By Dan Walters
August 1, 2016 – 6:00 AM
- California’s state and local public employee pension systems are caught in a vicious circle of rising outlays to retirees, very low pension fund earnings, higher unfunded liabilities and rising demands for more tax dollars.
Ron Seeling, the California Public Employees Retirement System’s chief actuary, believed he was speaking to a closed-door seminar in 2009 when he warned that public employee pension costs were becoming “unsustainable.”
However, Ed Mendel, a veteran reporter who writes a blog on pensions, was there, and later published Seeling’s dire warning.
“I don’t want to sugarcoat anything,” Seeling said. “We are facing decades without any significant turnarounds in assets, decades of – what I, in my personal words, nobody else’s – unsustainable pension costs of between 25 percent of pay for a miscellaneous plan and 40 to 50 percent of pay for a safety plan (police and firefighters) … unsustainable pension costs. We’ve got to find some other solutions.”
It was eerily prescient of what was to come within a few years.
Seeling made his remarks a decade after then-Gov. Gray Davis and the Legislature had quietly, virtually without notice, decreed a massive, retroactive increase in state employee pension benefits, which was quickly emulated by hundreds of local governments.
At the time, CalPERS was ringing up big earnings from the 1990s’ bullish stock market – so big that it had reduced contributions from member governments to near zero. Public employee unions hankered for a share of the bounty and pressed for a benefit increase.
The CalPERS board, dominated by public employees and union-friendly politicians, sponsored the increase, Senate Bill 400, with assurances that it would cost taxpayers nothing. A state Senate analysis of the bill said CalPERS “believes they will be able to mitigate this cost increase through continued excess returns of the CalPERS trust.”
Years later, it emerged that the assurances reflected the most optimistic of several scenarios developed by the CalPERS staff. More pessimistic scenarios were kept secret – but they were the ones that came true. By the time Seeling delivered his dark appraisal in 2009, the state was being hammered by an ultra-severe recession, and the CalPERS trust fund was losing what turned out to be nearly $100 billion in value.
Seven years later, CalPERS and other pension funds still haven’t fully recovered, and they’re sharply raising mandatory “contributions” from state and local governments to cover the gaps left by meager investment earnings.
The state government alone has seen its payments into CalPERS and the State Teachers Retirement System (CalSTRS) climb to $7.8 billion this year, more than twice the $3.7 billion in 2006-07 and seven times what they were in 1999, when CalPERS issued its no-cost assurance for fatter benefits.
Validating Seeling’s 2009 projection, state and local governments are now routinely paying 40 to 50 percent of payroll for “safety system” employees. The California Highway Patrol, for example, is paying 50.08 percent to CalPERS – nearly four times its 1999 level – and several cities are paying even more.
State and local governments are now routinely paying 40 to 50 percent of payroll for ‘safety system’ employees.
Seeling’s estimate of 25 percent of payroll for nonsafety employees was also on target. The state is at nearly 27 percent now.
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