California’s public pension crisis is bad and getting worse
The state’s largest pension fund on Tuesday shot down a pitch from a Republican lawmaker who wants it to study how much money it could save by cutting benefits for retired public workers.
Sen. John Moorlach of Orange County in July wrote letters to CalPERS board members – Richard Costigan and Dana Hollinger – making two touchy requests for the pension fund.
In one, Moorlach wanted CalPERS to estimate how much money it could save by temporarily suspending cost-of-living adjustments for retirees. CalPERS has different retirement plans that allow cost-of-living adjustments of 2 to 5 percent for its pensioners.
In the other, Moorlach asked CalPERS to look at reducing benefits for current workers and retirees by moving them into the less generous plans public agencies began offering in 2013, after Gov. Jerry Brown signed a pension reform law.
Moorlach submitted bills this year that would have carried out those ideas, but they died in the Democratic-controlled Legislature. A dozen local government leaders attended this week’s CalPERS meeting and implored the fund to study Moorlach’s requests.
They say they’re struggling with fast-rising pension costs, which could double over the next five years in some communities, and they want the information so they can negotiate contract changes with their unions.
“None of us are interested in negotiating with our bargaining units for something that takes away from them and doesn’t solve the problem,” said Phil Wright, West Sacramento’s human resources director.
City governments have drawn attention to their pension costs since CalPERS last year voted to lower its expected investment return rate, compelling government agencies to kick in more money for their employee retirement plans.
“It’s a fire station. It’s all of my parks and recreation and all of my library,” said Lodi City Manager Steve Schwabauer, who expects his city’s pension costs to rise from today’s $6.5 million to $13 million by 2022.
A group of state union leaders countered that both of Moorlach’s requests contemplate changes that would undo pension benefits that were promised to current workers and retirees. That means the proposals violate the so-called “California rule,” the legal precedent that makes pension promises virtually untouchable.
“You should not be doing research on things that are just plain illegal,” Jai Sookprasert, a lobbyist for the California School Employees Association, told the board.
CalPERS in the past has looked at how suspending cost-of-living adjustments would affect the pension fund. Freezing them would improve pension plans for public safety employees by up to 18 percent, and for other employees by up to 15 percent, according to CalPERS.
Today, CalPERS is considered underfunded because it has about 68 percent of the assets it would need to pay all of the benefits it owes immediately. That number sets off alarms for Moorlach and others who worry public agencies won’t be able to make good on their debts.
“We’re 32 percent off,” said Hollinger, who has asked CalPERS actuaries to study how cost-of-living adjustments affect the fund. “I’m worried about the future of all our hard-working constituents who earned a pension. I want to make sure the money is there for them.”
The CalPERS board did not vote on responding to Moorlach. Instead, a majority of members criticized the requests, making clear that a motion to respond to Moorlach would fail. Several CalPERS members and union advocates suggested the data would be used one day in a political campaign targeting public employee pensions.
“I love data, but I’m not sure I want to help write the bullet point for the initiative,” said J.J. Jelincic, member of the California Public Employees’ Retirement System Board of Administration.
Added CalPERS President Rob Feckner: “We’re being asked to fund somebody else’s pet project.”