Jerry Brown

Brown

Monday, November 23, 2015 – 09:00 a.m.

Not that I agree with California Governor Jerry Brown on much.

But he’s correct regarding the fix to the under-funding problem affecting the California Public Employees Retirement System (CalPERS).

Brown is reportedly angry at trustees for the woefully underfunded pension system.

He should be.

The issue-at-hand involves the long-term assumed rate of return the pension fund projects it will earn over time. A few years ago the annual assumed rate of return was reduced from 7.75% to 7.50%, where it stands today.

Last week, the CalPERS board of trustees voted to reduce the rate from to 6.50%. A move that sounds good on its face. A move that some will argue goes far enough.

The only problem? The reduction will occur over 25 years.

The reasoning by CalPERS? They don’t want to shock member agencies with immediate large pension contribution increases.

Even a one quarter-point reduction in the rate will, as a whole, force billions of dollars in higher contributions from the state and local governments that participate in the system.

But Brown’s correct on his position. The inch-by-inch reduction in the actuarial rate will do little to solve the multi-billion dollar funding gap.

It doesn’t take a rocket scientist to figure out that as CalPERS continues to, in large-part, miss the current 7.50% hurdle, the under-funding gap widens. That widening leads to the very same agencies having to pony-up even more money down the road.

San Bernardino County, which has its own pension fund separate from CalPERS, faces the very same dilemma.

The San Bernardino County Employee’s Retirement System (SBCERA) also has its actuarial rate currently set at 7.50%.