CalPERS Threatens To Slash Pension Benefits By 63% For Some Unfortunate East San Gabriel, California Workers

Tyler Durden's picture

Last October we wrote about the unfortunate situation in Loyalton, California whereby CalPERS was threatening to slash pension payments to a group of retired city workers after their City Council members failed to understand basic pension accounting and the unintended consequences of terminating their plan (see "Pension Benefits In Tiny California Town To Be Slashed As "Ponzi Scheme" Is Exposed").  Now it seems as though retirees of the East San Gabriel Valley Human Services Consortium may be facing a similar fate after their former municipal employer failed to pay their pension dues.

But her former employer, East San Gabriel Valley Human Services Consortium, left a $406,027 unpaid bill to the California Public Employees’ Retirement System, which manages benefits for 3,000 local governments and districts. As Calpers, the nation’s largest public pension, deals with a growing gap between what’s been promised and what’s been set aside, it may slash the checks of Lynch and 190 other workers by 63 percent -- the rate by which the agency has fallen short.

 

"We were always told that it was set in stone. Now to find out that’s not true -- is the sky blue? Is water wet?" Lynch, who lives in a 1994 motor home, said of her pension. "We’ve paid 100 percent of our responsibility into it. I just don’t understand how they can come along and cut so much out."

And while CalPERS will take all the full blame from angry retirees who are about to have their pensions slashed, apparently 4 California cities walked away from their funding obligations after shutting down over an overbilling scandal that surfaced back in 2014.

The case of the former East San Gabriel agency would be felt more broadly. Known locally as LA Works, the service at its height had about 140 employees and an annual budget, funded mainly through government grants, of about $13 million, said Tom Mauk, a consultant hired to help wind down its books. It went out of business after Los Angeles County severed its relationship, citing overbilling by the agency.

 

Calpers had asked the cities that formed the entity -- Azusa, Covina, Glendora, and West Covina -- to pay the debt to the retirement plan because, as staffers said during a February board meeting, of their ethical responsibility.

 

"What’s unacceptable is the fact you have a number of employees who were promised a benefit, nobody is paying to meet that liability and people are walking away from their responsibility," Costigan said in an interview.

 

Municipal officials said they have no legal obligation. Any payment could be considered an illegal use of public funds, said Chris Freeland, West Covina City Manager.

Of course, CalPERS certainly deserves a healthy portion of the blame here as they've been willing participants in perpetuating one of the largest public pension ponzi schemes in the country for years now.  Just last December we noted CalPERS' decision to only modestly decrease their discount rate by 50 bps, a move which their finance committee chairman all but admitted was politically motivated to allow "municipalities and other government agencies some breathing room" rather than lower it to where it should be and take the risk of bankrupting half of the state of California.  Here's what we wrote:

A few weeks ago we asked whether CalPERS would rely on sound financial judgement and math to set their rate of return expectations going forward or whether they would cave to political pressure to maintain artificially high return hurdles that they'll never meet but help to maintain their ponzi scheme a little longer (see "CalPERS Weighs Pros/Cons Of Setting Reasonable Return Targets Vs. Maintaining Ponzi Scheme").  The decision faced by CALPERS was whether their long-term assumed rate of return on assets should be lowered from the current 7.5% down to a more reasonable 6%.  Well, we now have our answer and it seems the board erred on the side of maintaining the ponzi with a decision to reduce the fund's discount rate by only 50 bps, to 7%, to be phased in over 3 years.

 

Of course, this decision should come as little surprise to our readers as we concluded our previous post with the following prediction:

 

We've seen this battle between math/logic and politicians played out numerous times in states all across the country.  Somehow we suspect that "math/logic" will continue to lose...better to bury your head in the sand for a couple of more years and pretend there is no problem.

 

Meanwhile, Richard Costigan, chairman of the CalPERS finance committee, who vowed that "this is just a start," more or less admits that the decision was politically motivated to allow "municipalities and other government agencies some breathing room before they absorb the impact."

Calpers

 

Of course, while CalPERS is the largest public pension in the U.S. it's certainly not the worst off from a financial perspective (yes, we're talking about you Illinois).  In fact, there is roughly $2 trillion in total underfunded state and local pension liabilities around the country.

Pension

 

That said, the situation looks even more dire if you adjust that underfunding amount to reflect an appropriate discount rate rather than the 7.5% "dream rate" that CalPERS and most of America's other pension ponzis use.  In fact, we recently took a stab at calculating the real taxpayer liability outstanding to America's public pensions and found it to be closer to $5 - $8 trillion (see "An Unsolvable Math Problem: Public Pensions Are Underfunded By As Much As $8 Trillion").

We decided to take a look at what would happen if all federal, state and local pension plans decided to heed the advice of Mr. Gross. As one might suspect, the results are not pleasant.  We conservatively assume that public pensions are currently $2.0 trillion underfunded ($4.5 trillion of assets for $6.5 trillion of liabilities) even though we've seen estimates that suggest $3.5 trillion or more might be more appropriate.  We then adjusted the return on asset assumption down from the 7.5% used by most pensions to the 4.0% suggested by Mr. Gross and found that true public pension underfunding could be closer to $5.5 trillion, or over 2.5x more than current estimates.  Others have suggested that returns should be closer to risk-free rates which would imply an even more draconian $8.4 trillion underfunding.

 

  Pension Underfudning

 

But we can kick this can down the road for a while longer...so feel free to keep buying stocks irrespective of how close valuation multiples get to infinity.

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ejmoosa's picture

When these ticking time bombs start to explode, there's gonna be hell to pay.

 

These liberals better hope like hell Trump actually can get this economy up to 4 or 5% REAL GDP Growth.

Bastiat's picture

An excellent article-coherent. focussed. factual.

Shemp 4 Victory's picture

 

"I just don’t understand how they can come along and cut so much out."

Yes, you don't understand. But you will...

ACP's picture

So a 63% cut means they'll only be getting $100k a year.

localsavage's picture

That is what happens when you trust the goverment to take care of you.

sixsigma cygnusatratus's picture

"...In fact, we recently took a stab at calculating the real taxpayer liability outstanding to America's public pensions and found it to be closer to $5 - $8 trillion."

That's a whole lot of money that people are counting on, and believe it exists but will find out it's gone. Slightly...DEFLATIONARY (but it's wafer thin).

ebworthen's picture

"Pension" = a lie wrapped in bacon and cheese.

Wall Street loves the lies, that's how they make their living.

The .gov folks at CALPERS and Fannie/Freddie, etc., are just along for the ride.

If you don't hold it you don't own it; and you can be bent over and ass-raped at any time. 

If 2007/2008 didn't teach people that there is no such thing as money or the rule-of-law, nothing will.

PT's picture

So the last couple of days we've heard about Dallas police, Teamsters and now CalPers.  Is anyone keeping track of this?  A nice timeline to refer to would be fun.

prime american's picture
prime american (not verified) PT Mar 2, 2017 5:03 AM

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... http://bit.ly/2jdTzrM

BlindMonkey's picture

"I just don’t understand how they can come along and cut so much out."

 

Math is a bitch and doesn't give a shit about what you thought you were promised.

phatfawzi's picture

they were sold a brown bag with a piece of shit in it, they just looked inside. 

PT's picture

I often wonder if the story of Pandora's Box was actually referring to Pension Funds and synthetic Collateralized Debt Obligations and the like.

"We're all filthy rich.  But whatever you do, don't look inside" ...

NoDebt's picture

They trusted lying politicians.  My sympathy level is low.  I remember having conversations about underfunded pensions as far back as the late 80s.  It was ALWAYS the plan that when the pensions ran low they'd just tax people more to make it up (but that was the next administration's problem).  We have now arrived at that point in many places.  Taxes will go up until the giant lump of pension retirees starts to die off (~2030s) and loses their voting grip to keep that river flowing uphill any longer.  

There are no easy choices any more.  Just pain and it's apportionment for as far as the eye can see.

They'll scream.  They'll yell.  They'll threaten.  They'll cry that you have the blood of innocents on your hands.  But if you are young, you fight ANY new taxes for ANY reason with every ounce of strength you have.  You will mostly lose at first (taxes WILL go up, government services WILL be strained fighting their own pension obligations for limited funding), but as time passes the victories will come a little easier.  You have to outlast the bastards, but you also have to fight or they'll drain you dry.  It'll get worse before it gets better.

 

 

nmewn's picture

It is kinda hard to have sympathy for "public servants and their pension problems" when the rest of us don't even get one, ain't it?

Poor babies ;-)

PT's picture

Now their pensions are gone, they'll have to keep working forever so they can pay taxes so the govt has money to give to unemployed young people.

So sad.  Now the Public Servants can't retire, they'll have to keep "working".  If "Public Servants" do/don't retire, will you notice the difference?

So many different angles, now my head is spinning.

I expect to see an announcement soon that many older Public Servants are choosing to "work from home" ...

GUS100CORRINA's picture

Another VICTIM of the FED ZIRP policy!!

Publicus_Reanimated's picture

The young will have no mercy on us when we are old.  We screwed them so badly they will not forgive us.  First they will take away our right to to vote.  Then they will herd us into geratric concentration camps where we have access to all the "services" we need.  Our stuff will be given to young people who are productive, unlike old people who are just a drain.  It will not be pretty and I hope I am dead before it happens.

PT's picture

If the young have brains then they will let the old retire so they can have their jobs.  Then the young can earn their own money and buy their own houses instead of relying on their parents to "help them" buy a house.

Admittedly, the old may have to retire on less than what they thought they could retire on but can you see what is happening yet?

"I have to keep my $100k pa pension so I can help my adult child buy a house becoz they only make $30k pa".

It is a multi-faceted problem.

SilverRoofer's picture

If you like your pension plan you can keep your pension plan

If you like your doctor you can keep your doctor

We need to pass it to see what's in it

They will lie about anything

 

Elco the Constitutionalist's picture
Elco the Constitutionalist (not verified) ejmoosa Mar 2, 2017 1:51 AM

He is not doing it without massive tariffs and fiscal stimulus (infrastructure and investment in re-industrializing the nation).

Sword of Troy's picture

Golden (or is it Amber) State liberal pussies are now getting a taste of socialism. Promise you a rainbow, mortgage your future, stab you in the back when you retire, and leave you for the dead unless you can vote.

Mr. Universe's picture

Kick, kick, ...YIKES, it won't kick anymores.

gatorengineer's picture

wait they will pave the road with more printed fiat and the can will glide

GRDguy's picture

Follow the trail of who handled CALPERS investments and you''ll find who did the lyin' and stealin'.

Of course, that won't happen. 

PT's picture

One more crime for the Dallas police officers to investigate, since they won't be retiring any time soon either.

LetThemEatRand's picture

"We were always told that it was set in stone. Now to find out that’s not true -- is the sky blue? Is water wet"

You know what else is set in stone?  The dam in Oroville.  Water is wet, but the sky is not always blue.

Wilcox1's picture

Yeah, the stone stayed there: The little bit at the base of the spillway. Just like the california pension plan return projections, a little bit will stay there. The rest is gone. There is a silver lining though... the retirees can go to oroville and pan for gold in the erosion deposits.

TomJoad's picture

Anyone acting surprised by a shortfall in ther public pension deserves the haircut. Moronic leeches.

TeethVillage88s's picture

repost: (it is too complicated for you to understand... well you should see the true in the numbers... well you should see the that we are in compliance with the law and that we are at the top of our industry... so we are the best... you should invest with us... actually you would be stupid to invest any place else than in Anglo- American Funds/Anglo-Oligopoly funds!!

It is very English! - to teach and demand respect for powers and importers/exporters/merchant class.

- Like patriarchy for the Lords, House of Lords, whom no citizen ever voted for and could not vote till 1920

- Like the powerful press, they speak with the power of a Lord!! Pay homage, tribute, respect, and teach your underlings
to never utter a single slight about the Publishing Houses, Fleet Street, nor the House of Lords and the East India Company!

- Long Live the Queen

small axe's picture

the big print giveth and the small print taketh away

CalPERS lawyers dream about just this kind of scenario.

TeethVillage88s's picture

All Right what is all this then - said the constable!

Crisis, what Crisis - Said the Lord from Westfuckture!

Monthly Treasury Report 30 Sep 2002, shows Pension Benefit Guaranty Corporation under Department of Labor

2016 Pension Benefit Guaranty Corporation outlays = $6.2 Billion
2015 Pension Benefit Guaranty Corporation outlays = $6.1 Billion
2014 Pension Benefit Guaranty Corporation outlays = $6 Billion
2013 Pension Benefit Guaranty Corporation outlays = $5.9 Billion
2012 Pension Benefit Guaranty Corporation outlays = $5.9 Billion
2011 Pension Benefit Guaranty Corporation outlays = $5.9 Billion

2010 Pension Benefit Guaranty Corporation outlays = $5.6 Billion (new Normal)
2009 Pension Benefit Guaranty Corporation outlays = $4.7 Billion
2008 Pension Benefit Guaranty Corporation outlays = $4.7 Billion
2007 Pension Benefit Guaranty Corporation outlays = $4.6 Billion
2006 Pension Benefit Guaranty Corporation outlays = $4.4 Billion
2005 Pension Benefit Guaranty Corporation outlays = $3.6 Billion
2004 Pension Benefit Guaranty Corporation outlays = $3.2 Billion
2003 Pension Benefit Guaranty Corporation outlays = $2.5 Billion
2002 Pension Benefit Guaranty Corporation outlays = $2.1 Billion
2001 Pension Benefit Guaranty Corporation outlays = $1.4 Billion

RafterManFMJ's picture

These are great times to be alive, my brothers!

Dead Canary's picture

The shit/fan paradigm is about to unfold.

CRM114's picture

The UK Government stopped émigrés moving their public pension lump sums abroad 2 years ago, and they were dragging their heels for 2 years before that.

I shouldn't be at all surprised to find the entire western world's governments are lining their pensioners up to be shafted over the next few years (or immediately there's a crash).

Bastiat's picture

An essential and not well known fact : CALPERS is not one big pot.  There are 3000 unique accounts - one can go down and have zero effect on another which is fully funded.

azusgm's picture

Did not know that. Thank you.

earleflorida's picture

fully funded yeah like social security, federal employess union... all by the full 'bs' faith of a 'broke' ussa gov't.. indeed, fully funded as in unique accounts where the  pyrimid's corner stone of golden coffers has thus eroded into dust mites.

Idaho potato head's picture

Yes a hard rain's a-gonna fail.....

We Are The Priests's picture

Here's what's really sad.  I was talking to a county probation officer last night who has 16 years to go to retirement.  He's a very intelligent man, knows how to read, truly believes that 1+1=2, and is fully aware of the crisis that is CalPers--the only fund he is investing in.  I asked him what he's doing to protect his financial future given the real likelyhood CalPers won't survive the current decade.  His answer?

"I'm just hoping they can keep it all together."

Then I shared with him what I'm doing--investing in a DHAP--and offered--free of charge, BTW--to show him how he could do the same.  His answer?

"No thanks.  Only crazy preppers and conspiracy nuts do that kind of shit."

Normalcy Bias will no doubt prove to be fatal.

10mm's picture

Then he's not so intelligent. 

We Are The Priests's picture

I was led to the same conclusion when he refused my help.

sodbuster's picture

What is DHAP? Thanks.   Never mind Priests- google is my friend......

HRH Feant's picture
HRH Feant (not verified) sodbuster Mar 2, 2017 3:35 AM

I searched. Disaster Housing Assistance Program through HUD?

Why would you invest in that? I don't get it.

Fuck HUD.

Lost in translation's picture

I don't think they have a choice about paying in - do they? I thought they were forced to pay in...

silverer's picture

Hope. Unicorns. Safe spaces. Rainbows. Empathy. Trust. Sunshine. Equality. Forward. Hey, where's my money??

HRH Feant's picture
HRH Feant (not verified) We Are The Priests Mar 2, 2017 3:31 AM

I don't know what a DHAP is but you could have told him about PMs. The principal that if you can't touch it you don't own it. Silver is still cheap at under $20 FRNs.

He'll learn. Sounds like he will learn the hard way and that always sucks.

earleflorida's picture

and the democrats get their [? up-n-comin's] as in..."revenge is a dish best served cold", having given thy Obama Adm., free reign over our purse-strings--- letting the country slip into $20Trillion Debt, in which he doubled.

bush#41 doubles debt (R)

wjc adds ~ 1/3 debt (not bad) (D) excl NAFTA/ CAFTA

bush #43 doubles debt (R)

obama #44 doubles debt fron $10 Trillion - $20 Trillion ---TBTF's Freed/ TPP? etc.,etc.,... (not bad for a US Sen. having not even serving half his first`tyme [jr.]`with only ~ three years in office becoming the POTUS) Ps. and this guy obama voted 'not present 66% of his tyme!

Trump #45--- and they hate the 'Donald!?!

What a country...[?!?]  comrade Bush's/Obama