Our View: Keep state away from private pensions Appeal-Democrat

One sentence summary: Given CalPERS is underfunded by $75B it does not make sense to add more people into the broken  CalPERs system.

Multi-sentence opinion: It does make sense if you need to draw money from fresh new participants to maintain the high benefits to previously retired and current members.  This is similar to a Ponzi scheme.  It is better for early entrants: the previously retired and current members.  The alternative would be to cut their benefits or CalPERs expenses.

Something has got to give.  The reinvestment rate assumption of 7.75% is not realistic.  So what gives?  Cut existing benefits?  Take more risk to [hopefully] achieve 7.75%?  Maintain existing benefits and cut those of newcomers (while still drawing the same amount from their checks)?  Tough choices indeed.

What would I do?  Several things simultaneously.

  1. Revise that 7.75% downward to something more reasonable, maybe 5%.
  2. Adjust existing and new pension plans so that the payouts are commensurate with the expected returns of 5%.  That is, shared sacrifice.
  3. If returns turn out to be higher than the conservative expectation, pay out a bonus check equitably to members who contributed to the plan.  That is, shared prosperity.
  4. Revisit the CalPERs cost structure.  Any overly-generous contracts?  Have we seen a divergence in the pay of the average CalPERs worker vs. top management?

I know these are high level suggestions needing further analysis.  I just hope someone at a high level hears about this blog and considers the suggestions.  Here is the article:

http://m.appeal-democrat.com/articles/view-119534-keep-kevin.html

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