CPC Study Provides Tools to Estimate Pension Liabilities and Contributions Using Various Assumptions

CPC Study Provides Tools to Estimate Pension Liabilities and Contributions Using Various Assumptions


Sacramento, California, July 29, 2013

Contact:  press@calpolicycenter.org

With the recent announcement that Detroit has declared bankruptcy, many wonder how their city, county, school district, or other government organization is doing. To help keep elected officials accountable, the California Policy Center has released a simple spreadsheet and tutorial that estimates the unfunded liabilities and the required annual payments for any pension plan, using assumptions chosen by the user.

“Detroit, Stockton, San Bernardino, and Vallejo are sad reminders that the pension dilemma is real,” said Bob Loewen, a member of the CPPC Board. “Unfunded liabilities can sneak up on a city without warning because the accounting makes it fairly easy to hide the damage being done. That’s why CPPC keeps finding ways to make it easier for people to make their government more transparent. That’s what our Executive Director Ed Ring has done with this new spreadsheet and tutorial.”

The spreadsheet prepared by the CPPC empowers a user to perform “what-if” analysis on the financial statements of public employee pension funds. To provide an example, the downloadable spreadsheet uses data that attempts to replicate the consolidated financial status of all of California’s public employee pension plans. The example uses the 5.7% Moody’s rate of return and a moderately accelerated payment plan, eliminating the unfunded liability over a 20 year period. Wherever possible, using assumptions and logic from Moody’s recent pronouncements on pensions – the spreadsheet calculates new estimates for California’s total estimated unfunded liability, normal required pension contribution, and “catch-up” contribution to reduce the unfunded liability.

When entering these values, using the sources and assumptions as described, the following changes to the financial condition of California’s public employee pensions would be indicated as of 6-30-2011 (the most recent year for which consolidated data is available):

All California Public Sector Pensions – Revalued Unfunded Liability:

– Officially reported unfunded liability = $158 billion.

– Revalued unfunded liability at 5.7% annual rate of return (discount rate) = $315 billion.

All California Public Sector Pensions – Revalued Annual Required Contribution:

– Officially reported total pension contributions (normal and catch-up) = $27.6 billion.

– Revalued total pension contributions (normal and catch-up) = $43.3 billion (based on an estimated normal contribution of $16.6 billion and a catch-up contribution of $26.7 billion).

“Anyone with basic financial knowledge and spreadsheet skills can use this,” said Mark Bucher, chair of CPPC and an enthusiast for government transparency. “A lot of times elected officials come to office without knowing about a cozy deal that was made years ago by someone who is not even around. But that official still has a responsibility to the people who elected him, and this model will help him figure out what’s going on in the financial statements of any public employee pension fund.”

To read the entire study, click on “A Method to Estimate the Pension Contribution and Pension Liability for Your City or County.”

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The California Policy Center is a non-partisan public policy think tank that aspires to provide information that will elevate and enlighten the public dialogue on vital issues facing Californians, with the goal of helping to foster constructive progress towards more equitable and sustainable management of California’s public institutions. Learn more at www.CaliforniaPolicyCenter.org.

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