pensions

By Ed Mendel
Thursday, June 6, 2013

A little-known private firm that has sold customized supplemental pensions to dozens of California cities, including bankrupt Stockton and San Bernardino, is prohibited from selling more by a pension reform bill that took effect this year.

Public Agency Retirement Services or PARS, sounding close to the “PERS” in CalPERS, can continue to offer other types of retirement plans, including 401(k)-style individual investment retirement plans and pre-funding retiree health care.

An audited financial statement shows that as of June 30, 2011, PARS had $621 million held in trust for 467 local government plans — $242 million for “defined benefit” pensions and $379 million for 401(k)-style “defined contribution” plans.

“Since 1984, the PARS team has designed and delivered over 1,100 individually customized solutions that have cumulatively saved over 600 public agency clients hundreds of millions of dollars,” says the website of the firm in Newport Beach.

Pension reform pushed through the Legislature by Gov. Brown last year, AB 340, gives new state and local government employees much lower pensions and specifically prohibits new supplemental pensions.

The reform’s single statewide pension formula for new hires is intended to end market-like competition that ratcheted up benefits and employer costs. During labor bargaining, employers were urged to match pensions offered by other employers.

A leading example: A major pension increase for the Highway Patrol, enacted by CalPERS-sponsored SB 400 in 1999, was matched by many local police and firefighters, resulting in what critics say are excessive benefits and “unsustainable” employer costs.

But the menu of pension formulas available through the California Public Employees Retirement System is limited and set by legislation. Unions for most workers could bargain for a half dozen pension formulas, ranging from modest to very generous.

PARS gives employers the flexibility to customize pension formulas, target specific groups, set eligibility and vesting requirements, offer payment through insurance-run annuities or lump sums and direct some investments.

PARS

At a legislative hearing on pension reform last year, the nonpartisan Legislative Analyst’s Office raised the issue of whether local governments can use PARS to skirt legislative intent.

A two decade-old bill, SB 53 in 1993, made some types of elected or appointed officials, such as board members of school districts and special districts, ineligible for CalPERS pensions.

Some special districts give board members PARS pensions. Among them are the Water Replenishment District of Southern California and the West Basin Municipal Water District.

“There are a few cases where water districts have figured out a way around that law,” Jason Sisney of the analyst’s office told the hearing. “I think they have the right to do it under the law. But I am not sure that is what the Legislature intended back in ‘93.”

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