilities, was reported to be 78 percent financed, just shy of the 80 percent level that actuaries generally advocate.
Not surprisingly, some Democratic politicians trumpeted the report because it appears to negate the demands for major public pension reform that is one of the Capitol’s thorniest issues this year.
Gov. Jerry Brown, however, has pleaded with the Legislature, so far in vain, for reform, saying that failure to act would make voters reluctant to pass new taxes.
“I am committed to pension reform because I believe there is a real problem,” Brown told the Legislature in January. “Three times as many people are retiring as are entering the workforce. That arithmetic doesn’t add up. In addition, benefits, contributions and the age of retirement all have to balance.”
On Monday, the Governmental Accounting Standards Board issued its long-awaited revision of accounting standards for public pension systems that could undercut the official numbers reflected in the Pew report.
It has to do with what’s called the “discount rate,” in effect a pension system’s estimate of future annual earnings on trust funds.
California’s pension systems, like those of other states, have adopted discount rates well in excess of 7 percent, nearly twice as much as typical corporate pension systems, which are required to use super-safe projections.
These rosy expectations have the effect of minimizing the systems’ unfunded liabilities and thus reducing pressures to reform benefits or raise contributions.
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