In the “good news, bad news” category, the recovery in the US economy had a significant positive impact on the Public Employees Retirement Fund (PERF), the main investment fund administered by CalPERS. CalPERS is the largest institutional investor in the United States and manages the retirement program of more than 2 million current and retired California public employees.
Last week, CalPERS reported a 21.3% rate of return for PERF in the prior year. This is much higher than in previous years and is particularly robust after more than a year of pandemic-induced recession. (In February 2020, the fund’s value lost $ 15 billion in a single week).
The total value of PERF currently, according to figures released by CalPERS, is $ 475 billion, an increase of about $ 80 billion from last year. Investment performance is only one contributing factor to PERF’s bottom line, along with withdrawals for pension benefits and contributions from current employees and public sector employers.
This is good news for California taxpayers. Most of the state’s public pension plans are “defined benefit” plans, meaning that retirees are guaranteed a certain amount; as opposed to “defined contribution” plans, which function more like 401 (k) accounts which can be vulnerable to wide market fluctuations.
The problem with defined benefit plans, from a taxpayer’s perspective, is that they have a responsibility to ensure the payment of the promised benefits later, even if there is not enough money in it. the pension fund to cover them. Due to the risk to taxpayers, many states have switched to defined contribution plans which, from the perspective of the taxpayer and the employer, are much less risky.
The positive investment performance could help rehabilitate CalPERS ‘reputation given that CalPERS has a sordid history of scandals and mismanagement. Last year, CalPERS chief investment officer Yu Ben Meng resigned amid allegations he approved a billion dollar deal with a company in which he was a shareholder.
In 2018, the CFO was fired for misrepresenting his resume. And, in 2016, the CEO of CalPERS was sentenced to jail for accepting bribes from a former CalPERS board member who was never tried because he s ‘has committed suicide.
Many of CalPERS ‘previous problems were due to over-promised pension benefits and, sadly, this continues to be the case. California has the most generous retirement benefits in the country.
A review of Transparent California found that those who collect more than $ 100,000 a year in retirement benefits, the so-called “$ 100,000 Club,” have increased 173% since 2012. And that doesn’t even include the city manager of Fontana who received credit for his time. he did not work to enable him to reach the 30-year mark and collect a higher pension, as well as severance pay of almost a million dollars.
Now for the bad news. In 1999, in the midst of the dot-com boom, CalPERS made a horrible miscalculation. Thinking that the stock market rise would last forever, he sponsored Senate Bill 400 to increase benefits. Investment income had averaged 13.5% for a decade, and a few public and school plans had 100% funding – meaning no unfunded obligations – some were even overcapitalized, with assets totaling more than that. they needed to pay for every dollar in retirement benefits that would come in.
Without going into all the gory details, suffice to say that the SB 400 has supercharged the retirement benefits of most public employees. Seeking union support for his upcoming re-election campaign, Governor Gray Davis signed the bill. Campaign fundraising records confirm that civil servants ‘unions generously contributed to Davis’ campaign committee in 2002. The Prison Guards Political Action Committee issued checks totaling over $ 1 million.
Years later, but certainly not all of the SB 400’s worst abuses have been corrected by a pension reform bill pushed by Gov. Jerry Brown.
Taxpayers are hoping CalPERS and our elected leaders learned the lesson of two decades ago and refrain from granting higher benefits at a time when the stock market is foamy because the fact that PERF is so good funded right now will certainly motivate public sector workers. groups to push for larger payments.
Already the news is not good. In a troubling development, Assembly Member Jacqui Irwin, D-Thousand Oaks, proposed Assembly Bill 826 to validate some pension-boosting practices in Ventura County, despite pension reforms in Ventura County. the Brown era and a decision of the Supreme Court of California.
Although AB 826 applies narrowly, only to pension plans offered by counties under a 1937 statute, the fact that a legislator seeks to give the green light to increasing pensions, reversing the course of pension reform is troubling.
Even the Ventura County Employees’ Retirement Association’s own lawyer has concluded that including the value of “flexible benefit plans” in calculating pensions is not permitted by law.
Proposals such as AB 826 must be vigorously opposed. Hopefully our current elected leaders begin to channel their inner Jerry Brown to reject such efforts.
Jon Coupal is president of the Howard Jarvis Taxpayers Association.