By Dan Walters
11/01/2014 5:00 PM
State Controller John Chiang dropped a political bomb the other day, although he was so quiet about it, one could say it was a stealth bomb.
Chiang added public pension systems to his already large fiscal database. One chart reveals that their “unfunded liabilities” – the gap between assets and liabilities for current and future pensions – exploded from $6.3 billion in 2003 to $198.2 billion in 2013.
Moreover, that startling number assumes that pension systems will see asset earnings of about 7.5 percent a year – a number that some are beginning to see as unattainable.
Los Angeles’ city pension system dropped its assumed earnings, called the “discount rate,” last week. The board of California’s second largest pension system, covering teachers, was told last month by a panel of experts that its 7.5 percent assumption is likely to be under 7 percent for the next decade.
If a 7.5 percent discount rate, which is also used by the giant California Public Employees’ Retirement System and many local systems, is too high, the current $198.2 billion debt in Chiang’s report is, in reality, much higher.
The debt rose as pension funds’ earnings plummeted during the recession and new benefits kicked in, despite dramatic increases in mandatory contributions.
State and local governments’ contributions nearly tripled between 2003 and 2013, from $6.43 billion a year to $17.5 billion, while those of employees nearly doubled, from $5.2 billion to $9.1 billion.
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