Posted on 07/26/2002 12:02:52 PM PDT by randita
CalPERS: Pensions need help
By Paul Schnitt and Loretta Kalb -- Bee Staff Writers Published 2:15 a.m. PDT Friday, July 26, 2002
The nation's largest public pension system has told public agencies in California that they will have to contribute more to employee retirements starting next year to make up for the fund's huge stock market losses.
Officials with the California Public Employees' Retirement System said Thursday it remained uncertain which of the more than 1,100 public agencies whose pensions fall under its management would be most affected.
But cities, counties and special districts that chose to use the gains from the 1990s stock market rise to improve employee retirement benefits could face the highest increases.
"It's been a good run, but we've known all along there would be years when investment returns aren't there to be able to pay the lion's share of employee benefits," said Pat Macht, spokeswoman for CalPERS.
Because CalPERS was able to accumulate a sizable surplus during the stock market boom, many local governments did not even have to make contributions to meet their pension plan obligations.
A letter distributed last month by CalPERS to the local agencies said their contributions to the pension system beginning next July, for the 2003-04 fiscal year, could rise by as much as 16 percent. Other increases would be less, perhaps as low as 2 percent.
"We need to brace ourselves and certainly plan for cost increases," said Leigh Keicher, finance director for the city of West Sacramento.
"Obviously, if you pay more for the employer contribution (for pensions), you have less money for other services," said Russell Branson, finance director for the city of Roseville.
The news also is not good for counties, said Steve Keil, legislative coordinator for the California State Association of Counties.
"Counties are being hit by a variety of forces," said Keil, pointing to weak revenues from hotel and motel taxes and increased costs for anti-terrorism efforts.
CalPERS provides health and retirement benefits to nearly 1.3 million state employees, non-teaching public school workers and public agency employees and their families, including 370,000 retirees.
According to the CalPERS Web site, the system paid out $5.8 billion in retirement benefits in the 12 months ending June 30, 2001.
Amid the euphoria of a soaring Dow that built huge surpluses for CalPERS, labor unions successfully lobbied the Legislature, with the support of the CalPERS governing board, to enrich members' retirement benefits. Some of the gains were dramatic.
Under a law enacted last year, for example, a local government worker with 30 years' experience who retired at age 60 would receive a pension benefit equal to 90 percent of his highest salary. Previously, that same worker would have received only 60 percent of his highest salary.
Even before that pension improvement took effect, however, the music stopped. The stock market cratered, wiping out billions in surplus that CalPERS had built during the unprecedented boom.
The value of CalPERS assets peaked at $178 billion in early 2000. But as the stock market faltered, CalPERS' assets fell below $145 billion. Annual returns on investment, which averaged well into double digits annually during the 1990s, turned negative the last two years.
"My feeling is and has been all along that (CalPERS) should have sat on their reserves, realizing the fact that the day of reckoning in the stock market was coming," said David Thompson, retired personnel director with the Sanitation Districts of Los Angeles County.
"Now employers are going to have to make significant contributions again -- that's taxpayer money that these cities need for other purposes," he said.
Geoff Davey, chief financial officer for Sacramento County, said the stock market gains were used to justify sweetening public employee pensions statewide.
"Claims were made that those (pension improvements) were being made at no cost to the taxpayers because of the investment gains," Davey said. "Now it would appear the retirement benefits enhancements that PERS and the governor agreed to for the state ... are going to cost the taxpayers after all."
Macht, the CalPERS spokeswoman, said there was "full disclosure that these benefits cost money."
"Everybody understood if there were periods of time when the market went down, it would have an impact," she said.
Also, local governments were not forced to increase employee retirement benefits, Macht said.
Perry Kenny, president of the California State Employees Association, acknowledged CalPERS "took excess reserves saved during the good times and helped elevate the state employees to the level of county and city employees." The CSEA represents about 260,000 state employees.
State agencies, already grappling with a $23.6 billion budget shortfall out of a $78 billion general fund, also are likely to pay more in pension plan contributions for the fiscal year that begins July 1, 2003, said Tim Gage, director of the state Department of Finance. "It's reasonable to think we'll see higher costs (in 2003-04), but the question is how much higher," he said.
The amount state agencies contribute to the fund will increase by more than $154 million in the current fiscal year, Gage said.
Typically, employers match the amount employees contribute to their pension -- 7 percent of their salaries. Law enforcement employees contribute 9 percent.
While CalPERS allows employers to reduce contributions in times of plenty or raise them during market downturns, the California State Teachers' Retirement System does not.
Sherry Reser, CalSTRS spokesman, said that consistency of contributions has helped CalSTRS meet its goals for 687,000 teachers, administrators and their survivors despite fluctuations in the market.
About the Writer ---------------------------
The Bee's Paul Schnitt can be reached at (916) 321-1102 or pschnitt@sacbee.com. Bee Deputy Capitol Bureau Chief Dan Smith contributed to this report.
Since it was altered in 1990 resulting in economic catastrophe in 2002, it's time to roll it back and change the formula again.
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