1. In many cases the pension formula caps out at 30 years, so an employee cannot increase their pension benefits by working more than 30 years. Again, there are many, many agencies that contract with CalPERS, so it’s difficult to make sweeping statements about these types of details.
2. IMHO, the hiring of outside money managers/Wall Street types was one of the biggest mistakes made by CalPERS. This cannot be stressed enough, IMHO. They should have stayed with their original “conservative” investment plan and used only CalPERS employees to manage the funds. This keeps conflicts of interest to a minimum. Just agreeing with the author on this point.
3. The comparisons used here in the employer-portion of the contributions is a bit disingenuous. As pointed out in other threads on this topic, one cannot compare employer contribution rates of today with contribution rates from ~2000. When people were touting the pension boost as being “free” to employers, what is also not mentioned is the fact that employer contributions dropped to ZERO, in many/most cases, during the stock market bubble (much better than “free”!). If you look back over the history of the employer contribution rates, you’ll see that today’s contribution rates are very much in line with historical norms.
4. It’s not just the “retroactive pension benefit increases” mentioned here that are the problem. Before the pension boost, let’s say an employee was counting on a 2.5% @ 55 formula (number of years worked X highest paid year X 2.5%). If they retired in ~2000/2001, they would suddenly get the better formula of 3% @ 55 (annual pay X number of years worked X 3%), but in many cases, the employers charged the newer employees more for this benefit (as they should) while the older/ready-to-retire paid a lower contribution amount during their working years, but got the higher benefit in the end. So they paid less, but got more for it. Also, these are the retirees who are more likely to get retiree healthcare. Most municipal employees who were hired after the mid-90s do not get retiree healthcare. Again, there are many differences between one agency and another, but I worked for one of the largest municipal employers in the state, and they were phasing out retiree healthcare in the mid-90s, as were most other public employers that I’m aware of.
5. The reforms mentioned do NOT only affect new hires. While not as severe, Brown’s pension reforms will significantly reduce pension spiking via various measures, and will increase the *employee* portion of the pension contributions, even for existing employees, but it will be phased in. Also, they are using a three-year average for the formula, instead of using highest/last, which should save quite a bit. They’ve also restricted what can be used as “PERS-able” compensation for the retirement formula.
6. It’s been shown that converting to 401k plans would NOT save that much money because of the cost of converting, legal battles, increased salary costs, and increased recruitment/training costs as the employee turnover rates would increase (pensions being one of the main reasons — if not THE main reason — many employees work *and stay* in a given job).
7. This is an analysis of Stockton’s financial situation and how it got there. The cause of Stockton’s financial problems is not pensions, but the fact that growth rates in revenues, asset values, and investment earnings were grossly overstated (and future liabilities grossly understated, since they are tied together in many cases) because of the boom/bust nature of our economy. When things crashed it hit EVERYTHING at once, truly magnifying ALL of the problems that could possibly be experienced by a public entity at any given point in time.
It is this drive for, and dependence on, excessive growth that I think needs to be addressed at a local and national level. We desperately need to get away from having a financial system that is centered around the Federal Reserve’s money-pumping antics and whether or not we’re in a “risk-on” or “risk-off” environment. We also need to get away from an economy that is driven by and for the financial industry. The boom/bust nature of our economy MUST be addressed, or we will have to re-live this type of crisis over and over and over, again. This problem was not created by public unions, but by Wall Street (and its various appendages) over many decades.
