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By KEVIN McCALLUM
THE PRESS DEMOCRAT
An insurance expert told Santa Rosa’s pension reform task force Thursday that the city’s soaring pension contributions alone won’t be enough to dig it out of the $101 million hole created by richer benefits and steep investment losses.
Instead, the city ought to consider giving the California Public Employees Retirement System more than the millions the city pays annually to fund the retirements of current and former employees.
“What it means is you are paying the amount CalPERS is asking you to pay but you really aren’t paying enough,” John Bartel, an actuarial consultant, told the 11-member group during a three-hour session that was heavy on data and light on good news for the city.
Bartel didn’t say how much more the city should pay, and acknowledged the suggestion is “not popular” with many of his cash-strapped public agency clients. The city already is facing sending $3 million more to CalPERS next year than it anticipated. This year the city’s total pension costs stood at $23.5 million, said chief financial officer Laurence Chiu.
Bartel warned the group that the city faces serious financial challenges with its pension obligations. “You’re going to hear me say some things you all might not want to hear,” Bartel said.
The task force is charged with giving the city council some options for reigning in pension costs, which are rising sharply as the number of retirements increase, retirees are living longer, and investment losses from the 2008 and 2009 stock market collapse require the city to boost its contributions.
Bartel didn’t have’s news wasn’t all bad. He said he didn’t consider the state’s pension system to be in a crisis. It’s problems aren’t so severe that the state should consider switching from a defined benefit program to a defined contribution plans, such as the 401k plans common in the private sector, as some have suggested.
“Just because things are not looking good … is not a reason to junk the retirement system,” Bartel said.
There also are signs that the strengthening stock market will continue to make up some of the investment losses. After enduring declines in 2008 and 2009 of 5 and 24 percent respectively, CalPERS experienced a 13 percent investment return last year and is on track for 15 percent returns this year, he said.
But even a long bull market likely won’t be enough to offset the increasing liabilities, Bartel said. Assuming robust 15 percent stock market returns, double what CalPERS projects, Bartel expects the city’s CalPERS contribution rates – the largest and most volatile component of the city overall pension costs – to rise for several years before stabilizing to between 19 and 34 percent of salary costs by 2017.
But if investments returns lag between half a percent and 3.6 percent, the city’s contributions would skyrocket from 28 percent to 46 percent of salary to make up the difference. That doesn’t include the payments on bonds sold to fund the switch to a richer retirement benefits in 2003, nor does it include the city’s costs to pay what would otherwise be the 9 percent employee share for public safety workers.
Allowing that gap to grow between the plans’ assets and their liabilities only pushes the costs into the future, he said.
“It does create generational shift and it means future generations are likely to have to pay more. In my opinion, that’s just not a good thing,” he said.
The unfunded liability as of 2009, the latest data available from CalPERS, was $101 million for the three separate plans the city has for its regular workers, police officers and firefighters. Bartels did not say so, but his charts indicate the current funding gap swelling to over $160 million.
Councilmember Scott Bartley, chairman of the task force, said he was encouraged by the presentation because it showed him there are things the city can do, such as implementing a two-tier system or requiring public safety employees to begin paying a portion of the contributions the city now pays on their behalf, to begin to manage the problem locally.
“We have a lot of control over what we need to do,” Bartley said.
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Here’s a short interview from this morning on CNBC with the CalPers Chief Investment Officer.
In his tenure he has not hit the 7 3/4% target and the interview does not fill me with confidence that he will in future.
His solution?
Betting on emerging markets.
My conclusion?
We the taxpayer will have to cover his shortfalls.
http://www.cnbc.com/id/15840232/?video=1846297884&play=1
Today, March 16, the Retirement Board in Mendocino County fired their longtime actuary, Buck Consultants.
Underlining the urgency of the situation, Buck Consultants was immediately replaced by the Siegel Company, who was awarded a no-bid, sole source contract.
Retirement Board member, Kendall Smith, who also chairs the Mendocino County Board of Supervisors, said she felt “misled” by Buck Consultants, and she characterized their work as “sloppy”.
Exhibit #1: Approximately $9.6 million in county contributions were diverted from the pension account, and covered up by creating a fictitous asset called “unrealized actuarial gains”, which were anticpated gains in the stock market that were not, of course, ever realized.
Also, the Retirement Board issued a Request for Proposals for a new auditor. Apparently, our current auditor — an independent contractor, Jim Slig — will probably be replaced.
Does any smell a rat?
To be more precise, does anyone think that perhaps Buck Consultants might be a scapegoat?
A scapegoat!
Why do I suggest this? Because Buck Consultants did nothing except to act at the explicit direction of longtime, former pension administrator and county treasurer, Tim Knudsen.
Knudsen ran our retirement system like a private fiefdom.
Question: Will District Attorney, David Eyster, convene a criminal grand jury to investgate Knudsen?
If not — a conflict of interest may exist due to Eyster being a member of the retirement system — will Eyster refer the matter to the California Attorney General?
Question #2: When will the taxpayers of Mendocino County wake up? When is our Day of Rage?
@John…Yes, God willing. It sounds like you are paying a high price for something you may never be able to use. Paying 18% into your pension for 3% @ 50 but needing to stay until 55 or 60 is a high price. Good Luck.
@ WELL?,
We don’t actually physically hand over 18% due the the agreements that have been made. I wish we did at this point but the City Wanted to pay it FOR us rather than give us the raise and then have us give it back. It saves them a lot of money that way. However it is deceiving to the public due to the accounting when the city claims they ‘Pay for the benefit of the employee’. All that means is that they are administering our money for us. Kind of like a broker.
As for my retiring at 50 … I can but would recieve less than 50%. God willing I will be here until at least 55 or 60.
It does need to be said that in this line of work statistically above age 50 injuries tend to increase dramatically.
USA Today, March 1st of this year:
“Public employees in 41 states earn higher average pay and benefits than private workers in the same state, a USA TODAY analysis finds. The analysis of government data found “that public employees’ compensation has grown faster than the earnings of private workers since 2000. Primary cause: the rising value of benefits.”
Read more: http://www.businessinsider.com/public-employees-paid-more-than-private-workers-in-41-states-2011-3#ixzz1GPnHQb92
Hey Jim…
Not wanting to believe a study is not the same as a study having incorrect data.
Be very clear: municiple employees with the exception of police and fire have gone several years now that started with no wage increases and evolved into wage reductions.
And you need to read some of the local news around, many, many non-safety public employees have lost their jobs in the last few years locally will many more to come.
Non-safety public employees ARE feeling the pain along with everyone out there. Their pensions are what get focused on, but how come it was never a big issue until the economy started going south? Could it be that although it’s definitely part of the issue it’s not the BIG issue that should be looked at.
If this state, and others, would pass a law that could keep UNION BOSSES (and big business for that matter) & POLITICIANS away from each other only good things would come.
The typical union worker is out there doing their job just like everyone else. It’s not them that is the problem.
When politicians are only beholden to the people and not the money of special interests like UNIONS and BIG BUSINESS, these problems will be reduced greatly.
no tyaxpayers, no public employees with pensions
they onbly think of them selves rather then the health of the city county or state
public employees are cooking the goose
@John…Do you actually hand over 18% from your gross monthly check or defer 18% from future raises based on the three agency average? Was it worth it? Can you actually financially retire at 50? Has anyone in your Department under the rank of Sergeant ever have enough years in by 50 to make that work? Isn’t the actual age of retirement around 53-55 before you have enough years in to make the 3% work? Wouldn’t you rather have that 18% in pay for 30 years and negotiate 3% @ 55 ? That would probably close this problem, at least for S.R.
I don’t have any problem with public employees getting a better pension than private sector employees. My own personal dealings with public employees here in Sonoma County, whether they be Firefighters, Police Officers, or City Planners has been very positive, and I think they deserve a good pension. However it is not fair to stick future generations, or future budgets, with the tab for supporting today’s employees. We need to have a pay-as-you-go system for public employees, I hope this system is generous and on par with the private sector in terms of overall benefits.
@Jim – How much do you make as an auditor? What do County auditors make? If you exclude Police and Fire, which do not really have private sector equivalents, and then look at the rest of public employees, you will find that public employees make less. It is probably true that non college graduates make more in the public sector; there is a sense that public employees should be paid a living wage, so you don’t see many jobs paying less than $15-$20 an hour. On the other hand, public sector employees with college degrees make less than the private sector. In technical fields, public sector employees make considerably less than the private sector. But as you say, there are (or atleast were) additional benefits to working in the public sector, including decent health and retirement benefits, along with security. Recently, there has been a decline in the quality of health benefits and a higher share of cost paid by the employee. Also, job security is no longer what it was – many of us have been laid off or bumped to lower paying positions in the last five years. Both the County and Santa Rosa have lost about 20% of their workforces. I understand that it has also been hard in the private sector, but if you look at job growth, it has been positive for the last year in the private sector, but still negative in the public sector. In the last report I saw, there was a net 200,000+ growth overall, but a loss of 30,000 public sector jobs. It is also true that median salaries have been dropping over the last 10 years, and pensions have been getting worse. This at a time when overall productivity has been rising…so where has all that extra profit gone? To the wealthiest few. Instead of attacking public employees, who have been able to hold on to middle class status, why don’t you attack the wealthiest, who are sucking the life out of this country. The last time the distribution of wealth was so lopsided was back in 1929…
The public employees sure are out in force on this forum. What did I tell you about them being well organized? Special interest groups are always well organized and try to deceive the general public because that is the only way they can prevail when they are a tiny proportion of the population.
What I hear is a lot of private sector employees who have been screwed by the markets, their employers, and deregulatory Republican economic policies.
Why not form a union and negotiate for better salaries and benefits? Or do you WANT to kiss management butt for the rest of your careers?
The PERS system and all 401(k) accounts have been screwed by the resulting stock market losses. This had better be a temporary condition or we’re all in trouble.
So, as in Wisconsin and Ohio, republicans are blaming the employees for their own idiocy, supporting unwinnable wars and supporting the corporations that profit from them, and the contributors to their campaigns.
What is wrong with this picture?
Middle class people should hang together, otherwise we hang separately.
This isn’t Ohio or Wisconsin. California Sheeple voters follow the pied piper of the fat cat democrats. They set the budgets, they approve the contracts. The sheeple who vote them in don’t have a say. They will raise your taxes and support the unions. Always have, always will. All your griping about vote this and vote that is just venting. No substance. The politicians make the laws, who are their best friens? I may not like it, that’s a reality check for you.
The claims that public safety doesn’t pay their share are False.
Twice we have purchased a better retirement package with our salaries. 1997 & 2003 we bought 3% @ 50 with 9% of our salary. That’s 18% we pay into PERS. The city documents it funny to show that they do but the truth is they do NOT! The city’s share is the rest which is what fluctuates with investment returns from PERS. In the early 2000′s they were able to take a ‘Pension Holiday’ due to the excellent returns by PERS investments. Had they continued to pay a flat rate they would not be in the situation they are in now.
First off, I don’t believe the studies regarding the pay of private vs public employees. I’ve been an auditor for nearly 15 years and have looked at payroll for industry and public (and still have the data). Public employees make more for the same job. They get guaranteed raises regardless of their performace. If private workers don’t do the job they get canned. When a company goes on hard times people get laid off. Public employees don’t face these same issues.
Secondly, if public employees contribute to their retirement, at whatever rate, why not move them onto a 401k like the majority of workers. We don’t have guaranteed retirements like public employees do. That 9% contribution doesn’t equate to what they collect. Look at the former chief of SFPD…her pension is $226K/year starting now, at age 53. She never made more than $186K/year when she worked. HUH?? That’s ridiculous.
If public employees want to claim 9% is enough of a contribution, let them put it in the market like the rest of us and ride the ups and downs. We have no guarantee. No one should, especially on the backs of us who pay for it.
brown knows what to do, something he tried last time anybody remember Prop 13
Note to Local Municipalities of California :
You know what you must do.
Ramp up your marketing campaigns calling for higher taxes as a green smart sustainable alternative (Noreen already floated it).
FUBAR
PS > Can’t wait to capture the “Entitled Going Wild” this Spring. I can hear the chants … “Tax Us More, Tax Us More…”
most employees in the calpers retirement system do pay 9% of their income into the system. Then they retire with a % of their annual salary, usually 2,2.5% of their salary per each year worked. So, if you work for 30 years in the system, you could retire at at 60% to 80% of your salary. The system is based on the employee and their employer investing in the system. When the economy was great the cities had no problem taking the excess from calpers and using it to fund whatever they wanted instead of investing the money into reserve accounts. If every employer and employee invested a total of 18% of their salary annually into an interest bearing account , we would all have a good retirement.
Public employees are contributing to their retirements. More than most people!
I agree with Kevin, and I have been saying the same statement over and over. Why does there need to be panels and studies over this when we all know that Public Safety needs to pay their share of retirement and health benefits, they have been on a free ride for a long time and some of these people, if not most, make a lot of money and can afford to pay for these handouts, most of the other labor force makes a lot less and they pay for their benefits.
Do any of you know that SR public employees do not pay into Social Security? So the city does not have to match their SS contributions, they pay into CalPers in place of SS, so either way the city would be paying out into a fund, but I’m sure they would hear complaints about that too.
Public employees make less than their counterparts in the private sector. If you add all of the wages, benefits and retirement earned by public employees and compare that to private sector employees of similar education and experience, studies show that public sector employees make about 7% less than their private sector counterparts. The exception to this is Public Safety employees. They really don’t have private sector counterparts. Folks on these forums talk about unions helping to get friendly candidates elected, but in Santa Rosa, the reality is that the public voted to give Public Safety binding arbitration, which effectively took control of compensation away from the City. The City basically gives Public Safety the average compensation (wages + all benefits)of a list of “comparable” cities. The City could require Public Safety to pay their portion of their pension, but then they would just have to pay them higher wages. The City’s only bargaining chip is to threaten layoffs, which has worked to some extent; Public Safety have given some concessions, but much less than other non Public Safety employees have given and none of the consessions are permanent. If you really want to fix the City’s budget problem, then the public needs to vote to take away binding arbitration.
For those who want to scrap the current system, here is an update. The retirement fund has billions in it. Billions. The 2008 crash effected it, but there are billions in it. No judge would approve a BK for a fund with billions in it until it was out of money. Currently there is no info that it is out of money, just opinion based on numbers that may or may not occur. Judges generally are not reactionary idiots who knee jerk decisions based on a news report or talking head.
In 2009 the public employee unions tried to get a bill through the state legislature (AB 155) that would require local governments to obtain approval from the California Debt and Investment Advisory Commission before the local government could file for municipal bankruptcy. Fortunately it failed. The reason the public employee unions were pushing this bill is that they know that the only way for taxpayers to get out from under the obscene pension burden put on them by public employee unions and the politicians they control is bankruptcy. Private employee pensions are reduced or eliminated by bankruptcy courts all the time. Public employees are too well organized and too well connected to let that happen to them.
It doesn’t make sense to trash pension plans in lieu of more expensive 401(k) plans.
The accruals of benefits are completely different under both types of plans due to the time value of money. The goal (to help fund a retirement benefit) necessarily means you are targeting a retirement age (e.g., age 65). If you want to pay $100 at 65, how will it get funded?
The valuable accruals in a 401(k) plan are in the early years due to their many years of investment earnings. The valuable accruals in a pension plan are opposite (i.e., in the later years). Under a pension plan, a $10 annuity payable at age 65 could be earned by a 25 year old and a 64 year old, but the 64 year old doesn’t have to wait to collect it.
How does this translate into the 401(k) plan being more expensive? 401(k) retirement dollars leave with the young talent that went to work somewhere else. Your retirement dollars are being used to fund the retirements at other employers.
A pension plan encourages young talent to stay with their employer because the best benefit accrual years lie ahead of them. With a pension plan, you are spending your retirement dollars on a targeted, smaller group…the ones you want to retire from your company (or City).
Yes, the current system has its faults. But the wise employer would fix rather than trash it. Solutions do exist.
Scrap the defined benefit program.
Do the math…if a non-union private worker contributes 9%/year to a 401k they wouldn’t have anything near 90% of their salary in retirement. Not even close. Run the numbers and see for yourself. Yet, the Sheeple accept that WE taxpayers should contribute 9% for them. So 9% doesn’t equate to the money taken out (ponzi scheme – retires paid with money coming in from others) and they don’t even pay the 9% that isn’t enough! Unbelievable. The average worker pays 3-5% into a 401k but their taxes fund the ponzi scheme called CalPERS. When are the taxpaying people going to say ENOUGH?? Never, because they are too busy yelling republican or democrat. Instead, they should be focused on them ALL, they are ALL thieves. Vote in someone who will stand up to the unions. Arnold wouldn’t. we know Brown won’t.
Sure, let us taxpayers pay more for the retirement of others. Certainly. I can’t fund a retirement account to even get near the benefits these leeches get for nothing. Just keep bleeding us dry. Eventually the people who actually pay taxes will leave the state. The only ones remaining will be those at the bottom who don’t. That will make those making $40,000 the “rich” (top of the income earners). People are so blind to what is actually happening.
” Just becouse things are not looking good…is not a reason to junk the retirement system” says Insurance expert John Bartel.
I can give you $100,000.000.00 reasons why is should be junked.
This money does not just appear, it is taken from hard working families and small business owners.
It simply is an uncontionable decision to remain with the current system.
Unions have made promises of a flat rate percentage of pay at retirement. The union investments were based on inflated bogus returns and now the taxpayer must fund the difference?
It’s simply not going to happen.
I like the 401(k) idea for government employees. If there’s any extra funds at the end of the year then the gov. can contribute to the employees 401(k), just like big business does. Of course, at the end of the year the gov. will have nothing to contribute to the fund for they will have spent all their monies by the previous January. The result is the employees 401(k) will be solely funded by the employee.
And we don’t need the best of the best in government. Let those people go to Intel.
It’s really a no-brainer, safety is going to have to start contributing into their own pensions. Say, 9% to 11% of base pay.