CalPERS Slashes Pension Payments To Retirees In Two More California Towns By Up To 90%

While we've yet to experience any large municipal pension failures, which is just a matter of 'when' rather than 'if', the small pension failures sprinkled across the state of California are starting to pile up.  As The Sacremento Bee points out today, public workers in Trinity and Imperial counties are just the latest to have their pensions slashed by up to 90% as their cities admit what most of us have known for some time, namely that they're running ponzi schemes which simply don't have the funding required to payout the benefits they've promised. 

Trinity County Waterworks District No. 1 west of Redding and Niland Sanitary District from Imperial County are in line to become the third and fourth government agencies to break with CalPERS over the past 12 months in a manner that shortchanges their retirees.


The CalPERS Board of Administration is scheduled next week to vote on ending contracts with the two small districts because they’re in default.


In Trinity, five current and former employees will see their promised pensions slashed by 70 percent. Niland’s five beneficiaries will see a 92 percent to 100 percent cut in pension benefits, according to CalPERS’ staff reports.


To fully fund their workers’ pensions, the two districts would have to muster up hefty termination fees. CalPERS asks for that money up front, and then moves the separating agency to a low-risk fund called the terminated agency pool.


CalPERS says Niland owes about $200,000 to cover the long-term costs of its employees’ pensions in the terminated agency pool, while Trinity owes some $1.6 million. Trinity has asked CalPERS for a 30-year, no-interest payment plan to cover the termination fee, but the district and the pension fund have not reached a deal, according to CalPERS.



Of course, as mentioned above, these pension cuts will impact a tiny number of retirees but that is all the more telling as elected officials are only willing to admit to their ponzi schemes in instances where the political carnage can be 'managed'...certainly a handful of people here and there are 'expendable.'

As you may recall, 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").  That was followed by retirees of the East San Gabriel Valley Human Services Consortium getting similar cuts 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."

Of course, while they try to lay it off, 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 owed 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."



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.



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 feel free to keep buying stocks irrespective of how close valuation multiples get to infinity.


oDumbo 847328_3527 Thu, 09/14/2017 - 17:51 Permalink

Don't forget the firemen in Orange County that make over $300k per year as well as pensions at about half that amount each year until death.  I wonder how many dishes you have to wash to pay each fireman pension per day... probably takes the marginal contribution of 5,000 dishwashers per day to pay the daily pension for just one fireman.  The dumocrap party is a farce, a cancer and according to the laws of physics, will bring us all down.  Next time a dumocrap sticks it to you because you're right or white, let them know how you feel about government pensions, the jewel of the dumocrap party.

In reply to by 847328_3527

shocktherapy Bay of Pigs Thu, 09/14/2017 - 15:55 Permalink

Like this one The International Union of Police AssociationsDonald Trump was endorsed by the nation's largest police union or this  IAFFRepresenting more than 240,000 professional fire fighters and emergency medical personnel in the United States and Canada. It does not get any better than this… These Union Members and Lifelong Democrats Are Voting Trump

In reply to by Bay of Pigs

studfinder aPocketofResistance Thu, 09/14/2017 - 18:22 Permalink

Not here in Wisconsin.  Many pensioners paid not a dime into their pensions and some are earning more retired then they did most of their career.  Many pensions are based off top 3 (or 5?) earning years.  Work a crap ton of overtime a few years and it pays off for the rest of your life.  The inflated stock market and taxpayers are the funders of these things.  Retire at 50..let the state pick up your spending tab the rest of your life.  Not a bad gig.  Too bad taxpayers are running out and the stock market is rigged and about ready to collapse.

In reply to by aPocketofResistance

1033eruth Bay of Pigs Thu, 09/14/2017 - 17:03 Permalink

There has to be two parties to reach an agreement.  So its not just the public unions.  Its the elected backstabbers that perpetually give in to the unions under the guise of "compromise".  Unions ask for the moon and settle on something less which is still far more than private sector is getting in COLAs.  Elected backstabbers always agree because then those union members are guartanteed votes.  Public unions will urge their members to always vote for the backstabber and they do because they know where there bread is buttered.

In reply to by Bay of Pigs

Justin Case toady Thu, 09/14/2017 - 16:56 Permalink

The U.S. Government is corrupt! The U.S. Government is committing fiscal and accounting fraud by operating with Cash Accounting rather than the proper GAAP Accounting and as a result is not appropriately funding the U.S. Government benefit promises that it has made to the U.S. general public! The U.S. Government has undertaxed the U.S. upper class by $106.9 Trillion and deferred $106.9 Trillion of public liabilities (US Unfunded Liabilities (GAAP)) to the future Americans.Can you opt out of Gov't pension? Uh Uh. Pesion deduction is just another tax that you won't get back. Ah glad we are in a democracy, but the rich love it even moar.The U.S. Government has borrowed $106.9 Trillion from the future Americans and given it to the U.S. upper class! This is fraud! This is corruption! This is grand larceny! The senior U.S. Government officials are common criminals! SUCKERS!

In reply to by toady

Justin Case Squid Viscous Thu, 09/14/2017 - 17:04 Permalink

Our erected Gov't officials here in Canada can collect their pension after 5yrs of service. Their pension per month is equivelent to the maximum a retiree gets per year. We keep voting in people, that's the problem here. People need to stop voting for the best liars, and they're all liars. I was forced to pay into the system for 42 years, so at 60 I can get $640.00/mth. at 65 a whole $1600.00/mth. I don't know what I'll do with all that money.

In reply to by Squid Viscous

Lumberjack zuuma Thu, 09/14/2017 - 16:52 Permalink

California lawmakers just voted to go 100% renewable moments ago.

What needs to be done is making it illegal to use carbon offsets where other baseload generation is concerned, and, no importing electricity from other states that do not have that 100% mandate and/or use carbon offsets.

Welcome to crippling electric bills. We will not subsidize you anymore. California...the new India.

In reply to by zuuma

shocktherapy stacking12321 Thu, 09/14/2017 - 15:29 Permalink

The higher IQ people have no idea how bad this is going to be for them… publication describes retirement benefits and formulas for state safety members. “State safety” members are individuals employed by the state who are involved in law enforcement, fire suppression, the protection of public safety, or who are employed in a position designated by law as “state safety.” 

In reply to by stacking12321

Justin Case More_sellers_t… Thu, 09/14/2017 - 17:17 Permalink

They need to change the plan.If an individual earns over $1 million a year they are not eligible for pension benefits, but must contribute. Over $1 million in assets, not elegible either. Revision to Government officials, their pension is calculated same as the sheeple and not elegible to collect untill 65 yrs of age. Introduce the option to be in a pension, like Gov't plans, or opt out. Opting out, makes you unelegible for any benefits and no deductions. The CEO of Generous Motors earn's a base $16 million salary per year. Jamie Diamon $53 million/yr base.

In reply to by More_sellers_t…

wisehiney Thu, 09/14/2017 - 15:10 Permalink

You fagtifa pussies are gonna get dogshit beaten out of you when these pissed off cops realize that y'all are the only ones around to take it out on.