August 1, 2013

California pension funds took in $33.8B, paid out $28.2B last year

California's state-managed public employee pension funds took in $33.8 billion from employer and employee contributions in 2012 and paid out $28.2 billion in benefits to 874,734 retirees, according to a new Census Bureau report.

There are five state-managed pension funds but the two biggest, the California Public Employees Retirement System and the State Teachers Retirement System, account for all but a fraction of their overall economic activity.

Collectively, the five held $430.2 billion in assets of various kinds - corporate stocks being the largest single bloc at $177 billion -- in 2012 but had $592.2 billion in calculated obligations for 1.9 million public employee members of the systems, the report said.

Investment earnings in 2012 were just under $14 billion, while employees contributed $6.2 billion and state and local governments kicked in another $13.7 billion.

The report did not include any numbers for the systems' unfunded liabilities, although no one disputes that there are some. The size of those liabilities, however, is the subject of much political debate because they hinge on actuarial assumptions of how many public employees retire and when they retire, and future pension fund earnings.

Generally, the funds assume a "discount rate" -- the same as their assumption of average earnings -- of about 7.5 percent a year, although they vary a bit from fund to fund. Critics have said that is too high and artificially lowers unfunded liabilities, whereas a lower rate, closer to the corporate bond rate used by private funds, would be more realistic.

The Governmental Accounting Standards Board has been pressing state and local governments to at least report what liabilities would be with lower rates, even if they are not officially adopted.

Last year, the Legislature and Gov. Jerry Brown adopted a relatively mild pension reform plan aimed at reducing future liabilities, but its effect has yet to be felt. The plan also encourages local governments, which either operate their own pension funds or contract with CalPERS, to do the same and it's a burning issue at the local level.

It's also an issue for two California cities, Stockton and San Bernardino, that have filed for bankruptcy protection. Their federal bankruptcy court proceedings have been dominated by uncertainty as to whether pension obligations can be reduced in bankruptcy, or are legally off limits.