Posted by: Kim_Hamilton on 03/14/2011 05:42 PM
Updated by: thepinetree on 03/23/2011 08:29 AM
Expires: 01/01/2016 12:00 AM
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What’s CalPERS Really Going to Cost Us? ~By David Tunno
Prompted by the growing awareness of the financial impact of public employee retirement plans, the Calaveras County Taxpayers Association has sought data from the County with which to calculate the growing debt created by those plans and the keeper of those retirement funds, CalPERS. Thus far, according to CCTA President Al Segalla, the County’s disclosures have come up far short, including a response CCTA received to a request for information on the CalPERS criteria for determining County retirement contributions. “You are asking for information not documents. The county is in no position to .....
determine the accuracy of information on CalPERS website as it is not maintained by the County, and the County has no legal duty to answer questions under a PRA request.”
CCTA member Darrell Wilburn, MBA and broker for the statewide business brokerage firm Business Team, has taken the lead in attempting those calculations in spite of the shortage of data. His preliminary findings show future debts that have been vastly underreported, unaccounted for on the books and County officials avoiding responsibility for the safekeeping of those retirement accounts. They simply defer to CalPERS.
Using the example of a 60-year-old employee with 37 years of service making $96,050 a year presently (admittedly one of the higher paid employees but 1 of only the 3 records made public by the county) and who retires now, Wilburn’s preliminary report shows that retiree will start making $71,000 a year. Using life expectancy tables (25 years of retirement), that individual retirement plan will cost the county $1.77 million. That’s $48K a year for each of the 37 years of service, not including cost of living adjustments.
Toward that liability of $48K for each year worked, the County contributes 19% of the employee’s salary each year (As an aside, the County only reports a contribution of 7% on the State Controller’s website). CalPERS invests that money as it sees fit and notifies the county of its assumed returns. Come retirement day, the checks start flowing based on a fixed formula; however, any shortage is debt for the taxpayers and shortages, indeed, are what we’re seeing from CalPERS. Nevertheless, the County continues to use those CalPERS statements, not based on the actual, much lower, ten-year average return (ROI). They are also based on potentially higher yield investments that also carry higher risks. If those projections don’t pan out, the County is going to get wholloped for the difference. “Essentially,” according to Wilburn, “there is no incentive for CalPERS to be realistic about its projections, since the County has to try to make good on any shortage.”
For the example above, that shortage is currently over $1 million. “Only a huge increase in profits on CalPERS investments for years to come would change that,” says Wilburn, “and that example is only one of 415 employees.”
It’s a problem not unique to this county, or California for that matter, as a 12/23/10 article in the New York Times indicates. The article (excerpted below) describes the unique actions taken by the city of Prichard, Alabama. Broke and faced with the prospect of denying basic services, Prichard stopped making payments to its 150 retirees.
…Prichard is now attracting the attention of bankruptcy lawyers, labor leaders, municipal credit analysts, and local officials from across the country. They want to see if the situation in Prichard, like the continuing bankruptcy of Vallejo, California, ultimately creates a legal precedent on whether distressed cities can legally cut or reduce their pensions, and if so, how.
“Prichard is the future,” said Michael Aguirre, the former San Diego city attorney, who has called for San Diego to declare bankruptcy and restructure its own outsize pension obligations. “We’re all on the same conveyor belt. Prichard is just a little further down the road.”
Closer to home, the city of Davis is now facing a $1.4 million shortfall due this July, an amount that is expected to grow much larger in the coming years. One of the major reasons was a 24% investment loss by CalPERS in fiscal 2008-2009, which has revealed that 130 California jurisdictions are working on plans to reverse the trend toward hefty contributions to employee’s CalPERS retirement plans. “Credit Davis for addressing the problem now,” says Wilburn, “instead of ignoring it, or kicking the can down the road.”
The CCTA hopes its ongoing efforts to inform County taxpayers of the full costs of the CalPERS retirement system will meet with greater cooperation from the County. In the meantime, the Preliminary Wilburn Report, requests for information and responses from the County are available on the CCTA website, CalaverasTaxpayers.org.
David Tunno and Darrell Wilburn are Executive Council members in CCTA
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