CalPERS Seeks To Escape Fiscal Reality Of Failing Pensions

IBD ^ | 03/11/2015 | David Tawil

[SeekAndFind]

To the outsider, CalPERS — the largest U.S. pension fund, created by California state law and run by an arm of the state of California — may seem like the champion of the working man, fighting for the rights of municipal employees and pensioners.

But that perception may be undeserved, per the Chapter 9 bankruptcy of Stockton, Calif., where CalPERS sought to shift to taxpayers (an even larger and more sympathetic party than CalPERS) the financial burden to support what some consider CalPERS' outrageous costs.

U.S. Bankruptcy Judge Christopher Klein openly opined, "CalPERS has bullied its way about in this case with an iron fist, insisting that it and the municipal pensions it services are inviolable."

The result of these recent events is positive for municipal bondholders because, with Stockton and Detroit, the judges have stated that municipal pension obligations can be restructured, like other unsecured debt of the municipality.

In the current environment, where municipal distress, restructuring and bankruptcy are increasingly common, some of the onerous provisions included in pension servicing agreements are finally being recognized, leading to some long-overdue pressure on pension programs.

In May 2014, CalPERS filed a friend-of-the-court brief with a bankruptcy court in Detroit, triggered by an advisory opinion by Bankruptcy Judge Steven Rhodes stating that Detroit could impair current employee and retiree pensions in its bankruptcy process.

CalPERS argued that the judge's ruling "threatens the country's entire public pension system."

Though Rhodes' decision appears to have laid the groundwork for compromise between Detroit employees and pensioners, helping to achieve what is now known as "The Grand Bargain," CalPERS alleged that he decided the issue only to "facilitate negotiations and administration of the case," maligning the credibility of one of the most respected bankruptcy judges.

[kingu]

I still think that CalPERS ‘fair deal’ where cities and other entities, rather than replace the tens of billions lost in the dot com bust, would simply pay the interest on the money lost, was one of the most creative and devilish things ever done.

The sword of replacing those losses still hangs over most cities. And Stockton is showing the only light at the end of any tunnel. We're still seeing only the tip of the iceberg in the bankruptcy glacier.

[Fido969]

Looks like the squirrels got their nuts caught in the CaliPers.

[sphinx]

One of these municipal bankruptcy cases probably needs to play out to the dead-in-dirt endgame before the unions will accept reality. A city goes broke. It cannot pay for current operations and pensions. It can jack taxes up to the breaking point as taxpaying residents and businesses leave. Once it reaches Detroit status, what is left? It can sell City Hall, if there is a buyer. It can sell its police cars and firetrucks. It can close and sell the schools, if there are buyers. It can fire all current employees and suspend services, devoting all money to pensions. What then? Sell the remaining residents into slavery? Harvest their organs and sell them on the black market? What, exactly, to the unions propose, other than to make the death of a city so ugly and painful that the state or the feds step in and pay? In other words, pure extortion.

I do not wish this on anyone, and I sympathize with people who have worked for 30 and 40 years and now find their pensions in jeopardy. But the unions must be made to understand that bankrutcy means bandruptcy, and that unionized employees can and will lose everything if the unions won't take a haircut.

[MrB]

Reality never favors liberalism.

[El Cid]

What then? Sell the remaining residents into slavery? Harvest their organs and sell them on the black market? What, exactly, to the unions propose, other than to make the death of a city so ugly and painful that the state or the feds step in and pay? In other words, pure extortion.

I expect the Federal Government will just print more 'cash' out of thin air and give a Grant to the City to keep things running. Eventually this practice will turn the 'cash' into vapor-ware, but our Government's approach to fiscal control (or fiscal malfeasance) has been one of kicking the can down the road for many years. When they reach the end of the road they will blame someone else.

[Darteaus94025]

The public employees got their money up front-with the high salaries, short work hours, lack of productivity, no accountability workplace.

They don’t deser a gold plated pension.

[ken5050]

There are two reforms that should be adopted immediately by very public pension plan that are legal and would survive challenges and would go a long way to solving the problem of unfunded liabilities..

1. Immediately stop COLA increases.You almost never see them in private DB plans.

2. The fairest way to roll back pensions on existing retirees would be to revert to the original award, before COLAs kicked in...they were never guaranteed.

Assume a male who retired 10 years ago at age 55..he's now 65..his original pension was 3,000/month. With COLAs over 1 years, it's now about 3,700. Drop him back to the original 3,000.

[circlecity]

So, the politicians get relelected and rich by promising large pension benefits they know cannot be funded and people vote them in on this, all of them knowing they will try to push the cost on furure taxpayers after they are long gone, future taxpayers who never had a say in the matter.

[sphinx]

That is what the unions are hoping for, and it is what the UAW got in the GM bankruptcy. Everyone else got hammered but the UAW pension and health programs were made whole at public expense. I had always driven GM cars and loved my Saturn, but I will never buy another GM car until the UAW repays what it received from the Treasury. Not the company; the UAW. Which is why I do not expect to ever drive another GM car.

Anyhow, the unions want a federal bailout, which simply rewards past irresponsibility and licenses future recklessness. We need to say no, and let the chips fall where they may.

[sphinx]

I favor a simpler reform. All public pensions should be fully funded, which implies a shift to defined contribution.

[El Cid]

We need to say no, and let the chips fall where they may.

Agreed. But I don't see that happening short of a replay of 1776 or 1861...
And the likely outcome of that would be more likely a replay of the 1618 Thirty year war - where 'Germany' (Holy Roman Empire at that time) was totally decimated.
Ugly situation that we are in, and our 'leaders' continue to march us further into this quagmire. Just a reminder to trust in the Lord and not in man.

Matthew 6:19-21
19 Lay not up for yourselves treasures upon earth, where moth and rust doth corrupt, and where thieves break through and steal:
20 But lay up for yourselves treasures in heaven, where neither moth nor rust doth corrupt, and where thieves do not break through nor steal:
21 For where your treasure is, there will your heart be also.

[Dr. Thorne]

Unions have dictated to CalPERS for decades. CalPERS has made wildly exaggerated claims re: their ROI, expecting to get at least 8% yearly.

I know a retired CA fireman who told me he is getting 95% of the highest salary he received while working. That is a prescription for disaster, but we know that reality is not popular in Disneyland.

[vette6387]

“I do not wish this on anyone, and I sympathize with people who have worked for 30 and 40 years and now find their pensions in jeopardy. But the unions must be made to understand that bankrutcy means bandruptcy, and that unionized employees can and will lose everything if the unions won’t take a haircut. “

I do! I have acquaintances that have CalPers pensions. One who has been on it for more than 15 years, and is now collecting more that $150,000 per year for a job he left that paid something on the order of $60,000 when he retired. Now, do I think he deserves a pension, yes, but not a multiple of what he earned but a percentage of that figure. Also, we need to end this BS about Public Safety employees getting to retire at 50.

[kiryandil]

vette6387 wrote in post #14: I do! I have acquaintances that have CalPers pensions. One who has been on it for more than 15 years, and is now collecting more that $150,000 per year for a job he left that paid something on the order of $60,000 when he retired. Now, do I think he deserves a pension, yes, but not a multiple of what he earned but a percentage of that figure. Also, we need to end this BS about Public Safety employees getting to retire at 50.

Here's your gold-plated pension example. Apparently, this guy is worth so much retired that he got raises from $30 an hour to $75 an hour over 15 years. :)

[vette6387]

“Here’s your gold-plated pension example. Apparently, this guy is worth so much retired that he got raises from $30 an hour to $75 an hour over 15 years. :)”

It’s worse than that. The individual in question was a LEO who was forced to retire early due to a heart attack. When he recovered ( and after he had retired ), he was reemployed by his agency as a recruiter for which he received another small pension that is included in the $150k. Then when he reached mandatory retirement age, the allowed him to get a PI license, and remain a recruiter as a contract employee until he himself decided to retire.
Several things happened that facilitated the large retirement. First, back in the “good times” when the Silicon Valley and the stock market were rocking, our then criminal RAT governor, Gray Davis ( in collusion with the RAT-run Legislature and CalPers), gave all retirees big one-time “retirement bonuses” and at the same time pumped up the overall benefits too “because times were good!” Unfortunately, now “times are not good,” but we are saddled with these increases in spite of that fact because “well you just can’t take away something that’s been given.”
As one poster pointed out, what’s needed is a city going cold, dead bankrupt including the necessity to cut retirement benefits. Until that happens, the PE unions and their government handmaiden, CalPers, will continue to demand that they be paid first. One thing is certain, the can has been kicked about as far down the road as it’s going to get, and “financial gravity” cannot be defied forever!!!

[vette6387]

“Assume a male who retired 10 years ago at age 55..he’s now 65..his original pension was 3,000/month. With COLAs over 1 years, it’s now about 3,700. Drop him back to the original 3,000. “

But, but, but, that would mean that the ski boat would have to be sold, and maybe the late-model pickup he uses to tow it too. Or the country club membership would have to be cancelled. Just how “horrible” can you be “forcing this “annuitant” to trim his financial sales? After all, “he served” you for so many years! He wrote the tickets you had to pay, he laid around the fire station eating until he was tired, then sleeping until he was hungry! You just can’t throw him out in the street!