The California State Employees’ Retirement Fund (Calpers) finally released a response to recent allegations that have been swirling around political circles in California in recent months questioning their fiscal management and past track record, particularly with regard to SB 400 from 1999.
But the statement proposes no viable solutions and essentially restates their commitment to a failed pension system that literally has the potential to bankrupt the entire state if corrective action is not taken.
The statement illustrates the great disconnect between the “business as usual” approach of the Calpers board and the urgent action that needs to be taken to shore up the pension giant which is now projected to have unfunded liabilities in excess of $150 billion—a 50% increase from 2014—due to massive investment losses in 2015 and 2016.
“The recent back-and-forth debate over pensions for public employees always lands on important issues like employer contributions and discount rates. Lost in the discord, though, is what’s ultimately at stake: the financial future of millions of Americans,” according to the statement.
“Even as fiscal conservatives, we are committed to defined benefit plans. We strongly believe everyone should have a secure retirement. But we’re also committed to honestly and openly tackling the financial issues we face. The continued focus on the past distracts from all the work we’ve done to tackle the future head on,” concludes the statement.
The reference to the debate over SB 400 comes in direct response to a major article, titled “The pension gap,” published by the Los Angeles Times and CalMatters on September 18 which, along with a planned series of articles on the pension issue, has dramatically increased the amount of media scrutiny focused on the issue in recent weeks.
I have been trying for months to get Calpers to respond to the events that led up SB 400 and the events that followed, but it’s a bit different when the LA Times publishes a major expose on the issue where former Governor Gray Davis said signing SB 400 was a mistake.
The LA Times and other prominent columnists such as Dan Walters and Dan Borenstein have stepped up their criticism of Calpers in recent months because Calpers has failed to take corrective action on their own.
Calpers continues to talk about how they are committed to fiscal sustainability but they will not consider any action that will actually provide for fiscal sustainability.
The simple truth is that Calpers is insolvent but incapable of taking any action to curb the skyrocketing of unfunded debt due to the massive pension expansions, including retroactive unfunded benefit increases, for the state’s public employees.
And now they want us to just move on from dwelling on the bill that actually created the problem to begin with, which is now estimated to be $150 billion for Calpers alone, and more than $1 trillion on a statewide basis.
Calpers shrugs aside consideration of changes to the discount rate, and employer contributions, while failing to even mention employee contributions, but these are the only options on the table to solve the problem, unless benefits are reduced.
Calpers says they are committed to the same failed system and governance that has gotten us to where they are, but that we should just forget about the past because they have good intentions for the future. This is not an agency that can be trusted with any more taxpayer dollars and the further they take us down the path towards fiscal insolvency, the harder it will be for state and local governments to recover.
The simple facts are that SB 400 expanded public employee benefits to a level that few if any public agencies in California can afford, and set up a bogus investment scheme that would supposedly pay for these benefits which commonly run into six figures for many public employees and allow for early retirement at age 50 or 55 in most cases.
Worker contributions are extremely small, and public employers are increasingly asked to make contributions that far exceed their ability to pay. But the system is still sinking, and Calpers is doing nothing about it except for say that we should focus on the future and protect the retirement for 1.8 million public employees.
These public employees are not going to have a financial future at some point, because Calpers is going to run out of money and leave these employees without any retirement.
Of course, taxpayers will be asked to foot the bill to bail out Calpers, but once the crisis hits who knows what will happen, taxpayers may just cut and run and many public agencies may either just quit making their Calpers contributions or just go belly up altogether, leaving public retirees high and dry.
In the end, a sustainable retirement plan is better than a bankrupt retirement agency, but in the meantime Calpers would rather just bide time until somebody else has the courage to act or the system actually begins to collapse.
Governor Jerry Brown (D) has proudly ushered in a new era of “coercive government” and “drastic” action to address climate change but he can’t get his own union cronies to lift a finger do something about gross fiscal mismanagement at Calpers which poses a far greater threat to the state's future.
That’s definitely not an example of global leadership and a political legacy that anybody should be proud of.
David Kersten is the president of the Kersten Institute for Governance and Public Policy. He is also an adjunct professor of public policy at the University of San Francisco and an independent consultant on public policy issues, particularly fiscal issues.