CalPERS, the nation’s largest pension fund with assets of $301 billion, invests money to pay the pensions of most California city and school employees. But it has really screwed up these investments the past couple of years, and we taxpayers will have to make up for that. For example, although CalPERS (California Public Employees Retirement System) projected a 7.5 percent rate of return, it made only .06 percent this past year and 2.4 percent the previous year. Off a wee bit, I’d say.
So now most cities are going to have to increase their own annual fees to CalPERS to help cover that agency’s loss. In Palo Alto it will be $21 million this year, according to city Administrative Services Director Lalo Perez, who attended a CalPERS conference last week. Some of that money comes from our taxes, and Perez is seeking other ways to fund the fee.
This is CalPERS’ fault. Its projected earnings fell through because it had a poor return on a lot of its investments and unrealistic earnings estimates. How can it say the return will be 7.5 percent and it comes in at .06? At the conference there weren’t many details, Perez said, though there was an acknowledgement its global investments were off. Our savings accounts yield more.
This system used to be a win-win. Once cities contracted, CalPERS assumed their pension obligations, and lucrative transfers at first helped 1,251 local governments "confer highly compensated pensions to 10,000 local public employees," according to a Nov. 26 article in Forbes magazine by Adam Andrzejewski. The cost: $2.8 billion annually.
Among 21,682 retirees in those cities, some 115 from Palo Alto were in the $100,000-plus pension club: former city police chief Lynne Johnson, who in 2015 received pension checks of $16,774.69 per month (that’s $201,291.48 a year); former city manager Frank Benest, who gets $16,030.94 a month ($192,371.28 a year); and former city manager June Fleming, who retired 16 years ago in 2000 with a monthly pension now of $15,121,52 ($181,458.24 annually). Of course, retirees and spouses receive lifetime health insurance.
So far, no one has been able to control this expanding growth of CalPERS. Member benefits have doubled, according to the California Policy Center. In 2014 (its latest figures), the pension benefits CalPERS bestowed were 50 percent better than 20 years ago, and the annual member payouts have increased at a rate exceeding inflation.
And, according to the Forbes article, "the system itself became an outright lobbyist for higher member benefits." There’s a decided tilt of former union members on CalPERS’ board, so they understand the perks of a public pension, which are far better than those for private industry.
Some other cities are upset about these unscheduled payment hikes, but cities don’t have any clout over CalPERS’ board. I understand Gov. Jerry Brown has asked CalPERS for better investments, but the board is not beholden to the governor either.
Everyone should ask if the pensions the retirees receive are defensible and financially sustainable. I don’t see how they are. While cities spend taxpayer money on their employees’ retirements, roads and bridges go unrepaired and the numbers of police officers are reduced to cut back expenses. Cities have to gang up and demand a better performance from CalPERS.
There is a glimmer of hope, though. In August, a state appellate court in San Francisco decided reasonable benefit cuts are permissible. Up until now, courts have held that pensions are inviolate and cannot be reduced. This case will take awhile and chances are if CalPERS loses, it will appeal. I think the courts are the best way to resolve these new pension problems.
Diana Diamond is a columnist for The Daily News. Her email is DianaLDiamond@gmail.com.