Double Dipping at the Public Pension Trough
On December 30, the Los Angeles Times reported that James Mussenden, the retired city manager of El Monte, raised his total annual cash pension benefit to $216,000 by using a Supplementary Retirement Plan from Public Agency Retirement Services (PARS). The PARS plan is not unique to El Monte: if the leadership of any public agency concluded that the generous retirement benefits available from CalPERS or CalSTRS was insufficient for their post-retirement lifestyle and they were able to convince their council or board to go along, taxpayers in their city, special district, school district or community college district would find themselves paying into an additional plan.
Unlike CalPERS, CalSTRS and California’s various city and county pension plans, PARS is a private company with limited disclosure obligations and without exposure to the California Public Records Act. As a result, it is more difficult to assess the impact PARS is having on the size of public employee retirement payouts and on the taxpayers who fund them. Fortunately, some PARS data can be obtained through public agencies that use its services or who receive its reports. California Policy Center is collecting data on PARS, and we can start sharing some of that information here.
First, some caveats are in order. PARS offers a variety of retirement plans including several defined contribution options. Since these DC plans do not place taxpayers on the hook for disappointing investment performance, they are less objectionable to pension reformers (but because DC plans may involve employer matching contributions, they could still be questioned from the perspective of whether total public employee compensation is appropriate – but that’s another story). Also, the California Public Employees’ Pension Reform Act (PEPRA) effectively prevented California agencies from starting new PARS defined benefit plans and adding new hires to existing ones. Still, the numerous PARS defined benefit plans around the state entitle many current employees to receive outsize pensions at significant taxpayer expense.
The State Controller’s ByTheNumbers web site reports that PARS defined benefit programs have $355 million in assets and are 49% funded. That data comes from the Public Agency Retirement Systems Trust 2015 Audited Financial Statements, which we obtained through a Public Records Act request and can be seen here. One concern about PARS is how employer contributions are invested. According to the audit, a large portion of the funds have been placed in Highmark Capital Management portfolios. As shown here, HCM invests PARS assets into mutual funds, which means that management fees are being paid both to HCM and each individual fund manager. HCM’s fee alone is 0.58%. High management fees can be expected to depress portfolio returns – keeping them well below the 7.5% actuarial projection.
The audit also lists entities that offer PARS plans. From that list, we identified 114 public agencies that had PARS defined benefit plans as of June 30, 2015 (one of these, the City of San Bernardino, is liquidating its PARS plan as part of its Chapter 9 bankruptcy process.
|California Joint Powers Insurance Authority||City of Napa||El Dorado Union High School District|
|California VanPool Authority||City of National City||Etiwanda School District|
|Capistrano Unified School District||City of Newport Beach||Expo Metro Line Construction Authority|
|Carlsbad Unified School District||City of Oxnard||Fullerton Joint Union High School District|
|Centinela Valley Union High School District||City of Pacifica||Golden Hills Community Services District|
|Central School District||City of Pico Rivera||Lassen Community College District|
|Cerritos Community College District||City of Pomona||Long Beach Unified School District|
|City of Alameda||City of Poway||Monterey Peninsula Regional Park District|
|City of Azusa||City of Rancho Cucamonga||Natomas Unified School District|
|City of Barstow||City of Redding||Newport-Mesa Unified School District|
|City of Belvedere||City of Rosemead||Norwalk-La Mirada Unified School District|
|City of Big Bear Lake||City of Roseville||Ocean View School District|
|City of Bishop||City of San Bernardino||Ontario-Montclair School District|
|City of Brea||City of Santa Ana||Orange County Transportation Authority|
|City of Brisbane||City of Seaside||Palm Springs Aerial Tramway|
|City of Cerritos||City of Simi Valley||Partnership Health Plan of California|
|City of Concord||City of South Gate||Pasadena Unified School District|
|City of Corona||City of Stockton||Pomona Unified School District|
|City of Cypress||City of Thousand Oaks||Riverside Community College District|
|City of Dixon||City of Torrance||Saddleback Valley Unified School District|
|City of El Monte||City of Tulare||San Bernardino Community College District|
|City of El Segundo||City of Tustin||San Diego Trolley, Inc.|
|City of Emeryville||City of Vacaville||San Francisco Unified School District|
|City of Fairfield||City of Vallejo||San Jose Unified School District|
|City of Glendale||City of Vernon||Santa Maria-Bonita School District|
|City of Hollister||City of Visalia||Santee Elementary School District|
|City of Huntington Beach||City of West Covina||Savanna School District|
|City of Huntington Park||City of West Sacramento||Southern California Association of Governments|
|City of lone||City of Westminster||Solano County Transit|
|City of Irwindale||Clovis Unified School District||Solano Transportation Authority|
|City of La Mesa||County of Humboldt||Sweetwater Authority|
|City of La Mirada||County of Santa Cruz||Town of Mammoth Lakes|
|City of La Quinta||County of Solano||Twin Rivers Unified School District|
|City of Lakewood||County of Sonoma||Ventura Regional Sanitation District|
|City of Lancaster||County of Tuolumne||Visalia Unified School District|
|City of Lawndale||Cucamonga Valley Water District||Vista Unified School District|
|City of Long Beach||Cypress School District||Water Replenishment District of SoCal|
|City of Manteca||Eastern Municipal Water District||West Basin Municipal Water District|
One California city that has been hit hard by PARS obligations is Redding in the far northern part of the state. Like many inland cities, Redding is struggling with weak revenues. According to its most recent financial audit, total city revenues remain well below their pre-recession peak of $308 million – totaling just $288 million in the 2016 fiscal year. Tax revenues peaked at over $60 million in 2008 and were just $48 million in 2016.
Meanwhile the city was required to cough up $5.8 million in PARS contributions on top of the $15.2 million it had to pay CalPERS. So a large proportion of Redding’s tax take is needed just to fund add-on pension payments.
Redding’s net PARS liability is $31 million based on an optimistic discount rate of 7.5%. Using a more realistic discount rate, its net liability would be in excess of $50 million.
In a forthcoming article we will discuss how Redding’s PARS plan came to be and who has benefited from it (hint: the story is not too different from that of El Monte). Also, if readers have stories about PARS at individual agencies, please consider sharing them with us in the comments, by email or via Facebook.