Getting back to the question “how will unfunded pensions affect the local economy,” I googled the term “san diego pensions” and found a 2010 article that stated the san diego region is on the hook for 45.4 BILLION (in public pensions and related health care costs)
I also googled how many parcels in SD/SD county, and the number I found was just over a million. So if you own a home/condo in the region (on a parcel), your share of the “unfunded” pension debt amounts to about $45,000….
Couple of last news items, it was just reported that CalPERS is no better than bondholders in the stockton bankruptcy
California cities may turn to bankruptcy courts to ease pension obligations after a judge ruled the California Public Employees’ Retirement System doesn’t deserve special protection
1.) Just so you know, EdChoice’s full name is “The Friedman Foundation for Educational Choice.” Why does this matter? Because the “Friedman” behind this foundation is none other than Milton Friedman. Not saying that I think his theories are wrong, as he’s totally correct about many things, just that certain aspects are incredibly damaging our country and its workers. IMHO, many of his policies, brought to life under Reagan, are what has brought this country to its knees.
Milton Friedman has long been an advocate for the public funding of private schools (privatization). There is no question that they want to take down the public pension systems because that is one of the main reasons that people choose public employment over private, and it’s a huge reason for the support and existence of unions. This is why the Privatization Movement is attacking pensions.
BTW, I’ve written many posts on this site — full of facts, data, and research — that show how privatization does NOT save money, nor does it provide better goods/services for the same, or less, money. Even the right-wing think tanks can’t come up with anything to support their views on this. They admit to getting “conflicting results.”
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As for San Diego and its risky bets, note that it’s the public employees and retirees who are asking them to reduce leverage:
The day’s developments marked a significant turn-back in a years-long trend. Since hiring Partridge as an outside consultant in 2009, the pension system has been transferring more responsibility, more staff and more money to him. The agency has also loosened its policies to allow more risk, with more leeway to borrow against current assets to make additional investments, a process known as leverage.
That mix of risk and leverage — uncommon among conservative public pension funds — landed the agency on the front page of The Wall Street Journal this summer, lending weight to concerns some board members have had for some time.
A number of retirees testified in front of the pension trustees on Thursday, pleading with them to dial back the risk and do away with relying on so much leverage to boost returns. Cheers and applause followed most of the testimony.
“The current leverage strategies are too risky and are not yielding the results that were anticipated,” retiree Phyllis Elkind told the board as many in the audience clapped in support.
Some trustees were already convinced the strategy is flawed.
“I think risk-parity needs to say bye-bye, and we need to say bye-bye to it, ” said Dan McAllister, the county treasurer who serves on the board as part of his elected duties.
Unfortunately, they are going to continue outsourcing with them:
McAllister, the treasurer, said it’s unusual for a retirement system as large as San Diego County’s to delegate its investments to a private firm.
“This is an exorbitant amount of taxpayer dollars being spent and is unprecedented in any other county in California,” McAllister said by e-mail before the vote. “I have strongly opposed the adoption of an outsourced government structure.”
Additionally, that propaganda piece from Friedman’s foundation was from 2010. Investment assets have risen significantly since then; they’re at an all-time high:
“SAN DIEGO — The San Diego County Employees Retirement Association (SDCERA) reported an all-time high of $10.1 billion in assets under management with a one-year estimated net return gain of 13.43% that exceeds the 7.75% rate of return needed to fund the benefit for the fiscal year ended June 30, 2014. SDCERA’s investment portfolio generated an estimated one year gross return of 13.82%.”
“In this policy brief, I estimate that
San Diego faces total of $45.4 billion, including
$7.95 billion for the county pension system, $5.4
billion for the city pension system, and an estimated $30.7 billion share of unfunded liabilities for California state retiree benefits. These estimates are made by correcting the state and local pension plans’ figures, which use a too-optimistic assumption that their investments will grow by about 8% per year for the indefinite future.”
In other words, he just pulled some numbers out of his behind and threw them at the wall, hoping they’d stick.
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Here’s the reality:
“Conclusion
Origins and Severity of the Public Pension Crisis
Center for Economic and Policy Research
In the post 2008-2009 economy, public pensions have been the subject of scrutiny as a way to explain budget shortfalls. The main contributor to the current funding challenges facing some public pension funds was the collapse of the housing bubble and the subsequent downturn in the economy and the stock market, not inadequate contributions. Today, public pension plans remain a financially sound and cost effective mechanism for providing retirement benefits.
A number of studies have assumed that pension fund portfolios will earn a return of 4.5% annually; however, neither historical fact nor current data support this assumption.
SDCERA’s average rate of return over the past 25 years is 9.4%. Fiscal year 2013 (which closed June 30, 2013) realized returns of 8.3% and fiscal year 2012 returned gains of 6.5%.”
Now, as for that “$2 Trillion Hole,” many public agencies are already addressing the unfunded liabilities. CalSTRS just enacted a new plan to pay off their unfunded liabilities over 32 years (because they can…because it’s not a DC system) by increasing contributions from all stakeholders. Most of the other pension funds are working on the numbers and legislation to pay off their unfunded liabilities, as well.
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And one final note about something that has not been made public yet is that the retirement age for many employees will naturally go up over the years (in addition to the new regulations under PEPRA, and as contracts are renegotiated) as the employees who do NOT get retiree healthcare (again, phased out by many public employers up to 20 years ago) stay employed longer in order to keep their health insurance. This has the potential to result in huge savings for the pension funds over the years.
