Putting its investment projections slightly more in line with reality, yesterday CalSTRS downgraded its fund forecast. According to its own announcement, “The governing board of the California State Teachers’ Retirement System (CalSTRS) today adopted a new set of actuarial assumptions, including lowering the investment return assumption from 7.75 percent to 7.5 percent. The change is part of a four-year experience analysis that sets the parameters for determining the financial health of the system.

“The assumptions update the actuarial experience analysis covering 2006 through 2010 and are used to evaluate the impact of both demographic and economic factors on the long-range financial health of CalSTRS. These assumptions, in turn, have a significant impact on the valuation of the plan, a snapshot of its financial health, scheduled to come before the Teachers’ Retirement Board in April.

“The most recent past valuation, presented in April 2011, showed a $56 billion funding shortfall, meaning that available assets fell $56 billion short of the system’s long-term obligations.”

That means California taxpayers are on the hook for making up that $56 billion.

But at least some reality has crept into the CalSTRS projections.

By contrast, sister fund CalPERS, the California Public Employees’ Retirement System, has refused to change its assumptions. Reported Bloomberg, “Last March, the CalPERS board voted to maintain its 7.75 percent assumed rate, rejecting its actuaries’ recommendation to lower it to 7.5 percent.

“Of the 11 U.S. pension funds with assets of more than $50 billion, CalSTRS and systems in Wisconsin and New York reduced their assumptions since 2007-08, according to the staff report to the CalSTRS board.

“New York City owes its pensions more than previously anticipated because officials have been too optimistic in assuming an 8 percent return on the $115.2 billion that the five funds hold in assets, Chief Actuary Robert North has said.

“A more realistic expectation would be 7 percent, which would increase the city’s liability by about $2 billion if paid in one year, North said in a telephone interview.”

Actually, a Stanford study found that even CalSTRS’ 7.5 percent assumption is too optimistic — that 6 percent or lower is more realistic.

These state pension funds still don’t acknowledge that the 2007-09 Great Recession, and the tepid recovery since, scrambled all their calculations of fund gains. Taxpayers increasingly will be dinged to pay for the shortfalls.

Reform is more needed than ever.

Feb. 3, 2012

I’ve been arguing for a couple of years that the pension problem in California is so bad that the state will have to cut existing pensions. Is that supposedly banned by the California Constitution? It doesn’t matter. Constitutions can be changed. Actuarial realities cannot.

Such a cut could happen soon in Providence, R.I., a canary in the coal mine of pensions in America. Note that it’s Democrats making the cuts. Republicans there are even more scarce than in California.

Writes WPRI.com, a radio station there, “Rhode Island’s capital city will be in bankruptcy by June if it doesn’t get help resolving its financial crisis.

“That was the dire warning from Providence Mayor Angel Taveras during a Thursday morning news conference at City Hall. With five months left before the end of the fiscal year and the capital set to run out of cash by the start of summer, the city still faces a $22.5 million deficit in its budget for the current fiscal year, which ends June 30.

“The budget shortfall was projected at $110 million last March, when Taveras declared a ‘category five’ financial emergency in Providence. It was reduced after he negotiated new contracts with unions, laid off workers, cut spending and won increased state aid….

“Taveras said the city’s retirees must accept reduced pension and health care benefits to save the city from financial ruin. A decree signed in 1991 by Mayor Buddy Cianci pushed the city’s pension liability ‘into the stratosphere’ by giving annual cost-of-living increases of 5% and 6% to more than 600 retirees, he said.

“‘These retirees have refused to sacrifice and are costing Providence taxpayers tens of millions of dollars a year,’ Taveras said, calling the increases ‘raises,’ not adjustments to keep up with the cost of living. The mayor will hold a meeting with retirees on March 3 where they will be asked for concessions.

“Taveras’s office released a list showing that the city’s highest-paid pensioner, former Fire Chief Gilbert McLaughlin, now receives an annual pension of $196,813 a year. He retired with an annual salary of $63,510. At the current rate of growth, McLaughlin’s pension will total roughly $796,871 if he lives to the age of 100.”

All across America, government-worker unions remain unreasonable in resolving the pension and budget crises they caused through their greed. But there’s only so much money out there. The economy isn’t growing fast enough for the funds’ stock portfolios to recover from the crash of 2007-09.

This is just the beginning. Soon, California also will cut existing government retirees’ pensions.

(Hat tip to Jack Dean.)

Feb. 2, 2012

Say, wasn’t Berkeley the most liberal, progressive, hippest and hippiest place around? The Free Speech movement (pictured at right)? Anti-Vietnam War protests? Political Correctness that would make Mao envious?

Ah, forget it. As it always does, it comes down to money — money grabbed from impoverished taxpayers and given to “do good” government hacks.

The latest is do-gooder Berkeley City Manager Phil Kamlarz, who just retired with a $266,000 yearly pension — plus benefits and cost-of-living raises. Yet his highest annual salary was “only” $250,000 — and was $219,000 three years ago.

Contra Costa columnist Daniel Borenstein explains:

“The deal highlights the city’s generous pension program, which is one of the better plans in the state but by no means unique. The costly program is also $420 million underfunded, a shortfall equal to more than three years of city payroll, according to the city’s latest actuarial reports….

“It shows how absurdly lucrative some public employee pension programs have become. While Kamlarz’s salary was more than those of other city workers, the pension formula is the same for most other Berkeley employees. Indeed, about one-fourth of agencies covered by the giant California Public Employees’ Retirement System are at least as generous….

“[City pensions currently work] out to 49 cents for every dollar of police payroll, 38 cents for firefighters and 27 cents for other workers. Those costs will rise in future years to help cover the city’s huge unfunded liability.

“During his tenure, Kamlarz declined my multiple requests to discuss pensions.”

So much for Berkeley’s “Free Speech” heritage.

Or open government, for that matter.

Actually, of course, all that 1960s hippy-Berkeley idealism was fake anyway — an excuse to drop acid, attend Grateful Dead concerts, live high off the taxpayers’ dollars and impose extreme Political Correctness on succeeding generations.

“Get ourselves back to the garden,” as Joni Mitchell warbled in her “Woodstock” song?

More like: Get back to stuffing the bank account with money ripped off from taxpayers.

– Jan. 9, 2012

Recent media reports have suggested that to solve the unfunded liability the state will have to increase CalSTRS funding by $3.8 billion a year for 30 years for a total of more than $114 billion. Although this is an accurate statement based on current projections, achieving adequate funding can occur several ways that would be phased in over time. The CalSTRS $56 billion funding shortfall can be managed, but it will require gradual and predictable increases in contributions.

In other words, yes, California taxpayers owe teachers and retired teachers another $114 billion to make good on their pension promises. But don’t worry about it, CalSTRS will figure out a way to “manage” it.*

*They will pray to their lucky stars for a resurgent economy that will cover up the pension debt for another couple of generations and if that fails, they will insist that the rest of us — stuck with a crummy and upside-down Social Security system — will pay higher taxes and not complain about it.

DEC. 27, 2011

My former OC Register colleague, former KOGO radio host and current San Diego Union-Tribune Chris Reed, just launched a new site this week called CalWhine. It’s typical Reed — well-written, well-researched and snarky!

NOV. 22, 2011

NOV. 11, 2011

The invaluable Fix Pensions First Website just updated its list of California government retirees pulling $100,000 or more in pension pay. The data comes from CalPERS own numbers.

The latest tally: 12,199 in the $100K Pension Club. That’s nearly double the 6,133 on the list back in 2009. Let the good times roll!

The number also shows why not only the pensions of new employees must be cut. And not only the pensions of existing employees must be cut. But even the pensions of those already retired must be cut for the state and local governments to be returned to fiscal solvency.

The first reform: Cut all $100K-plus pensions to $99K. Anyone can live on that amount. It’s not like these retirees will be applying for EBT cards.

Here are the top pension recipients in California. Notice that the top recipient grabs a $530,268.24 annual pension. That puts him in the top 1 percent of incomes in America. The others on the list are in the top 4 percent.

And notice that four of the top 10 were university educators. No wonder it costs so much to attend even a government-run university. And no wonder college kids now are in debt, on average, $25,250, according to a new report by the Project on Student Debt. That’s up 5.2 percent in one year.

Those Occupy Oakland and Occupy Wall Street protesters are marching in the wrong place. They should march over to the Legislature and demand pension reforms.

NOV. 3, 2011

The plan calls for employee contributions, an increased retirement age of 67, and will end service credit purchases which allow state employees to buy more years of service, than actually worked.

At a press conference today, Brown said that the plan will prohibit retroactive pension increases, shelve pension “holidays,” and reduce health care costs by requiring employees to work for at least 25 years to qualify.

Brown said he will press the Legislature to pass his plan as it is written, even with the anticipated push back from labor unions.

Many Republican legislators have not yet had a chance to dig into the plan, but have released statements saying that they are “cautiously optimistic.”

Brown, who has been very supportive of collective bargaining since becoming governor, said that the time was right for pension reform because the problem belongs to the state, and taxpayers foot the bill.

However, critics are concerned that the plan will do little to solve the existing unfunded liability, currently in excess of $500 billion. Brown stated that it was at least a step forward. “We will have to deal with unfunded liability as we go along, as we are with PERS,” Brown said, referring to the pressure put on the Public Employee Retirement System, calling their reforms a “smoothing program.”

Republican Plan

Republican Senators Tom Berryhill, Anthony Cannella, and Tom Harman introduced a Constitutional Amendment, SCA 13, last June, which would “both address the gross abuses of public employee pension systems and reform the structure of these systems to ensure that they are actuarially sound and sustainable.” The provisions include requiring current employees to contribute 5 percent more of their salaries  to their pension plans, puts a pension cap in place, and prevent pension spiking and double dipping. (read the SCA 13 fact sheet here)

“I’m encouraged by his willingness to embrace our efforts to craft a sustainable, actuarially sound pension system by pursuing reforms that end pension abuses, reduce unfunded pension liabilities and control ongoing costs,” Cannella said in a statement. Most of the items in Brown’s reform plan are also in the Republican plan.

Pension Crisis Predictions

Radio talk show host, and FOX business news anchor, Tom Sullivan, discussed Brown’s reform plan today on his national radio show. Sullivan, a financial analyst and investment broker who lived in Sacramento from 1975 to 2007, hosted a local financial news talk show for more than 20 years, was the financial editor at KCRA-TV, and still covers California politics and financial news.

Today, when discussing Brown’s reform plan, he addressed many of the same issues that others are talking about – California’s unfunded liability, gross pension spiking and double dipping. But Sullivan gave perspective as he told about other states that have imposed pension reforms, but are currently under legal attacks from unions.

The Florida teachers union, the Florida Education Association, and the AFL-CIO,  are suing the state claiming that it is unconstitutional to force employees to contribute to their own pension plan. The state asked for a 3 percent contribution from employees, according to Sullivan.

Wisconsin, Michigan and Ohio are all facing lawsuits from unions over pension reform laws. Wisconsin has put a freeze on across-the-board raises for state employees, but will make exceptions for merit-based raises. Ohio Governor John Kasich put an end to collective bargaining, and is facing a ballot initiaitve to repeal the law. Michigan switched to a 401(k)-style public pension plan. Reports say that it has saved the state nearly $4.3 billion in unfunded pension liabilities.

Sullivan has been predicting this pension fallout for years. “When you get outside of the market range, it won’t work – the plan will fall apart,” Sullivan said.

Support For Pension Reform Plan

Cannella said he would support Brown’s plan and encouraged the Governor to send it to the Legislature. “The Governor’s proposal appears to be a step in the right direction – and one that I would support. I urge Governor Brown to put these proposals before the legislature immediately, so we can vote on the measures as he laid them out today.”

However, I don’t think Cannella, Berryhill and Harman will be supported by Senate Pres. Pro Tem Darrell Steinberg, D-Sacramento. Steinberg was an employee rights attorney for the California State Employees Association from 1985 until 1994. And Assembly Speaker John Perez, D-Los Angeles, is the former Political Director for the  United Food & Commercial Workers in Los Angeles.

With the leadership of both houses of the Legislature having strong union ties, the push back to pension reform by unions in California will be legendary. And I think Brown already knows it.

Watch for Act Two of California’s pension reform drama, starring California trial lawyers… coming to a theater near you.

OCT. 27, 2011