PUBLIC AGENCY PENSIONS OUT OF CONTROL
I recently posted a commentary focused on the aging workers who are eligible to fixed income pensions, mostly provided by governmental agencies. Pension plans had to adjust its actuarial funding formulas that increased the deficit in the City of San Diego plan to $2.5 billion. I now find that other government agencies are even in more serious pension deficits. Investment deficiencies from other selected pension systems follow.
Some examples have been publicized recently as more pension boards realize that investments are not meeting the goals set by experts for computing actuarial requirements. CalPERS, the large state public employee pension fund, has a $300 billion portfolio providing benefits for seven million employees and retirees. It is $139 billion unfunded at 68% and is the largest plan after the U.S. Government.
Most state and municipal governments must start providing larger contributions to the pension plans, and workers in California must chip in more. This causes considerable criticism from struggling employers that claim the mythology of actuaries is dangerously flawed due to projections of investment being overly optimistic. Many actuarial calculations generally assume that investment income is 8% year. That has not happened for several years.
The CalPERS trustees have reduced the assumed income from its portfolio to 7% which will be the component in calculating pension contributions for the next three years. The combination of retired employees living longer and the reduction of investment income puts a burden on many small municipalities to meet their required contributions. Already the cities of Vallejo, Stockton and San Bernardino filed for bankruptcy due to their required pension contributions to CalPERS.
A study made by San Diego Taxpayers Educational Foundation in March listed every city in the county comparing the amount of pension fund unfunded, the deficit per capita and the percent of budget spent on pensions. San Diego was in about the higher third of the ratings: 75.6% unfunded, 11% of city budget and $1103 per capita cost of pensions.
Coronado had the highest marks at 81% unfunded and cost per capita of $1244; San Marcos was the lowest at 68.8% unfunded and cost per capita of $515. The consistent unfunded percent is an indication that every governing body side steps their pension obligation to free up tax dollars for schools, street repairs and a multitude of city services.
Besides the generous “gift” the City of San Diego gives periodically to retired employees in the form of a 13th check at yearend, the County of San Diego supervisors feathered their nest by spiking their pay 12.5% just before four supervisors were termed-out. That greatly enhanced their pension benefit. Any employee would covet that kind of pay raise that puts a further tax burden on county taxpayers.
Note that the county pension fund is already $3.3 billion unfunded, bigger than the city fund at $2.5 billion. A wake-up call is due.
Going offshore, Puerto Rico, under U.S. jurisdiction, has one of the worst pension-fund crises. The system is $5 billion underfunded. That is high for a nation of only 3.4 million citizens. Their solution is to furlough government employees four days a month and teachers two days a month and to cut Christmas bonuses to ease the budget.
The ratio of hundreds of thousand government employees to the population seems to be part of the deficit problem. Even more revealing is the custom of paying Christmas bonuses to employees who are obviously not managing the republic’s financial affairs very well.
A member of the federal control board for Puerto Rico recently declared that the island is about to capsize.
Another glitch in the public-pension system was announced in March by CalPERS. The fund will cut retirement benefits for a defunct municipal agency, East San Gabriel Valley Human Services Consortium, by reducing payments to 62 retired employees by 63 percent. The smaller governments in CalPERS that can’t meet their pension obligations may suffer the same fate.
It’s time for pension board trustees, actuarial consultants and government officials to get real about the burden they force on taxpayers. Each elected group of politicians sweep the rising pension debt under the carpet for the next government body to fix. It never does.