CalPension.com Article on Public Employee retirements
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Mark Burstiner
Jan 24, 2011, 11:47:42 AM1/24/11
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« CalPERS computer system over budget, latePublic employees: the new
‘welfare queens?’
By Ed Mendel
MONTEREY — Are public employees, with the national spotlight on their
salaries and pensions, getting a “bum rap” as the new “welfare
queens?”
That was the view of several members of a panel when the CalPERS board
met on Monterey Bay last week, one of two annual “off-site” meetings
away from Sacramento to take a break from routine committee action and
be briefed on issues.
The CalPERS chief executive, Anne Stausboll, opened the panel on
national retirement security by outlining the gap between what private
sector workers have for their retirement and what they need.
It’s an estimated $6.5 trillion shortfall, she said, dwarfing the
public employee pension funding gap.
Stausboll said there is a growing acknowledgement among policy and
business leaders of a “retirement security crisis,” including long-
term funding for Social Security and Medicare, and CalPERS should
identify its “voice” for the coming debate.
“Our objective is to bring back to you, the board, some time this
spring a broad policy platform for the board to consider taking up in
the national discussion,” she said.
Despite the attempt to set the stage for a discussion about retirement
for everyone, most of the 90-minute panel was about how public
employee wages and pensions are being wrongly blamed for state budget
shortfalls.
The panel began with a Jan. 1 segment of the Rachel Maddow show on
MSNBC that said public employees are the GOP scapegoat for a deep
economic recession caused by the misdoings of Wall Street and bankers,
leading to the housing bubble.
“A $100 billion bad situation (total state budget shortfall) is a
direct result of the hoards of overpaid shiftless pensioners, public
sector workers who are sucking the lifeblood out of the body politic,”
host Chris Hayes said ironically.
It was the lead in to brief video clips of criticism of public
employees and their unions by Steve Malanga of the Manhattan Institute
and two Republican governors, Tim Pawlenty of Minnesota and Chris
Christie of New Jersey.
Hayes countered with several points: Texas, a conservative state with
weak public employee unions, has one of the worst budget shortfalls,
$25 billion over two years.
A study found the average state worker salary is 4 percent less than
the private sector average for the same work, with comparable age and
education. Christie and other New Jersey governors chose not to make
$14 billion in pension contributions since 2004.
“Public sector workers are the new welfare queens in American
politics,” Dorian Warren of Columbia University said in an interview
with Hayes, pointing to an article by Jonathan Cohn in the New
Republic.
“They are an easy scapegoat that distracts us from the real sources of
the problems that are affecting state and local government,” Warren
said. He said the “real villains” are Wall Street, bankers and even
politician promises to workers.
The CalPERS federal lobbyist, Tom Lussier, said he thinks the Maddow
segment is a “good representation of what many of us feel” and is not,
“I think it’s fair to say,” representative of what most of the media
is saying about public pensions now.
“We come to this discussion I think at a time of real unprecedented
attack on the public sector pension model,” Lussier said. “I think
everybody in the room has either seen it, or felt it or certainly
experienced the fact that it has intensified.”
CalPERS met at Monterey Best Western
A former congressman on the panel who specialized in public pensions,
Earl Pomeroy, D-North Dakota, mentioned two recent national newspaper
articles critical of public pensions.
The New York Times said the Securities and Exchange Commission is
investigating whether CalPERS properly disclosed investment risk. A
USA Today editorial said “lavish” pensions add to state fiscal woes.
Pomeroy said a bill by U.S. Rep. Devin Nunes, R-Tulare, requiring
pension funds to report their debt using a lower “risk-free” earnings
forecast, if a state wants to continue issuing federal tax-exempt
bonds, is “hostile action” against public pensions.
He said a similar requirement that private-sector pensions use the
“market” value of assets, rather than “smoothing” gains and losses
over several years, drew bipartisan support in Congress because
advocates said it would strengthen the funds.
As it turned out, Pomeroy said, the change was a “catastrophe” that
may accelerate the end of private-sector pensions. He said
corporations were required to shift more money into pensions, instead
of investments that might help end the recession.
Pomeroy said the U.S. Chamber of Commerce joining anti-tax groups in
supporting the Nunes bill suggests retaliation for CalPERS success in
pushing corporate governance reforms, such as the selection of
corporate boards.
He said the California Public Employees Retirement System, the
nation’s largest public pension fund, has long been known for “best
practices” in operations and investment management.
“You are getting a bum rap,” he said of recent criticism.
Pomeroy said the Boston College retirement center estimated that
states have been spending 3.2 percent of their funds on pensions and
now need to increase the spending to 5 percent.
In an article accompanying the USA Today editorial last week, a
national union leader said state pension shortfalls are the result of
reckless behavior on Wall Street and the failure of politicians to
make proper contributions, not “lavish” benefits.
“It is projected that states must increase pension spending from about
4 percent of their budgets to just 5 percent in the future,” said
Gerald McEntee, president of the American Federation of State, County
and Municipal Employees. “Surely this is manageable.”
Pension contributions in Gov. Brown’s proposed budget for the new
fiscal year beginning July 1 are 4.4 percent of the $84.6 billion
general fund spending. With the retiree health payment, the cost
increases to 6.1 percent.
But the California State Teachers Retirement System and the UC
Retirement Plan, both underfunded, need contribution increases
totaling several billion dollars, which if provided would probably
push the state general fund share to around 10 percent.
The proposed budget expects the state contribution to CalPERS, which
has the power to set the rate, to increase from $3.769 billion ($2.148
billion general fund) in the current fiscal year to $4.14 billion
($2.384 billion general fund) in the new fiscal year.
The CalSTRS contribution, $1.257 billion current year, is expected to
increase to $1.35 billion in the new fiscal year, if an old benefit
formula is triggered. All of the CalSTRS contribution comes from the
general fund.
Unlike CalPERS, CalSTRS cannot set its own contribution rate,
requiring legislation instead. The current rate is 4.5 percent of pay
from the state, 8.25 percent of pay from school districts and other
employers, and 8 percent of pay from teachers.
State retiree health care costs, nearly all from the general fund, are
expected to be $1.394 billion this year, increasing to $1.554 billion
next fiscal year, according to Department of Finance figures.
Last week CalPERS and CalSTRS both reported double-digit investment
earnings for 2010 — respectively, 12.5 percent and 12.7 percent. But
they still have not recovered from losses during the recession and
stock market crash.
The CalPERS portfolio was valued at $225.7 billion at the end of the
year, well below the peak of $260 billion in the fall of 2007. CalSTRS
investments are worth $146.4 billion, below its peak of $180 billion
in October 2007.
A day after the CalPERS panel in Monterey last week, two more articles
critical of public pensions appeared in the national media.
Girard Miller said in his Governing magazine column that local
governments, worried about rising pension costs, are skeptical of
“dodgy” data from CalPERS, which uses a 15-year smoothing for assets,
well beyond the five-year industry standard.
A page-one story in the New York Times said there is a behind-the-
scenes move in Congress “to let states declare bankruptcy and get out
from under crushing debts, including the pensions they have promised
to retired public workers.”
Reporter Ed Mendel covered the Capitol in Sacramento for nearly three
decades, most recently for the San Diego Union-Tribune. More stories
are at http://calpensions.com/ Posted 24 Jan 11
http://calpensions.com/2011/01/24/public-employees-the-new-welfare-queens/
‘welfare queens?’
By Ed Mendel
MONTEREY — Are public employees, with the national spotlight on their
salaries and pensions, getting a “bum rap” as the new “welfare
queens?”
That was the view of several members of a panel when the CalPERS board
met on Monterey Bay last week, one of two annual “off-site” meetings
away from Sacramento to take a break from routine committee action and
be briefed on issues.
The CalPERS chief executive, Anne Stausboll, opened the panel on
national retirement security by outlining the gap between what private
sector workers have for their retirement and what they need.
It’s an estimated $6.5 trillion shortfall, she said, dwarfing the
public employee pension funding gap.
Stausboll said there is a growing acknowledgement among policy and
business leaders of a “retirement security crisis,” including long-
term funding for Social Security and Medicare, and CalPERS should
identify its “voice” for the coming debate.
“Our objective is to bring back to you, the board, some time this
spring a broad policy platform for the board to consider taking up in
the national discussion,” she said.
Despite the attempt to set the stage for a discussion about retirement
for everyone, most of the 90-minute panel was about how public
employee wages and pensions are being wrongly blamed for state budget
shortfalls.
The panel began with a Jan. 1 segment of the Rachel Maddow show on
MSNBC that said public employees are the GOP scapegoat for a deep
economic recession caused by the misdoings of Wall Street and bankers,
leading to the housing bubble.
“A $100 billion bad situation (total state budget shortfall) is a
direct result of the hoards of overpaid shiftless pensioners, public
sector workers who are sucking the lifeblood out of the body politic,”
host Chris Hayes said ironically.
It was the lead in to brief video clips of criticism of public
employees and their unions by Steve Malanga of the Manhattan Institute
and two Republican governors, Tim Pawlenty of Minnesota and Chris
Christie of New Jersey.
Hayes countered with several points: Texas, a conservative state with
weak public employee unions, has one of the worst budget shortfalls,
$25 billion over two years.
A study found the average state worker salary is 4 percent less than
the private sector average for the same work, with comparable age and
education. Christie and other New Jersey governors chose not to make
$14 billion in pension contributions since 2004.
“Public sector workers are the new welfare queens in American
politics,” Dorian Warren of Columbia University said in an interview
with Hayes, pointing to an article by Jonathan Cohn in the New
Republic.
“They are an easy scapegoat that distracts us from the real sources of
the problems that are affecting state and local government,” Warren
said. He said the “real villains” are Wall Street, bankers and even
politician promises to workers.
The CalPERS federal lobbyist, Tom Lussier, said he thinks the Maddow
segment is a “good representation of what many of us feel” and is not,
“I think it’s fair to say,” representative of what most of the media
is saying about public pensions now.
“We come to this discussion I think at a time of real unprecedented
attack on the public sector pension model,” Lussier said. “I think
everybody in the room has either seen it, or felt it or certainly
experienced the fact that it has intensified.”
CalPERS met at Monterey Best Western
A former congressman on the panel who specialized in public pensions,
Earl Pomeroy, D-North Dakota, mentioned two recent national newspaper
articles critical of public pensions.
The New York Times said the Securities and Exchange Commission is
investigating whether CalPERS properly disclosed investment risk. A
USA Today editorial said “lavish” pensions add to state fiscal woes.
Pomeroy said a bill by U.S. Rep. Devin Nunes, R-Tulare, requiring
pension funds to report their debt using a lower “risk-free” earnings
forecast, if a state wants to continue issuing federal tax-exempt
bonds, is “hostile action” against public pensions.
He said a similar requirement that private-sector pensions use the
“market” value of assets, rather than “smoothing” gains and losses
over several years, drew bipartisan support in Congress because
advocates said it would strengthen the funds.
As it turned out, Pomeroy said, the change was a “catastrophe” that
may accelerate the end of private-sector pensions. He said
corporations were required to shift more money into pensions, instead
of investments that might help end the recession.
Pomeroy said the U.S. Chamber of Commerce joining anti-tax groups in
supporting the Nunes bill suggests retaliation for CalPERS success in
pushing corporate governance reforms, such as the selection of
corporate boards.
He said the California Public Employees Retirement System, the
nation’s largest public pension fund, has long been known for “best
practices” in operations and investment management.
“You are getting a bum rap,” he said of recent criticism.
Pomeroy said the Boston College retirement center estimated that
states have been spending 3.2 percent of their funds on pensions and
now need to increase the spending to 5 percent.
In an article accompanying the USA Today editorial last week, a
national union leader said state pension shortfalls are the result of
reckless behavior on Wall Street and the failure of politicians to
make proper contributions, not “lavish” benefits.
“It is projected that states must increase pension spending from about
4 percent of their budgets to just 5 percent in the future,” said
Gerald McEntee, president of the American Federation of State, County
and Municipal Employees. “Surely this is manageable.”
Pension contributions in Gov. Brown’s proposed budget for the new
fiscal year beginning July 1 are 4.4 percent of the $84.6 billion
general fund spending. With the retiree health payment, the cost
increases to 6.1 percent.
But the California State Teachers Retirement System and the UC
Retirement Plan, both underfunded, need contribution increases
totaling several billion dollars, which if provided would probably
push the state general fund share to around 10 percent.
The proposed budget expects the state contribution to CalPERS, which
has the power to set the rate, to increase from $3.769 billion ($2.148
billion general fund) in the current fiscal year to $4.14 billion
($2.384 billion general fund) in the new fiscal year.
The CalSTRS contribution, $1.257 billion current year, is expected to
increase to $1.35 billion in the new fiscal year, if an old benefit
formula is triggered. All of the CalSTRS contribution comes from the
general fund.
Unlike CalPERS, CalSTRS cannot set its own contribution rate,
requiring legislation instead. The current rate is 4.5 percent of pay
from the state, 8.25 percent of pay from school districts and other
employers, and 8 percent of pay from teachers.
State retiree health care costs, nearly all from the general fund, are
expected to be $1.394 billion this year, increasing to $1.554 billion
next fiscal year, according to Department of Finance figures.
Last week CalPERS and CalSTRS both reported double-digit investment
earnings for 2010 — respectively, 12.5 percent and 12.7 percent. But
they still have not recovered from losses during the recession and
stock market crash.
The CalPERS portfolio was valued at $225.7 billion at the end of the
year, well below the peak of $260 billion in the fall of 2007. CalSTRS
investments are worth $146.4 billion, below its peak of $180 billion
in October 2007.
A day after the CalPERS panel in Monterey last week, two more articles
critical of public pensions appeared in the national media.
Girard Miller said in his Governing magazine column that local
governments, worried about rising pension costs, are skeptical of
“dodgy” data from CalPERS, which uses a 15-year smoothing for assets,
well beyond the five-year industry standard.
A page-one story in the New York Times said there is a behind-the-
scenes move in Congress “to let states declare bankruptcy and get out
from under crushing debts, including the pensions they have promised
to retired public workers.”
Reporter Ed Mendel covered the Capitol in Sacramento for nearly three
decades, most recently for the San Diego Union-Tribune. More stories
are at http://calpensions.com/ Posted 24 Jan 11
http://calpensions.com/2011/01/24/public-employees-the-new-welfare-queens/
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