Californians: Prepare For A 50% Hike In Pension Costs

Tyler Durden's picture




 

It is no surprise that pension funds in the US are significantly underfunded (median 72% funded). California Public Employees’ Retirement System (CALPERS), specifically, is about 26% short of meeting its long-term commitments. Like most major pension funds, it uses smoke-and-mirrors to avoid this yawning gap by smoothing over a long enough timeframe where 'hope' for growth in assets triumphs over the reality of liabilities (through a 'rolling' 15- or 30-year window - that therefore never comes due). However, under a new plan proposed by CALPERS' chief actuary, they will shorten the horizon from 15 to 5 years and aim for a specific date 30 years from now to be 100% funded (instead of a rolling hope-driven horizon). The impact of this, as Bloomberg reports, may mean California taxpayers municipal pension contributions will rise as much as 50%. "This is clearly the right thing to do," notes the fund's CEO, "as it will reduce the risk of the system," though we suspect the 'system' may just get a little upset at having to face this 50% 'tax-hike'.

Via Bloomberg,

California taxpayers may see the municipal pension contributions they fund for the California Public Employees’ Retirement System rise as much as 50 percent under a plan to fill $87 billion in unfunded obligations.

 

Alan Milligan, the fund’s chief actuary, recommends that the biggest U.S. pension stop spreading out losses and gains over 15 years and instead set rates based on how much is needed to reach 100 percent funding within 30 years

 

The Sacramento-based pension, known as Calpers, is about 26 percent short of meeting its long-term commitments. The state and cities contributed $7.8 billion in the last fiscal year, almost four times more than a decade earlier.

 

...

 

Under Milligan’s proposal, the fund would shrink its 15- year rolling period for asset smoothing to five years and amortize gains and losses over a fixed 30-year period rather than the current rolling 30-year period. A fixed period means that all obligations will be fully funded by a specific date.

 

If approved, the rates charged to governments would increase by as much as 50 percent.

 

...

 

“This will reduce the risk our system currently faces,” said the fund’s chief executive officer, Anne Stausboll. “This is clearly the right thing for us to do.”

 

...

 

The median funded status of state pensions, meaning how much money a system has in order to pay its obligations, fell to 72 percent in 2011 from 83 percent in 2007, according to data compiled by Bloomberg.

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Tue, 04/16/2013 - 23:11 | 3459363 Yen Cross
Yen Cross's picture

 Is it ok for me to laugh?

Tue, 04/16/2013 - 23:15 | 3459375 zorba THE GREEK
zorba THE GREEK's picture

It is just the beginning. Everyone else, please take notice, you are next.

Tue, 04/16/2013 - 23:37 | 3459469 iDealMeat
iDealMeat's picture

Hey, CalPERS..   How's that $ 500M software PKG workin out for ya?

http://www.networkworld.com/news/2012/041712-500m-state-pension-software...

duh..

Wed, 04/17/2013 - 00:11 | 3459552 Harlequin001
Harlequin001's picture

They should shut the fucking thing down, return all the funds to investors and let them sort out their own retirement.

Oh wait, what would happen to government funding of deficits if the pension funds were shut and investors invested their money in something of real worth?

er best to get everyone to put more in I think, it's for their own good you know...

Wed, 04/17/2013 - 00:39 | 3459624 SHEEPFUKKER
SHEEPFUKKER's picture

Californicated in the arse these pensioners are. 

Wed, 04/17/2013 - 01:13 | 3459676 Manthong
Manthong's picture

Beam us all up, Governor Moonbeam.

Wed, 04/17/2013 - 05:04 | 3459888 i-dog
i-dog's picture

I may have missed it, but I didn't see even one comment for CA to leave the USSA by any of the usual cheer squad for Ireland, Greece, Spain, Cyprus, or <insert EU/EZ country here> to leave the EU/Euro. Not even a comment for them to be "kicked out" of the Union!

I also didn't see a single comment from the many who clearly see the obvious knock-on to other states for a disengagement by their own state from the Federal BehemothTM, before it is [even more] too late. 

Why is this?

Hiding out in the mountains with a stash o' beans'n'bullets is not the way the founding fathers dealt with a distant oppressor (notwithstanding that they were egged on and significantly supported by the Khazarian Kleptokrats in order to create a Khazarian beachhead away from Rome).

This is not a new problem, folks!

Wed, 04/17/2013 - 06:46 | 3459967 GetZeeGold
GetZeeGold's picture

 

 

Head east amigos......away from the radiation and moonbeam zombies.

Wed, 04/17/2013 - 08:23 | 3460134 Manthong
Manthong's picture

Aw.. all Calpers need do is buy more CDS on Euro debt.

The Fed will make sure the EU is good for it.

(snark  :-)  )

Wed, 04/17/2013 - 09:46 | 3460493 Agent P
Agent P's picture

These calls won't come (at least not loudly) until a state fails (publicly) and needs to be bailed out (publicly) by the federal government (aka other states' taxpayers).  This state, some call it Illinois, will cause real tension in the union...only it will not be asked to leave, but rather it will be the states at the top looking to secede.

Wed, 04/17/2013 - 11:10 | 3460883 Freddie
Freddie's picture

California Dem Libturds looted this pension for their cronies plus let the govt unions create golden pensions that required taxpayers to be destroyed.

This used to be a well run pension before the Dems gained control of everything in CA.  Then it became a slush fund for people like Ron Burkle and even rappers to fund business ventures.  Sean Puffy Combs was one of them. 

Wed, 04/17/2013 - 11:24 | 3460998 Guy Fawkes
Guy Fawkes's picture

prove it

Wed, 04/17/2013 - 11:39 | 3461102 Missiondweller
Missiondweller's picture

Tyler just did. Re-read the story and keep in mind Brown created the oublic employee unions last time he was gov in the 80's. The Dems have controlled the state ever since and our economic health as a state has declined ever since even despite the huge revenues from the 90's.

Wed, 04/17/2013 - 15:37 | 3462749 Guy Fawkes
Guy Fawkes's picture

And how is that even linked to the public unions? 

The ability to gather signatures and put endless propositions on the ballot, endless bond measures, etc. is the reason CA runs a deficit. 

Wed, 04/17/2013 - 22:47 | 3464784 GMadScientist
GMadScientist's picture

That and Prop 13. Take a look at the portion of tax revenue in CA from businesses vs individuals over the last 50 years for a real answer why the state with $1.2T SDP is routinely scrounging in the sofa for mere tens of billions in shortfalls.

But at least Larry Ellison gets a tax refund on his Japanese tea garden masturbatory fantasy home.

Wed, 04/17/2013 - 11:27 | 3461012 dirtbagger
dirtbagger's picture

They are all thieves, and our society is broken.  ZH has always been correct on this. 

Your SSI rainy day surplus was stolen by congress, stock investments stolen by CEO's such as Jack Welch and Kenny boy Lay, brokerage funds by the likes of Corzine, Bank deposits by Ben's ZIRP, and Pension funds by all the major Wall Street investment firms.  

 For those who have put away some funds for the future and have to daily endure seeing your future being stolen, I suggest a plan B.  Go long matresses and anti-depressants.

Wed, 04/17/2013 - 11:29 | 3461034 caconhma
caconhma's picture

The situation in America reminds me the times I left USSR. We all know that there is no USSR anymore.

The only question is whether Americans will accept mass looting and starvation quietly as Soviets did or it will be rivers of blood all over the USA.

 

Wed, 04/17/2013 - 15:45 | 3462816 Freddie
Freddie's picture

+100

This is EXACTLY what I thought when O-Muslim was "elected" in 2008.  Pensioners, seniors and baby boomers will be screwed when the currency fails.  Young people with skills will fare the best like they did in Russia. 

Grab some pop corn as the always pampered Baby Booomers get what they finally deserve.  I feel bad for the ones who did not voted for our Baby Allah but those who voted for him deserve what is coming.  F them and F TV.

Tue, 04/16/2013 - 23:39 | 3459473 DaveyJones
DaveyJones's picture

Is there a fund that is not underfunded?

Tue, 04/16/2013 - 23:57 | 3459526 espirit
espirit's picture

California Dreamin'

No problem for da Bernank to print up your shortfall.

Wed, 04/17/2013 - 01:27 | 3459692 Tapeworm
Tapeworm's picture

Wisconsin is fully funded.

 Goomint drones will get what they were promised by the goomint union owned pols that gave it to the heroic workers.

Wed, 04/17/2013 - 04:23 | 3459860 Hobbleknee
Hobbleknee's picture

I honestly don't know anything about Wisconsin, but I would guess that's a lie like everything else.  The government lies about everything, always.  Even when it's in its own best interest not to do so.

Wed, 04/17/2013 - 11:31 | 3461043 Matt
Matt's picture

It's probably fully funded, assuming 8% annual returns.

Wed, 04/17/2013 - 03:55 | 3459842 Caggge
Caggge's picture

I am all for raising the rates on the people who are in Calpers to pay for their retirement benefits. Make it so costly they will all go out and get real jobs. There is no way they should steal the money from the taxpayers to provide a Cadillac retirement plan for someone else. Retirement should be as simple as this: Save your own money and retire when you have enough.

Wed, 04/17/2013 - 04:49 | 3459875 CheapBastard
CheapBastard's picture

So taxpayers are taxed higher so the $200k lifeguard at Monterry beach can retire at 52 on $180 a year for life?

 

Order more KY ,,,it makes it easier.

Wed, 04/17/2013 - 08:11 | 3460099 Max Cynical
Max Cynical's picture

$100,000 club now has 12,199 members and continues to grow...

http://www.fixpensionsfirst.com/calpers-database/

Wed, 04/17/2013 - 11:25 | 3461010 Guy Fawkes
Guy Fawkes's picture

since when is sub $28K a year a cadillac pension?

Wed, 04/17/2013 - 12:10 | 3461301 Buckaroo Banzai
Buckaroo Banzai's picture

Get a clue. You better fucking believe $28k/year is gold plated. Hell, I'd be thrilled with a $10k/year pension. If you are in the private sector, it is a virtual certainty that you will have a $0K/year pension. You will have to get by on SS and whatever you have managed to save in a 401k, assuming that doesn't get looted. The only pension systems left are in the public sector.

Wed, 04/17/2013 - 15:46 | 3462769 Guy Fawkes
Guy Fawkes's picture

In other words your jealous rage is why you envy someone who has worked and has a pension. $28K is just above poverty levels in CA. 

One would have to wonder where you stood when Ronald Reagan gave that gift to the Wall Street banks by creating the grandiose 401K plan. Did you stand by and cheer the great CONservative while he instituted the demise of the working class?

Wed, 04/17/2013 - 20:28 | 3464206 Blankenstein
Blankenstein's picture

And how are people with lower paying jobs and no pension going to pay for government workers' higher salaries and pensions?  And I doubt anyone in Illinois has that small of a pension working for .gov.

Wed, 04/17/2013 - 20:52 | 3464254 Guy Fawkes
Guy Fawkes's picture

Why do you think that public employees dont contribute to their own pensions in the same way a 401K gets its contributions?

 

As for Illinois ... do your own calculations.

https://www.srs.illinois.gov/SERS/calc/calc_disclaimer.asp

I just ran the numbers for someone who worked 25 years, made $50K a year, retired at 60 ... their pension payment was $20K Hardly that glorified pension many are berrating. 

Wed, 04/17/2013 - 22:54 | 3464820 GMadScientist
GMadScientist's picture

So they live another 20 years...did they contribute enough to justify that NPV of $400k, or are they just in cahoots with thieves only slightly smarter than themselves who will eventually pick a pocket or three to make those $20k payments come true?

 

Fri, 04/19/2013 - 11:12 | 3468084 Guy Fawkes
Guy Fawkes's picture

NPV is irrelevant as the payment is not due all up front. If you want to talk NPV then lets roll it back to the amount they contribute plus the 8% ave. growth over their entire working career amortized for 25 years. 

These people contribute to their own pension program ... they ARE NOT picking anyones pocket. Spreading rumor or exceptions as the normal doesnt help your position one iota.

 

Wed, 04/17/2013 - 15:47 | 3462836 Freddie
Freddie's picture

Do the math if you can.  $28,000 a year at 3% is about $934,000.  At 2% return, about right for bonds, it is a $1.4 million pension.

Wed, 04/17/2013 - 19:18 | 3463414 Guy Fawkes
Guy Fawkes's picture

Again ... prove it, if you can. Who gets 3% raises a year? No one. Please stop running a diatribe on things you obviously know nothing about. 

Wed, 04/17/2013 - 09:35 | 3460441 sessinpo
sessinpo's picture

Two

 

Obama's vacation fund

And more importantly, the FRB fund.

Wed, 04/17/2013 - 12:46 | 3461546 Apocalicious
Apocalicious's picture

<Snarf> 26% under-funded. KY is 26% FUNDED. Yes, that's right. 74% under-funded. They paid out 24% of assets last year net of contributions as benefit payments. Isn't that the saying? Stay around 24% spend rate to make your principal last forever? <guffaw>

 

You want to see feces spraying in multiple directions from direct contact with a spinning turbine, watch KY hit the wall in about 3.5 years.

 

Fuck the unions and the politicians. I wasn't a willing participant to this social contract.

Wed, 04/17/2013 - 02:39 | 3459778 qmhedging
qmhedging's picture

Meanwhile in China ,

"(Financial Times) -- A senior Chinese auditor has warned that local government debt is "out of control" and could spark a bigger financial crisis than the US housing market crash.

Zhang Ke said his accounting firm, ShineWing, had all but stopped signing off on bond sales by local governments as a result of his concerns.

"We audited some local government bond issues and found them very dangerous, so we pulled out," said Mr Zhang, who is also vice-chairman of China's accounting association. "Most don't have strong debt servicing abilities. Things could become very serious.""

Wed, 04/17/2013 - 05:21 | 3459906 Offthebeach
Offthebeach's picture

Surely those dirt water carp puddles, fed on second harvest pig and people feces can be financialized?

Wed, 04/17/2013 - 13:22 | 3461794 12ToothAssassin
12ToothAssassin's picture

Zhang Ke said his accounting firm, SCHWING! Wayne and Garth would be proud.

Wed, 04/17/2013 - 11:35 | 3461088 caconhma
caconhma's picture

Do not worry about Chinese. They know how to deal with people.

Remember the Tiananmen Square leading to China renaissance.

Wed, 04/17/2013 - 22:57 | 3464829 GMadScientist
GMadScientist's picture

"We tried coming up with lies out of whole cloth, but we couldn't source enough in time to cover this much bullshit."

Tue, 04/16/2013 - 23:16 | 3459382 ekm
ekm's picture

Sure. It's time that people think and understand that:

 

1) Capital Appreciation is not appreciation at all if you can't sell at that higher price because all buyers are outpriced.

2) What matters is future cash flows.

 

Pension funds have been forced to buy stocks at high price with little cash flow and no chance of selling at that high price since the price would collapse as soon as they'd sell.

 

Life is simple, isn't it YC?

 

 

Tue, 04/16/2013 - 23:38 | 3459470 prains
prains's picture

Yes buy high, smoke the proceeds, it's the new crapitalism

Tue, 04/16/2013 - 23:38 | 3459476 Yen Cross
Yen Cross's picture

 Once upon a time, California was a beautiful place to live EKM.  I'm being stupid. You're an Eastern European, Canadian .

Wed, 04/17/2013 - 00:04 | 3459536 Dr Benway
Dr Benway's picture

Bingo. Unrealized profits are not actually profits at all.

Wed, 04/17/2013 - 00:17 | 3459569 ekm
ekm's picture

Simple concepts most of people never bother to remember.

Wed, 04/17/2013 - 00:27 | 3459600 TPTB_r_TBTF
TPTB_r_TBTF's picture

so, you donT mark to market?

Wed, 04/17/2013 - 04:28 | 3459862 mrdenis
mrdenis's picture

Why just this week unrealized profits quickly turned into realized loses ......

Wed, 04/17/2013 - 11:28 | 3461024 Guy Fawkes
Guy Fawkes's picture

Good point.

 

Not to mention that pension funds are required to hold AAA securities. How is anyone getting a return on US Treasuries?

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