If you didn’t know any better, you’d think CalPERS is the source of all California’s ills: higher taxes, bankrupt cities, reduced public services, lavish pensions – the list goes on. We’ve even been blamed for failing to catch the fact that Wells Fargo employees were creating fake bank accounts.
There’s undoubtedly a cost to pensions. And as a member of the CalPERS board and a committed fiscal conservative, I was just as eager as anyone to understand the costs and inner workings of the system. But what has surprised me during my six-year tenure on the board is how the finger-pointing and outright criticism of CalPERS and its leaders is often misplaced, misinformed and too often even mean-spirited.
It does little to advance the legitimate discussion we should be having about public pensions – and about retirement security.
Hear me out. For years, media critics and policymakers have chastised us for using investment-return assumptions they said were too high, while at the same time they complained about rising pension costs. So in December, we reduced those return assumptions, which are often called the discount rate, a necessary and responsible move given that financial experts everywhere believe we’re stuck in an era of slow growth.
That move, however, comes with real costs – to many public workers and to the more than 3,000 employer partners who contracted with CalPERS to deliver the benefits they promised their employees.
What did some of these critics say after the rate was reduced? That our decision was a shady deal, cut in a proverbial smoke-filled back room, that boosted costs in unexpected ways, resulting in increased taxes or cuts in services.
But here’s a fact none of us can escape: Discount rates and pension contributions are inextricably linked. Cutting the rate increases pension contribution costs – that’s how the math works. And that’s why the decision to reduce it is so difficult and why it was made only after carefully reviewing and thoroughly analyzing the current economic climate. You can’t have it both ways. You can’t beat the drums for a rate reduction and then unleash an onslaught of criticism and complaints when we do.
We need to hold local elected officials accountable, too. The pension benefits that public employees receive didn’t just appear magically in public agency budgets overnight. They were bargained for with all parties at the negotiating table, and the agreements were approved by elected leaders.
Go back to what I wrote just a few paragraphs ago – the local agencies contracted with CalPERS to deliver the benefits that they promised their employees. Elected officials and city managers made the decision what to offer their workers in retirement – and it’s wrong now to think that CalPERS can just invest its way out of their actions.
CalPERS doesn’t control the benefits public employees get. Public agencies and elected members of school districts in your community do.
Pensions are a shared responsibility. Employers and employees have been contributing together ever since CalPERS first opened its doors in 1932, eight years before the first Social Security check was issued. Every payment CalPERS has made to a retiree in the past 85 years has helped them achieve some measure of financial security in their retirement.
As a CalPERS board member, I worry about fulfilling the benefit promises made to firefighters and forest rangers. All of us, whether we work in the public sector or in private industry, deserve financial security in retirement. We’re passionate about making that a reality.
Richard Costigan is a CalPERS Board member and former deputy chief of staff to Gov. Arnold Schwarzenegger. Costigan can be contacted at firstname.lastname@example.org