Contra Costa Taxpayers Association

CoCoTax Pension Committee ReportS

Pension Crisis

Under the law, government employees are entitled to a reasonable pension.  CalPERS (California Public Employee Retirement System) is the largest public pension fund in the United States.  Over the years the management of CalPERS has changed investment strategies and philosophies.  In 2000, Gov. Gray Davis signed legislation allowing very big increases in some pension benefits. Commonly referenced as “3% at 50”, it allowed most public safety employees to retire at age 50 and based on their highest-level pf pay.  Some of that increase was even retroactive for work already performed.  Proponents said it would be funded by their investments, as evidenced by large gains in the past couple of years.   Since CalPERS sets the trends that others follow, the policy was expanded to other classifications and adopted by more public agencies.  Because of those big investment gains, they said there was no need for additional funding.

They were wrong.

In 2008-2009, the market took a nosedive.  No longer were those high returns coming in, but the promises remained.  Debt began to pile up. Those increases that were never funded began to drain the system.  CalPERS sends an annual “bill” to participating agencies.  If they cannot pay, there is virtually no way out. To leave CalPERS, the agency must pay the full amount due to cover their retirees for life.  Well, if you cannot pay for the current year, how can you pay for the future?  Some agencies have already become insolvent, some sought bankruptcy.  More will follow.

In short, these are some of the factors that led us to a crisis point;

• Pensions were over-promised and underfunded.

• Enhanced retroactive benefits were never funded.

• Investment losses are difficult to recover, since you have a smaller amount to invest.

• People have longer life spans

• California demographics - there are fewer workers and more retirees

• “Spiking” was allowed until 2013

• Pensions and contracts were negotiated by people unaware of long term ramifications

• Investment return assumptions kept contributions low

• The “California Rule” a Court decision, stated a premise that if you take away a benefit, it must be replaced by an equal or greater benefit.

For more Pension Facts:  click here