Last month, CalMatters, in conjunction with the Los Angeles Times and Capital Public Radio, began a series of articles and radio broadcasts attacking the retirement security of California’s teachers, firefighters, school employees and other public servants.
CallMatters is funded by a “who’s who” of wealthy Californians who have bankrolled anti-union activities, including former Schwarzenegger economic advisor David Crane and former GOP gubernatorial candidate Bill Simon.
The series, which contained misinformation and inaccuracies, is designed to reignite the debate about the sustainability of California’s pension system. It comes after multiple failed attempts over the past seven years to put a measure on the ballot and break promises to public employees. These attacks were led by failed former San Jose Mayor Chuck Reed, Enron billionaire John Arnold and extremist right wing former San Diego Councilmember Carl DeMaio.
This comes just four years after Governor Jerry Brown’s signature on the Public Employee Pension Reform Act, described in the Governor’s Office press release as “sweeping pension reform…that saves billions of taxpayer dollars by capping benefits, increasing the retirement age, stopping abusive practices and requiring state employees to pay at least half of their pension costs.”
CalPERS projected savings from this measure at $65-85 billion.
Contrary to the bleak picture painted by the media, Moody’s now rates CalPERS and CalSTRS at “Aa2” – among its highest ratings.
The CalMatters series began with Monday morning quarterbacking about SB 400, the 1999 California legislation that changed benefits for public workers. That bill, passed by a strong bipartisan majority of the state legislature, signed by Governor Gray Davis and supported by the California Public Employees’ Retirement System (CalPERS) Board of Administration, was a product of its time. The cost for this benefit increase was $500 million a year over 30 years.
When SB 400 became law, CalPERS was 137 percent funded and contributions by state and public agencies had dropped to at or near zero. Taxpayers saved billions of dollars by making lower or no contributions, while public employees continued to make full contributions towards their retirement.
Then, due to the fraud and abuse perpetrated by Wall Street bankers, the worst recession since the Great Depression hit and investors across the globe watched as trillions of dollars in asset values were wiped out. CalPERS’ lost $69 billion in the first year and over the next two years their funded status dropped by 40 percent.
CalMatters’ claim that SB 400 is the driving force behind the unfunded liability defies math. The one year loss of $69 billion due to Wall Street abuses would have funded the SB 400 benefit for 138 years.
Hindsight is 20/20 but unions, employees, employers and pension administrators are working to sustain pension systems for generations to come. Hundreds of unions have negotiated agreements that include higher employee contributions and benefit adjustments.
In addition to the changes mandated by the Governor and Legislature, CalPERS has established a process to take an innovative, integrated view of its assets and liabilities. It cut $300 million annually in investment fees, exited hedge funds, and eliminated high-fee Wall Street investment managers. It continues to promote good governance in the companies in which it invests to improve value and further cut risk in its portfolio.
CalSTRS has been stabilized by Governor Brown’s signing of Assembly Bill 1469, enacted as part of the 2014-15 budget, that concluded a decade-long effort to close CalSTRS’ nearly $74 billion funding gap.
Increases in pension contributions for all parties took effect July 1, 2014, and are being phased in over the next several years. Contributions rates for CalSTRS members increased from 8 percent of payroll to 8.15 percent of payroll in the first fiscal year.
CalSTRS members hired prior to January 1, 2013, who were not subject to provisions of the Public Employees’ Pension Reform Act of 2013, have seen their contributions increase by a total of 2.25 percent of payroll phased in over the last three fiscal years. Contribution increases for CalSTRS members hired after January 1, 2013, who were subject to the provisions of PEPRA, are being phased in with their total increases capped at 1.205 percent.
The bottom line is that California pension plans continue to be among the best managed and most solvent in the nation, despite the catastrophic Wall Street debacle that wreaked havoc on pensions as well as individual retirement savings. The biased, inaccurate and factually flawed CalMatters articles, funded by anti-pension millionaires, does not qualify as reporting. It is no more than the same warmed over propaganda and misinformation used in the past to undermine the retirement security of teachers, firefighters, police, school bus drivers and other public employees.