A growing mountain of evidence points to the need to reform public employee pensions in California.
The latest signs came within the past week as public pension systems reported meager returns on their investments. This means cash-starved state and local governments probably will be forced to shovel more dollars to pay for retirees’ benefits in the future.
Monday, the giant California Public Employees’ Retirement System, or CalPERS, the nation’s largest public pension fund, reported it made a 1 percent annual profit on its investments in the latest fiscal year. That was far lower than CalPERS’ official forecast of 7.5 percent.
That disclosure followed an announcement the previous week from the California State Teachers’ Retirement System. CalSTRS reported making 1.8 percent on its investments in the fiscal year that ended June 30, well below the organization’s 7.5 percent official forecast.
In Ventura County on Wednesday, similar disappointing news was revealed. The Ventura County Employees Retirement Association, or VCERA, said it had a 1.3 percent return on its investments in the last fiscal year. That’s just a preliminary figure and the final number might be as high 1.5 percent, officials said. Either is far short of the official forecast of 8 percent.
(This month, coincidentally, the trustees of VCERA approved a proposal to lower the target figure to 7.75 percent on grounds that 8 percent seems unrealistic.)
As some officials like to point out, retirement systems have posted double-digit returns in good years. They caution against rushing to try to gauge the full effect of these latest one-year returns.
But what is already known about pension problems is sobering. Pension costs for state and local governments have grown dramatically over the years. They’re gobbling up a larger share of government budgets while other public programs and services are starved for dollars and are being cut back or eliminated.
And the outlook is troubling. Ventura County’s unfunded liability for pensions is between $775 million and $1 billion; CalPERS has about $85 billion in unfunded liabilities and CalSTRS has about $64.5 billion.
At the state level, Gov. Jerry Brown has offered a 12-point plan to reform pensions. Republican lawmakers soon endorsed it, but Democrats have been slower to come around. The governor’s plan would raise the retirement age, increase workers’ contributions to their pensions and force other changes. The administration says the changes could save the state between $4 billion and $11 billion over the next 30 years.
At the county level, employee contribution toward their own retirement also have increased, and policies have been adopted to limit “spiking” — boosting a pension through actions a worker can take during the final year of employment.
More needs to be done, both locally and at the state level. The governor’s plan and local reforms are only a start, but it is vital to begin in view of these increasingly heavy public liabilities.