It’s budget time in Sacramento, and that means another round of pension bashing from critics seeking to crack the nest egg of California’s working families.
The budget picture shows the state’s economy in recovery, and the state’s two largest pension funds performing far above the annual rate of return from their actuaries. But even this turnaround isn’t quieting those who seek to undermine retirement security by raising hysteria over so-called unfunded liabilities.
Unfunded liabilities are cyclical and better measured as a percentage than on a dollar basis. Pension critics are willfully ignoring the long-term nature of pension funding, seeking an opportunity to turn more public dollars over to their Wall Street cronies. The fact is, the biggest increase in unfunded liabilities was due to the fiasco caused by irresponsible Wall Street bankers gaming the system. And today, thanks to the economic turnaround, the status of retirement funds (on a percentage basis) is better than it was in 1980.
Pension critics say the modest rate of return set by the state’s two largest pension funds is unrealistic. A simple glance at actual data indicates the estimates of the professional actuaries at these multibillion-dollar pension systems are a lot more accurate than the host of ivory tower pension critics who have been crying wolf for the past few years.
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Pension plans are designed to be funded over the long term. Variations in funded status are expected, and over time the highs and lows of the market even out.
In January, the California Public Employees’ Retirement System announced the return on its investments for the year – a whopping 18.4 percent. That’s higher than last year’s rate of 16.2 percent. The gains increased the fund’s three-year average to 10.4 percent. The target return rate, set by the CalPERS board, is 7.5 percent.
Most of the inflated liability numbers we are seeing are remnants of the Great Recession working their way through the pension system. Since then, employers and employees have increased their contributions to the pension systems, and the stock market has rebounded, boosting the investment portfolios of the large public pension systems.
Gov. Jerry Brown has said he wants to address the issue of post-retirement health benefits during the next round of collective bargaining with public employees.
Nobody is more interested in retirement security than the working families who earn and receive those benefits. As we have time and time again, public employees will sit down with negotiators from the administration and work together, in good faith, to further fortify our retirement systems.
But Brown understands what the pension hawks don’t: Any changes made to the current system should be based on a thoughtful understanding of facts instead of a misinformed debate drummed up by activists seeking to willfully mislead the public into reacting so they can line the pockets of Wall Street investors.
Public pensions are the only source of retirement for 30 percent of public employees, since they do not receive Social Security. Pension plans also play a vital role in decreasing poverty among older Americans, according to the National Institute for Retirement Security.
Concerns about pensions prey on our fears about the overall state of the economy. It is encouraging that more and more of our leaders are starting to address the fact that, even in recovery, the American economy is not working for everyone. The gap between the rich and the poor continues to grow, and millions of Californians are struggling to make ends meet.
Retirement security will be an increasingly important issue as we prepare for the largest-ever population of retired Californians. Instead of pitting groups of low- and middle-class Californians against each other, we should all be engaged in a thoughtful discussion about how to ensure retirement security continues to be part of the California dream.
Mike Durant is president of the Police Officers Research Association of California.