How will unfunded “pensions” affect the local economy?

[phaster]

FWIW in todays news paper

CalPERS may lower its return target;
taxpayers may have to contribute more

Experts have warned for years that the state’s largest public pension plan has overestimated how much its investments will earn, leaving taxpayers to pay billions of dollars more than expected.

Now the board of the California Public Employees’ Retirement System is reconsidering. As soon as Wednesday, the fund’s board could approve a plan that would slowly reduce to 6.5% the current 7.5% it says it expects to earn on its investments.

For taxpayers, that seemingly small change is significant.

Under the proposal, the rate would be reduced slowly by tiny increments. Getting to 6.5% could take 20 years.

Many experts believe that even the 6.5% estimate is too optimistic.

The average corporate pension plan now uses a rate of 4% to determine how much money needs to be contributed, according to a recent study by Milliman, a consulting firm.

This year, after several years of double-digit returns, CalPERS earned just 2.4%.

http://www.latimes.com/business/la-fi-calpers-investment-rate-20151118-story.html

[CA renter]

“Fact:

CalPERS investments have earned an average 7.6 percent annual return over the past 20 years and 9.4 percent over the past 30 years.
CalPERS investments earned 13.2 percent in Fiscal Year 2012-13.
CalPERS assumed rate of investment return is a long-term (20 years or more) average. Any given year is likely to be higher or lower than the assumed rate.

May 9, 2014”

https://www.calpers.ca.gov/page/newsroom/myths-vs-facts

This covers a period of time during which we’ve seen two massive bubbles and subsequent crashes, plus a recession that was steeper than any other recession since the Great Depression.

————–

They are trying to be conservative since the Federal Reserve seems unlikely to allow interest rates to “normalize” for some time to come.

Additionally, some of this money will come from public employers, some from public employees (reductions in pay, benefits, etc…as we’ve already seen since 2008), and some from other special interest groups and private contractors.

[Anonymous]

[quote=CA renter]Fact:

[cherry-picked data points published by CalPERS]
[/quote]

And we should believe the tobacco companies when they tell us smoking doesn’t cause cancer.

Because they have “facts” !

[CA renter]

Feel free to double-check their numbers. Get back to us with what you find.

[Anonymous]

[quote=CA renter]Feel free to double-check their numbers. Get back to us with what you find.[/quote]

That’s exactly what the LA times did in the post above yours. They found the CalPERS claims to be bogus and yet you immediately go back to CalPERS to get your “proof.”

Even Jerry Brown is calling bullshit on CalPERS.

You’re link is nothing but a shallow propaganda piece with cherry-picked facts. It makes claims like “state employees don’t receive Social Security” while conveniently omitting the fact that they don’t pay into it either. Another one: “not everyone retires at age 50” because “some start their jobs later than age 20” is also nonsense. The relevant fact is that a 20 year-old state employee will receive their government-funded retirement benefits more than a decade before a private-sector employee would.

The “myth vs. fact” list is clearly written with the intention of deceiving those who are misinformed and/or incapable of basic critical thinking. Apparently it worked on you.

Throughout this debate, every source you cite has ties to the public pension system.

You really don’t seem to understand the concept of an objective source.

Someone cites the LA Times, you counter with CalPERS.

Some cites the WSJ, you counter with something written by a firefighters union.

In other words, haven’t provided any credible data, nor do you seem to even understand the distinction between credible data and propaganda.

[CA renter]

I shouldn’t even be responding to your trolling, but I will do so one more time…

1. The LA Times is more biased than CalPERS, and CalPERS is, one would assume, the original source of the information that the LA Times is citing.

2. The information on the CalPERS site is factual. If you take issue with any of their numbers, please post a credible source showing how CalPERS is lying about these numbers.

3. Yes, you need to learn how to cite credible sources. Specifically, you need to learn about the difference between a primary source, and a secondary source (which is where the spin usually happens).

Good luck!
——–

edited to add: Just looked up Melody Petersen, the journalist who wrote the LA Times article. It’s clear that she has a right-wing, pro-privatization perspective because her other articles about the Military Industrial Complex don’t show the same sort of hawkish stance. To the contrary, they are glowing articles talking about all the jobs that will be created when the govt spends tens of billions of dollars on more war planes that we don’t need, and shouldn’t be building.

http://www.latimes.com/la-bio-melody-petersen-staff.html

Additionally, in that article, she quotes research from the Stanford Institute for Economic Policy Research (SIEPR). Though they claim that they are “non-partisan,” SIEPR was founded by George P. Shultz and Michael J. Boskin, both of whom have been deeply involved with the Hoover Institution.

http://www.hoover.org/profiles/george-p-shultz

http://www.hoover.org/profiles/michael-j-boskin

—–

The Hoover Institution’s purpose and scope statement:

“This Institution supports the Constitution of the United States, its Bill of Rights and its method of representative government. Both our social and economic systems are based on private enterprise from which springs initiative and ingenuity…. Ours is a system where the Federal Government should undertake no governmental, social or economic action, except where local government, or the people, cannot undertake it for themselves…. The overall mission of this Institution is, from its records, to recall the voice of experience against the making of war, and by the study of these records and their publication, to recall man’s endeavors to make and preserve peace, and to sustain for America the safeguards of the American way of life. This Institution is not, and must not be, a mere library. But with these purposes as its goal, the Institution itself must constantly and dynamically point the road to peace, to personal freedom, and to the safeguards of the American system.”‘

– Herbert Hoover

http://www.hoover.org/about/missionhistory

Epic fail, Pri. You still haven’t shown anything that indicates CalPERS was lying about it’s numbers. Nothing.

Try again.

[CA renter]

1. Going through that LA Times article, and it says nothing at all about CalPERS lying about their returns. It says that they will be lowering their return assumptions because the overall investment climate has changed, and pension funds may not be able to meet their existing return targets (because of the Fed’s gross manipulation of interest rates over far too many years -CAR) if there is another crash. They have lowered return assumptions in the past, are evaluating the need to lower them further, and are proactively shifting their risk profile and trying to make more conservative assumptions. This is a wise and responsible policy.

2. I have yet to see Jerry Brown “calling bullshit” on CalPERS. Please include a quote (a real one, not one of your “edited” ones), and cite your source.

3. My link is a link to the original/primary source of the information. The LA Times and the WSJ are secondary sources. You have yet to show anything from the CalPERS site that is “bogus,” as you say.

4. The statement about public employees not earning SS was directed at those who think that public employees earn both a SS benefit and a DB pension benefit at the same time. As a matter of fact, even if they’ve earned SS from another job in the private sector, that benefit that they have already earned from SS is **reduced** if they receive a retirement check from a public DB pension plan.

https://www.ssa.gov/pubs/EN-05-10045.pdf

https://www.ssa.gov/pubs/EN-05-10007.pdf

5. It’s also funny how you think that a 20 or 30-year return history is more “cherry-picked” than a fraction of a single year’s return. You really are dense, Pri.

So far, I’m the only who who has presented credible data from original/primary sources. You are the one who has relied on biased secondary sources.

[Anonymous]

[quote=CA renter]Going through that LA Times article, and it says nothing at all about CalPERS lying about their returns. […][/quote]

I never used the word “lying about their returns” – that’s your distorted interpretation of what you read here.

The LA Times article was about the recent 6.5% investment return assumption announcement by CalPERS. The CalPERS link you provided doesn’t even mention the announcement.

I used the word “bogus” because many observers, including the liberal pro-union governor of the state, called CalPERS out on how they frame their decisions to the public.

The point of the LA Times article is that CalPERS is already in the red and with the recent announcement taxpayers will now pay even more to compensate. Anybody with basic math skills can understand the impact of their recent announcement, yet CalPERS is blowing smoke with propaganda like your link and trying to obfuscate the basic realities.

If you still cannot see how shallow and misleading the CalPERS “myth vs. fact” page is, then I cannot help you.

[quote=CA renter]I have yet to see Jerry Brown “calling bullshit” on CalPERS. […][/quote]

Because you have yet to type “jerry brown calpers” into Google.

Don’t bother doing it now, as you are so blinded by bias that you wouldn’t even “see” the page full of links.

As for the rest of your long cut/paste posts above, it’s all the same tiresome attempts to compensate for quality with quantity.

[CA renter]

LOL! You just keep burying yourself, Pri. You don’t even have the slightest knowledge about this issue, and when someone calls you out on your BS, you resort to more of your trolling.

Good luck!

[EconProf]

In this long-running debate about whether public pension plans will bankrupt us or not, there is one decisive data-point. The government-run pension plans assume a rate of return of near 8% for the indefinite future, while the private sector pension plans assume a rate of about 4%.
The pension plans constructed and run by politicians is keeping present taxpayer and employee contributions low because they want to avoid the pain that being honest would entail. The private sector, company-run plans are forced by their auditors and actuaries to be honest and assume a 4% rate of going into the future. The politicians know they will not be around in a few years, and want to look good only for the next election. The private sector companies have to consider their long-run survival prospects, and they act accordingly.
If the public sector were forced to be as honest as the private sector, many California cities and counties would instantly be bankrupt. As it is, public sector pensions are already squeezing budgets for schools, parks, libraries, etc. across the state, and it is soon to get much worse, all because of the pension promises politicians made.

[Coronita]

[quote=EconProf]In this long-running debate about whether public pension plans will bankrupt us or not, there is one decisive data-point. The government-run pension plans assume a rate of return of near 8% for the indefinite future, while the private sector pension plans assume a rate of about 4%.
The pension plans constructed and run by politicians is keeping present taxpayer and employee contributions low because they want to avoid the pain that being honest would entail. The private sector, company-run plans are forced by their auditors and actuaries to be honest and assume a 4% rate of going into the future. The politicians know they will not be around in a few years, and want to look good only for the next election. The private sector companies have to consider their long-run survival prospects, and they act accordingly.
If the public sector were forced to be as honest as the private sector, many California cities and counties would instantly be bankrupt. As it is, public sector pensions are already squeezing budgets for schools, parks, libraries, etc. across the state, and it is soon to get much worse, all because of the pension promises politicians made.[/quote]

Gotta love the 8% unicorn guaranteed return. Especially when it also counts heavily on wall street’s performance.

[phaster]

To begin

[quote=FlyerInHi]CAr, what you say is so irrelevant.

You can calculate an amount today that equates to a stream of future payments. The only reason that pension funds are underfunded is because past and present contributions are too low in relation to future promises.

[/quote]

then there is an inconvenient truth of the basic concept of the disclaimer that states: “Past performance does not guarantee future returns!”

Seems CalPERS like some mutual fund firms use past performance to distract investors

http://money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/2013/11/21/past-performance-wont-protect-your-investments

Like it or not the world evolves and (economically speaking) there cannot be a status quo (that favors specific sectors like the CEOs and the shareholders of “Big Tobacco” or the “Fossil-fuel industry”)

Actually if you think about it CEOs and the shareholders of “Big Tobacco” and/or the “Fossil-fuel industry” along with “believers” of public pensions share much in common in that there is an interest in keeping the economic status quo AND perpetuating the “DELUSION!”

In other words, “Big Tobacco” ignores the math/science that their product causes cancer, the “Fossil-fuel industry” ignores the math/science that their product contributes to the danger of climate change AND “believers” of public pensions say its benefits are a sacred cow that should not be changed (even with changing “global” economic conditions, fund corruption/mis-management, etc.)

Consider the trait “Big Tobacco” and/or the “Fossil-fuel industry” and/or “believers” of public pensions have in common, WHICH is the need to keep up the PR media “NEWS DELUSION/DENIAL!”

for example w/ “Big Tobacco” you’ll see:

for example w/ the “Fossil-fuel industry” you’ll see:

http://www.npr.org/templates/story/story.php?storyId=5425355

http://america.aljazeera.com/opinions/2015/4/the-long-dirty-trail-of-fake-science.html

with “believers” of public pensions we see the need to spin the corruption, fund mis-management w/in “news media”

recall what happened when the SD public pension fund was in the “news” last year:

[quote=bearishgurl]
Uh, well, I don’t think our fact-skimming newbie, Phaster, had a chance to see this recent piece from the UT (hint: google SDCERA and it comes up first :)):

…. For the past decade, San Diego County and its employees paid 100 percent or more of their annually required contribution to the SDCERA retirement fund. Consistent employee and employer contributions over the years have laid a foundation for investment gains and asset growth. SDCERA’s investment strategy helps the employer’s budgeting process and stabilizes employer costs by reducing the volatility of returns and steadily achieving the rate of return needed to fund the benefit.

At $10 billion, the SDCERA fund is able to pursue certain investment strategies that larger plans like CalPERS cannot access and smaller plans do not have the resources to deploy. SDCERA’s investment strategy is purposely designed to be no riskier than traditional pension fund asset allocation strategies. Risk-parity and trend strategies, which utilize leverage, are limited to 25 percent of the SDCERA portfolio, not the entire set of portfolio assets. The other 75 percent of the portfolio is managed using traditional asset allocation and rebalancing approaches…

http://www.utsandiego.com/news/2014/aug/15/sdcera-pension-investment-strategy/

see also: http://sdcera.com/investments.htm%5B/quote%5D

eventually the fundamental nature of math/science prevails and the un-sustainable facade “DELUSION!” can not be kept up/masked over:

[quote=Wall Street Journal]
San Diego County Pension Chief to Resign

By Dan Fitzpatrick
March 19, 2015 6:22 p.m. ET

The chief executive of San Diego County’s pension system announced he would resign at the end of the month, bringing fresh turmoil for the $10.4 billion fund.

San Diego County Employees Retirement Association said in a statement that CEO Brian White and the board had “amicably agreed” that Mr. White’s tenure of nearly two decades would end March 30. David Wescoe, former head of the city of San Diego’s pension fund, will take over as CEO while the board searches for a permanent replacement.

A Sdcera spokesman said Mr. White made the decision to resign and that he and the board had been discussing the move “over the course of several months.” Mr. White said in a statement that “Sdcera has enjoyed great success, which I expect will continue” and that “serving as Sdcera’s CEO has been an incredibly rewarding professional experience.”

The exit of the system’s longtime leader caps a period of strife for a fund that manages money on behalf of more than 39,657 active and former public employees.

Board members and staff members spent much of the past year wrangling over an outside firm’s investment strategy that involved the use of derivatives to boost performance. The controversial approach was the subject of a front-page article in The Wall Street Journal.

The board voted in November to find a new internal investment chief rather than rely on an outside manager for that role.

Write to Dan Fitzpatrick at [email protected]

http://www.wsj.com/articles/san-diego-county-pension-chief-to-resign-1426803772

[/quote]

IMHO the back and forth dance between the news media and pension board “managers” is the same spin/bull$hit playbook response we saw locally (and its just a matter of time till CalPERS will have to give up the DELUSION that its possible to manage the portfolio and grow it to cover all the public pension promises made long ago)

Just watched a NatGeo documentary that kinda shows why there is “Denial and “Anger” from parties interested in keeping up the “DELUSION/economic status quo” WRT the “Fossil-fuel industry” and the concept of danger involving climate change

http://channel.nationalgeographic.com/explorer/galleries/the-five-stages-of-climate-change-grief/at/why-is-bill-nye-so-blue-2100657/

The way I see things the same idea(s) could be applied to “believers” of public pensions, and wonder if they ever bother to look in the mirror WRT their own DELUSION/POV

[quote=CA renter]
There is a very real war going on against working/middle-class people in developed countries. Don’t be a a useful idiot. If you’re not being paid, you should definitely demand payment from the Privatization Movement for your services. They expect to reap great rewards from the work of people like yourself; make sure to get your piece of the pie.

http://en.wikipedia.org/wiki/Useful_idiot%5B/quote%5D

one last thing for all to ponder is a news wire report:

[quote=REUTERS]
Calpers vote to lower investment return target draws governor’s ire

California Public Employees’ Retirement System on Wednesday adopted a policy to gradually reduce the amount that the pension fund expects from its investments, a decision that came under fire from California’s governor for not going far enough.

The move by the nation’s largest public pension fund is controversial because lower investment returns must be offset by higher contributions from the state’s cities and public workers.

Calpers will reduce its expected rate of investment returns in years after the fund outperforms its 7.5 percent target by 4 percentage points. The goal is to ultimately reduce the rate to 6.5 percent, although that could take decades under the new policy.

Rob Feckner, president of the Calpers board of administration, said the policy “makes significant strides in lowering risk and volatility in the system, and helps lessen the impacts of another financial downturn.”

But Governor Jerry Brown, a proponent of a sharper reduction in the expected rate of return, was quick to criticize the move, arguing the pension fund should move faster to cut risk from its portfolio.

“I am deeply disappointed that the CalPERS Board reversed course and adopted an irresponsible plan that will only keep the system dependent on unrealistic investment returns,” Brown said in a statement on Wednesday. “This approach will expose the fund to an unacceptable level of risk in the coming years.”

http://www.reuters.com/article/2015/11/19/california-calpers-policy-idUSL1N13E02Y20151119
[/quote]

Let me guess what happens next election, now that Gov Brown acknowledges the danger of “public pension math” he no longer can be assured of the the moonbeam vote 😉

[CA renter]

For one thing, many of us have been saying that some of the benefit formulas need to be reworked, putting them back to levels seen before pension benefits were boosted back in the late 90s.

Some of us have also advocated for pension funds (of all stripes) to get back into more conservative types of investments — govt bonds and very high quality debt, etc. — and to realign their return forecasts as a result. But this would only work if the Federal Reserve were mandated to stay out of interest rate manupulations except for very rare emergencies. Even then, their moves would have to be closely scrutinized and the pension funds (or a federal agency that oversees govt pension funds) should have some representation in the decision making process at the Fed.

If we want to change the way all financial entities calculate risks, the entire FIRE sector would implode. I’m all for holding people accountable, but we can’t cherry-pick the ones we want to target.

Along the same lines, ALL government guarantees and expenditures need to be much more closely monitored. That includes govt contracts; corporate subsidies (including tax expenditures); guarantees to investors, farmers, etc.; public-private partnerships, etc. — all of which need to be much more closely controlled and scrutinized.

As I’ve noted regarding the author of the LA Times piece, she is harshly critical of public pensions, but doesn’t bat an eye when cheering on our bloated defense spending (with a single unnecessary project costing as much as 1/3 of the unfunded pension debt in her worst-case scenario), or public-private partnerships and govt subsidies of private companies, like Space X, etc.

[Anonymous]

[quote=CA renter]LOL! You just keep burying yourself, Pri. You don’t even have the slightest knowledge about this issue, and when someone calls you out on your BS, you resort to more of your trolling.

Good luck![/quote]

Was Jerry Brown also trolling?

[phaster]

[quote=harvey][quote=CA renter]LOL! You just keep burying yourself, Pri. You don’t even have the slightest knowledge about this issue, and when someone calls you out on your BS, you resort to more of your trolling.

Good luck![/quote]

Was Jerry Brown also trolling?[/quote]

I’m guessing that many “believers” now see Jerry as an apostate, traitor, DINO (Demi In Name Only), etc…

[Author]

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