CalPERS "Myths vs. Facts" Propaganda Will Not Change Reality

California’s largest state/local government employee pension system, CalPERS, has posted a page on their website called “Myths vs. Facts.” Included among their many rather debatable “facts” is the following assertion, “Pension costs represent about 3.4 percent of total state spending.”

This depends, of course, on what year you’re considering, and what you consider to be direct cost overhead for the state as opposed to pass-throughs from the state to cities and counties. But CalPERS overlooks the fact that most of California’s government workers who collect pensions do not work for the state, they work for cities and counties and school districts. As can be seen on the “view CalPERS employers” page on Transparent California, there are 3,329 distinct employer retirement pension plans administered by CalPERS, and the vast majority of these are not state agencies paid from the state budget, but local agencies.

In a study earlier this year, “California City Pension Burdens,” the California Policy Center calculated 2015 employer pension contributions as a percent of total revenue for California’s cities to be 6.85%, more than double the amount CalPERS implies is the average pension burden. But this hardly tells the whole story, because CalPERS is systematically increasing the amounts that their clients will have to contribute as a percent of payroll, and hence, as a percent of total revenue.

UnionWatch has obtained budget documents from Costa Mesa showing how the pension contributions as a percent of payroll will grow between their 2014/15 fiscal year and 2020/21. Over the next six years, as the chart below shows, Costa Mesa’s total payroll is projected to grow from $50.1 million to $54.6 million. Their pension contribution, on the other hand, will grow from $23.2 million to $33.0 million. That is, their pension contribution as a percent of total payroll will increase from 46.3% of payroll today, to 60.4% of payroll in 2020.

20151103-UW-Costa-Mesa

Costa Mesa’s pension burden as a percent of payroll is a bit higher than average, but not much. And in terms of the percentage increases to pension contributions announced by CalPERS, they are typical. California’s cities, based on CalPERS announced pension increases, can expect to add another 15% of payroll to whatever amount they are already sending to CalPERS each year.

For every dollar they pay their employees in salary, should California’s cities be sending, year after year, $.50 cents or more to CalPERS? That’s the best case. It assumes that CalPERS will continue to be able to realize annual returns on investment of 7.5%, on average over the next several decades. It also assumes they’ve got the demographic projections correct this time, and won’t have to contend with the otherwise happy eventuality of people living longer than their current projection of approximately 80 years. These are big assumptions.

And how much of this fifty cents (or more) on the dollar do the employees themselves pay as a percent of withholding? In many cases, up until recently, they paid nothing. Or if they did pay via withholding, at the same time as they became subject to that requirement, they received a raise to their overall salary of an equivalent amount. But under California’s 2012 Public Employee Pension Reform Act, employees will gradually be required to pay more for their pensions – with a ceiling of 8% for regular employees, and 12% for public safety employees.

If they paid the maximum via withholding, for a miscellaneous employee in Costa Mesa, that 8% equates to a 4-to-1 employer match today, rising to a 5-to-1 matching in 2020. Similar employer matching ratios will apply for public safety employees. How many companies, anywhere, provide 1-to-1 matching, much less 2-to-1, or more? 5-to-1 matching? It is unheard of. For good reason – it is absolutely impossible for a private company to afford this in a competitive economy.

Returning to the Myths vs. Facts page posted by CalPERS, they also assert that “The average CalPERS pension is about $31,500 per year.” This is profoundly misleading. It is based on the assumption that every CalPERS retiree worked a full career in government. Returning to the CalPERS Employers page on Transparent California, one can see a more accurate estimate of the “average pension,” because it is limited to the average for retirees who put in at least 30 years of work. Take a look. For Costa Mesa, the average 2014 pension for a full career retiree was $91,805.

If our cities could afford this, nobody would care, but they cannot. If Social Security, which withholds benefits until a participant, typically, has worked 45 years, could afford to be equally generous, nobody would care. But the average Social Security benefit is around $15,000 per year and even at that pittance, without major restructuring it will go broke.

One can debate forever regarding how much of a premium public employees should receive over private sector workers because they’re, on average, more educated, or take more risks in their jobs. But as it is, taxes are going up to pay pensions and benefits to government workers that are by any objective standard many times greater than what private citizens can ever hope to achieve. No premium, however much deserved on principle, should be this big.

The insatiable demand by CalPERS and other government pension systems for more money to keep these pensions intact does more than create financial stress to our cities and counties. It exempts public employees from the economic challenges that face everyone else. It takes away the sense of shared fate between private citizens and public servants. It undermines the social contract. It exposes a self-dealing, hidden agenda behind all new regulations. It erodes the credibility of laws, ordinances, codes, because perhaps they are merely there to generate revenue.

CalPERS and California’s other government pension systems have the financial wherewithal to lobby and run PR campaigns that dwarf that of reformers. But myths and facts are not defined in press releases. They are defined by reality. The reality is that California’s pension funds have increased their required contributions as a percent of municipal budgets by an order of magnitude in just the last 15-20 years, and there is no end in sight. If and when they can no longer seize public assets to force payment, bully compliant judges to overturn reforms, or find enough money from new taxes to save their financially shattered systems, they are going to have a lot of explaining to do – not only to the beleaguered taxpayers, but to their own members.

*   *   *

Ed Ring is the executive director of the California Policy Center.

22 replies
  1. Tough Love says:

    Keep articles like this coming …. it makes it increasingly hard for the politicians to smile and say …. all-is-well …. while hiding behind the Public Sector Union campaign contributions.

  2. SeeSaw says:

    There is nothing in either the CalPERS section or your article that is misleading. All the information is fact. One thing you are doing that is misleading though–you are cherry-picking your facts. Cal-PERS is not. Nothing you can say or do will change the fact that the average CalPERS pension is currently $31,500.

  3. Equal Time says:

    There seems to be an admission in the last paragraph that “reformers” have PR campaigns. Imagine that.

  4. Tough Love says:

    Charles,

    You never should have been promised a greater pension than a comparable Private Sector worker, but putting that aside, ALL pensions should be funded during the working careers of the employees receiving them.

    Your pension is STILL being funded today, long AFTER you retired …… so that taxpayer that did not benefit from ANY services that you provided are being called upon to pay for it. That is patently unfair.

    But we all know the Union/politician scheme ….. promise HUGE pensions but use assumptions that make them APPEAR far cheaper than they really are. If our elected officials really HAD TO fund the true value of each year’s accruals IN THE YEAR PROMISED from annual budget revenue, they would have promised you FAR FAR less.

    THAT is why Taxpayers should renege on that (50+%) share of your pension that assuredly would NOT have been granted in the absence of the Public Sector union/politician collusion.

  5. Fact Checker says:

    This paragraph is one of the most bizarre, opinionated and unsubstantiated groupings of paranoid conspiracy theory imaginable. It is laughable were it not so sad that someone could actually believe it all.
    _______________

    “The insatiable demand by CalPERS and other government pension systems for more money to keep these pensions intact does more than create financial stress to our cities and counties. It exempts public employees from the economic challenges that face everyone else. It takes away the sense of shared fate between private citizens and public servants. It undermines the social contract. It exposes a self-dealing, hidden agenda behind all new regulations. It erodes the credibility of laws, ordinances, codes, because perhaps they are merely there to generate revenue.”

  6. SeeSaw says:

    CalPERS is the gatekeeper. It has actuaries and investment managers that tell it what message it needs to convey to the plan members.

  7. SeeSaw says:

    @TL – Union membership or union collusion is irrelevant with the pension plans. The highest paid recipients, top-level and many mid-level managers are not and never were union members.

  8. Tough Love says:

    Oh, so the biggest “taker” of all, Safety workers ….. always at the top of the list with the biggest pensions (and with the youngest starting ages, making the pension’s “value” FAR greater) …. are not in Unions?

    Yes yes of course, they are members of “Associations”.

    Happy now?

  9. Rex the Wonder Dog! says:

    There seems to be an admission in the last paragraph that “CalTURDS” has numerous PR campaigns/scams/frauds. Imagine that.

    Fixed 🙂

  10. Rex the Wonder Dog! says:

    “…you are cherry-picking your facts. Cal-PERS is not…”

    Really, so in 1999 when CalTURDS said SB400 would “not cost a dime” and hid the FACT that it would cost a trillion dollars, that was not “cherry-picking” by CalTURDS?????????

    Go home granny. Fix hubby a good dinner, he deserves it for dealing with you 24/7/365. This conversation is above your intelligence level.

  11. Rex the Wonder Dog! says:

    “The insatiable demand by CalPERS and other government pension systems for more money to keep these pensions intact does more than create financial stress to our cities and counties. It exempts public employees from the economic challenges that face everyone else. It takes away the sense of shared fate between private citizens and public servants. It undermines the social contract. It exposes a self-dealing, hidden agenda behind all new regulations. It erodes the credibility of laws, ordinances, codes, because perhaps they are merely there to generate revenue.”

    What is not true??

    All 100% verifiably true!

  12. Rex the Wonder Dog! says:

    TL, stop destroying Granny Seesaw, she will accuse you of being…well, you know, she loves to call names and rag on people, but cannot take it herself.

  13. SeeSaw says:

    The rank and file safety workers are not the ones getting the biggest pensions. Those are the managers, sargents up to the chiefs. Some have unions–some don’t. I’ve known several CM’s and Department heads. They were not union members–they negotiated with the elected officials one-on-one. The mid-level managers at my place of work had never brought in a union. They negotiated with the CM who got his orders from the Council–no unions around. CalPERS does not involve itself with the unions–I repeat–union membership is irrelevant with CalPERS.

  14. S Moderation Douglas says:

    “Pension costs represent about 3.4 percent of total state spending.”

    I don’t know about “pass throughs”, but according to US Census Bureau, total California state and local spending in 2013 was over $460 billion.

    3.4 percent of that would be about $16b.

    Employer contributions for CalPERS was over $8. That includes State and local governments. Unless CalSTRS and the county systems were well over $8 combined, 3.4% sounds pretty close.

  15. Equal Time says:

    Wow, a cover up occurred right before my eyes! And in the process you blew your cover! That’s one, no make it two, for me Ed!

  16. BOPRN says:

    Been awhile since I have stopped by the Pension Tsunami hate site…which of course led to this ‘article’. Good to see the same players are still arguing over the same ‘facts’. Hoping you all get the health you deserve, due to stress of course. Enjoy the holidays as much as you hate the retired folks. If you put half as much effort into the holidays as you do this, you will certainly be blessed!!

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