CalPERS: pension costs may not be sustainable
| Monday, Aug 17 2009 06:00 PM
Last Updated Wednesday, Aug 19 2009 10:36 AM
BY GRETCHEN WENNER
Californian staff writer
gwenner@bakersfield.com
Bakersfield's nasty debate about police and fire pensions could soon be irrelevant. Not the topic. Just the nasty debate.
That's because top officials from CalPERS, the massive state system Bakersfield contracts with, are themselves questioning whether current pension plans are sustainable.
Today a committee of the California Public Employees Retirement System will come up with a plan to gather employers, unions and lawmakers to talk pension reform.
"It's time to take a look at the whole pension issue for government employees," said CalPERS spokesman Edd Fong. "What is an adequate pension? How do you pay for it?"
The stance is a startling about-face for the country's largest public pension fund, which sponsored the 1999 state legislation establishing so-called "3 at 50" retirement benefits for police, fire and highway patrol workers.
Bakersfield adopted the beefed-up plan for safety staff in 2001, and as costs have gone up -- CalPERS touted it as a no-cost perk -- city council members now say it needs tweaking.
Any local tinkering, however, could prove meaningless if CalPERS makes changes to the whole system.
UNSUSTAINABLE?
Plan costs go up and down largely due to investment gains and losses, and CalPERS' fund lost nearly a quarter of its assets in the fiscal year that ended June 30.
Ron Seeling, CalPERS' chief actuary, spoke during an early August seminar about potentially crippling costs, according to a report by Sacramento journalist Ed Mendel on Calpensions.com.
Seeling told attendees unless the market undergoes a significant turnaround, employers will face "decades" of unsustainable pension costs that could run 25 percent of payroll for general employees and 40 to 50 percent for safety staff, Mendel reported.
Robert Melton, a Bakersfield city firefighter and president of the local union -- he just took over from retired Capt. Derek Tisinger -- said he hadn't yet heard from state union officials on the topic, but figures he'll be brushing up.
Alan Tandy, Bakersfield's city manager, said restructuring at the state level could impact local discussions and he'll be watching the issue closely.
Stalled negotiations with police and fire unions should get back on track soon now that the state budget crisis has been settled, he added.
PAY WHAT?
Bakersfield will pay about $18.9 million to CalPERS this fiscal year, which started July 1.
When the city council adopted sweeter pensions in 2001, which included a boost for general employees as well as safety, payments to CalPERS ran roughly half a million.
The city's plans have also gone from boasting surplus assets of $94 million to unfunded liabilities of more than $98 million.
To blame enhanced pensions for all cost and liability increases -- as many critics have done -- isn't accurate.
About 75 percent of rate fluctuations stem from investment gains and losses, said Fong, the CalPERS spokesman.
To nail down what Bakersfield's costs would be now if the city hadn't adopted top-tier benefits in 2001 would require a supercomputer, he said.
But city archives of CalPERS actuarial reports provide one glimpse that shows significant differences.
Two reports were made for the police plan's performance in the fiscal year ending in June 2002, when CalPERS netted returns of 4 percent --less than half of expected results. (The 2002 report was used to set rates for the fiscal year that started in July 2004; the two-year lag allows time for actuarial analysis.)
Under the old plan, 2 at 50, surplus assets of $10.9 million shrank to unfunded liabilities of $7.4 million. The city's payment rose to $4 million, up from $1.7 million a year earlier. As a percentage of payroll, costs shot from less than 9 percent to more than 19 percent.
The numbers were starker under 3 at 50.
Unfunded liability spiked to $25 million, the city's payment to $6.5 million and percentage of payroll to 31 percent.
YELLOW LIGHT
Dwight Stenbakken, deputy director of the League of California Cities, wrote a warning to city officials in early 2000 about hidden risks in the new 3 at 50 plan.
Cities might later wish they had surplus assets used to cover the supposedly zero-cost benefit, "perhaps during an economic downturn," he wrote. If "the investment market turns sour, cities may actually see the large price tag of those enhanced benefits."
Stenbakken was a panel speaker at a late July session with CalPERS' board members and executives when they decided to pursue pension reform.
He also attended the seminar earlier this month where Seeling, the chief actuary, spoke of unsustainable costs.
CalPERS' new tone -- "honest and straightforward" -- is a good thing, he thinks.
But Carroll Wills, spokesman for the California Professional Firefighters, found the comments of CalPERS' chief actuary suspect.
The system, established in 1932, has recovered from past hits and "been sustainable for decades," Wills said.
"It doesn't make sense," he said.
