[quote=pri_dk][quote=bearishgurl]pri_dk, can you point me to a link where you obtained this information? If it is already posted on this thread and I overlooked it, can you point me there? Thank you :)[/quote]
Um, the article linked in original post of this thread.
Please spare us the melodrama about the hardships of anybody’s career choice. I come from a family of steelworkers and coal miners. (My father was a electrical utility worker – a job with a higher workplace fatality rate than police officer.) Most of my uncles were promised a pension and got almost nothing when their employers went bankrupt. My father’s job was spared when the steel industry collapsed, so we helped out the rest of our family. That’s how it should work – there’s no certainty in the future and nobody should be forced to bail others out when rosy plans don’t quite work out.
As for me, I’m now too old to become a cop, and way too old to ever “vest.”
But, I promise not to bother you with my anecdotes if you agree not to waste space on this page with yours. Both are irrelevant to the issue presented here.
Like I said before, the fact that I, choose or do not choose a career as a cop doesn’t change the facts in the issue or the validity of my arguments. It it turned out that I was a retired CHP officer, will that make suddenly make all my points more correct? Or are you suggesting that public employees can set whatever salary they choose, and that taxpayers have no say?
So let’s try again:
Who is going to to pay for the $240-$500 billion shortfall?
And just to give some context to the number: That works out to an average of about $150-$312 thousand dollars per CalPERS participant. We effectively have to come up with enough money to buy a house for every one of the 1.6 million public employees in CalPERS.[/quote]
Another thing you might not know: That $500K number comes from a Stanford group who used a 4% (or lower?) return rate, IIRC.
Here is CalPERS’ response to their “study” (done by graduate students):
“Over the past 20 years, CalPERS has earned an average annual investment return of 7.91 percent – which includes the past two years of investment declines. This performance exceeds the pension fund’s actuarial rate of return assumption of 7.75 percent needed to pay long-term benefits.
The study appears to use the yield of the 10-year Treasury bond as the risk free discount rate to estimate the present value of liabilities. The duration of the 10-year bond is approximately 8 years and well below the estimated duration of the CalPERS liability in the study. It would be more appropriate to use the yield of the 30-year Treasury bond as the risk-free discount rate for purposes of such a comparison.
CalPERS does not believe that using a risk-free rate as suggested in the study is appropriate since the fund can earn a premium over the risk-free rate with high certainty by investing in a diversified portfolio with an acceptable level of risk.
The study relies on data when the system had $50 billion less in assets than it has today. CalPERS assets are valued at nearly $210 billion – a gain of more than $50 billion since the market downturn.
The study’s findings are based on a mathematical model that uses current interest rates, which are very low and make liabilities appear to be much higher. That method is inconsistent with the Governmental Accounting Standards Board and current actuarial standards.
The study recommendations are based on bond returns over the past 25 years of 7.25 percent for investment grade corporate bonds, which are only 0.66 percent lower than CalPERS total return of 7.9 percent but with much lower volatility. CalPERS experts believe that this reasoning is flawed. Prospective returns on bonds are much lower today since yields are at an historic low and the return to bonds will equal the current yield to maturity which is around 4 percent for most broad band indices. Also bonds could be more volatile than the past if economic conditions are more uncertain as in the recent period.
The study ignores our diversified investment portfolio that has been time-tested during our 78 year history. If CalPERS had followed the recommended approach in the study, it would have given up billions of investment earnings that have helped finance pensions rather than relying on tax dollars.
Actuarial/Benefit Formula Related
The study misstated some of the benefit formulas in Table 3 and seems to suggest that CalPERS violate the California Constitution by using surpluses to “reduce state debt.” Pension raids were determined to be unlawful during the Wilson Administration.
To adhere to some of the changes suggested in the report, CalPERS would be violating actuarial standards of practice and undo 50 years of governmental accounting rules in favor of an approach that would be “zero” risk.
Funded status should not be viewed as a long-term irreversible trend. A pension fund’s funded status – whether a liability or surplus – is constantly changing, depending on current economic circumstances. It is a snapshot in time that can change dramatically over a fairly short period of time due to the health of the overall economy. Funded status snapshots are useful in showing how far or how near one is to full funding. Experts agree that a funded status of 80 percent is the mark of a very healthy plan. CalPERS notes that the Stanford Report acknowledges that using the data selected, CalPERS was more than 80 percent funded.
Benefit formulas are not set by CalPERS. They are determined through the collective bargaining process, between the employer and the employee representatives. CalPERS recently held the California Retirement Dialogue, and information on the various viewpoints on benefit formulas is available on the pension fund’s website CalPERSResponds.com.”
The study also doesn’t take into accout the fact that retirement ages can change, and contribution ratios can change as well. These things alone would drastically change the numbers used to calculate the “unfunded liabilities” that taxpayers would hypothetically have to pay. Combine this with the return rates that the funds have earned historically, including the past couple of years, and the liabilities are far, far lower than these “shock and awe” numbers.
