MOORLACH UPDATE — CalPERS Exit Strategies — November 18, 2017

The union-majority controlled Board of the California Public Employee Retirement System (CalPERS) still doesn’t get it. And the LA Daily News and OC Register editorial piece below provides the proof.

After reading the piece, you’ll understand why I authored SB 681 this past year (see http://district37.cssrc.us/content/senate-bill-681-local-pension-control). It is a two-year bill, so expect some action on January 8, 2018, the first meeting of the Senate Public Employment and Retirement Committee for the 2018 Session. Also see MOORLACH UPDATE — Pursuing Reforms — August 11, 2017.

CalPERS is a multi-employer administrator for defined benefit pension plan sponsors. If a plan sponsor wishes to leave, the formula should be very simple. Calculate the contributions that CalPERS actuaries requested and were paid into the system, then determine the net compounded earnings of those funds placed into the plan, and subtract what has been paid out for benefits to retirees. Simple math. Give the remaining balance to the city (plan sponsor) as that city is required to run the retirement plan, which can be done with another vendor or on their own. The city is required to pay the retirement benefits and CalPERS is absolved of anymore responsibilities.

The terminating agency plan is proof that CalPERS has been committing a form of fraud by undercharging plan sponsors (see MOORLACH UPDATE — What Pension Crisis? — September 27, 2017 ).

To start the process of authoring additional pension reform bills for next year, I recently wrote two letters to two CalPERS Board members. What happened next is mentioned in the piece below and can also be found in MOORLACH UPDATE — OC’s Newest Landmark Plaque — September 20, 2017.

It’s good to see the media keeping a diligent eye on CalPERS and its suspicious and inappropriate strategies when dealing with its “customers.” The CalPERS Board must be realizing that the city of Loyalton’s exit strategy could gain traction. And, like a person that is overly possessive, it can’t seem to let go of something that isn’t even theirs.

BONUS: “The Day the War Hit the Shore” Veterans Day afternoon ceremony last Saturday was an amazing time to informally discuss a tragic and little known event, which occurred in the 37th District back in 1943, with members of the surviving family present. It was held at the clubhouse of Huntington by the Sea, off Newland, just a block from the ocean.

Thanks go to Chris Epting for his outstanding historical scholarship and presentation on this unique summer Sunday afternoon when a P-38 pilot had to eject from his two-engine plane when one of the engines caught fire. The P-38 was headed for the ocean, but the second engine was still operating its propeller, so the unmanned aircraft turned back to shore near PCH and Newland Street. The plane hit a crowded beach and exploded, probably fully fueled, injured 40 Orange Countians and killed four children.

The Barrego and Silva families of Garden Grove, enjoying a picnic on the beach with their families, lost two children each that day and would never be the same.

Daughter Vera Silva did not go to the beach that day. As a 10-year-old, she stayed home to dutifully care for her blind grandmother. For her surviving brothers, who were severely burned, she would be their caretakers, too. They would die at a young age. Her parents would pass away at young ages, too, perhaps due to the tremendous grief.

Vera’s daughter, Maria Young, is a 2016 Daily Pilot Hall of Fame recipient (see http://www.latimes.com/socal/daily-pilot/opinion/tn-dpt-et-community-clubs-20160617-story.html). When Maria wanted to hold her wedding on the beach, near the spot of the incident, Vera had to explain her reservations and finally shared the family story. It was so painful, she had kept it from Maria for some two decades.

G. Pat Macha was in attendance and provided additional information on the P-38 activity in the area during World War II. His aircraft crash site research can be found at www.aircraftwrecks.com.

Chase Wickersham, my appointee to the Orange County Veterans Advisory Council, joined us. He was part of the team that established the Tierney Center for Veteran Services at Goodwill Orange County. Dolf Keller would be very proud of Chase (see MOORLACH UPDATE — Veterans Day — November 10, 2017).

Huntington Beach Mayor Barbara Delgleize also spoke and provided insights as to mounting the commemorative brass plaque in a prominent location, such as the Huntington Beach Library.

Thanks to all who attended, as we enjoyed a “Huell Howser” historical jam session.

OPINION

Losing your pension?

CalPERS wants to shift blame

to cities

CalPERS headquarters at Lincoln Plaza in Sacramento.

By Steven Greenhut

http://www.dailynews.com/2017/11/17/losing-your-pension-calpers-wants-to-shift-blame-to-cities/

http://www.ocregister.com/2017/11/17/losing-your-pension-calpers-wants-to-shift-blame-to-cities/

The nation’s largest state pension fund, the California Public Employees’ Retirement System, still is reeling from bruising publicity it received after it slashed the pensions for workers in the tiny Sierra Nevada town of Loyalton (population 862) and in the now-defunct East San Gabriel Valley Human Services Consortium.

Public employees across California understandably were spooked after reading news stories about the plight of Loyalton’s four retirees after the town exited the retirement system in 2013. And nearly 200 retirees in that San Gabriel consortium are losing as much as 63 percent of their retirement pay because the consortium, known as LA Works, closed its doors and stopped making payments.

But leave it to CalPERS to view that state of affairs as a public-relations matter rather than a CalPERS-created policy problem. At the pension fund’s recent meeting, its board proposed finding a sponsor for a state bill that would require agencies to notify their employees when they intend to exit the pension fund. The goal is to shift the blame to cities and districts that rely on CalPERS to administer their pension benefits.

The proposed legislation shows that CalPERS “would like someone else to deliver the bad news when local governments quit paying their bills and put a retiree’s pension in jeopardy,” reported the Sacramento Bee. CalPERS is capable of keeping pensioners posted, but there’s nothing wrong with giving retirees additional information given the months of uncertainty they endured.

But the CalPERS proposal doesn’t go nearly far enough. Any new law ought to include myriad other disclosures, too. Namely, retirees — and maybe taxpayers, too — ought to be informed about the size of the state’s pension debt and the frighteningly low rate at which CalPERS is funded. They ought to be told why public services are gutted and local taxes keep going up.

But the fund probably wouldn’t be too thrilled about those suggestions, just as it rejected recent efforts by Sen. John Moorlach, R-Costa Mesa, to force it to provide cities with more actuarial calculations. CalPERS said no even though hard-pressed city officials came to a Sacramento hearing to plead with them to provide the data.

Loyalton voted to exit CalPERS because the town couldn’t afford the payments. LA Works exited because it shut its doors in 2014. When they left, CalPERS slammed them with massive bills. Loyalton was assessed a $1.66 million “termination fee” it couldn’t possibly afford given its $1 million annual budget.

Apparently, CalPERS wants retirees to believe that it’s the local agencies’ fault for leaving the fund, without mentioning that it’s the pension fund that put them in their current bind. The issue revolves around some eyes-glaze-over accounting known as the Terminated Agency Pool, but the details say much about how CalPERS operates (hint: for the benefit of union members).

In the private sector, most employees receive 401(k) plans. The employer deducts money, sometimes makes a contribution. The money is invested in a mutual fund. If returns are good, the employee benefits and vice versa. In the public sector, employees receive a “defined benefit.” They are guaranteed a payout based on a formula, regardless of how well the pension fund’s investments may perform. The “unfunded liability” is the difference between what’s promised and the money available to pay for those promises. Taxpayers are on the hook for that shortfall.

The funds invest the dollars and predict a rate of return. Higher returns mask the size of the liabilities and enable governments to ramp up benefit levels — or at least avoid trying to trim them. The fund assumes a hefty rate of return of 7 percent (down from 7.5 percent). But when an agency wants to leave, CalPERS sticks them in a separate fund for terminated agencies, where it only predicts a rate of return of around 2 percent. Local agencies get a bill for the difference.

In other words, the union-controlled fund is bullish when taxpayers’ money is at risk. The fund assumes high rates, which keeps the gravy train chugging along. If there’s a shortfall, they increase cities’ fees or take more money from the state general fund. But when agencies leave, CalPERS no longer has a way to make up for any future losses. So when its own money is on the line, it becomes miserly and assumes a piddling rate of return.

Everything CalPERS does is carefully audited, so it knows how much a local agency has paid into the fund, how much it earned and how much it paid out. CalPERS can calculate a balance and work out a plan with the agency to pay the difference. Instead, CalPERS “negotiates” with these agencies in a way that’s more reflective of negotiations between a mugger and victim. The fund does so because it fears other agencies will head for the exits, too.

Can someone sponsor a bill that discloses those facts to retirees and the public?

Steven Greenhut is Western region director for the R Street Institute. He was a Register editorial writer from 1998-2009. Write to him at sgreenhut.

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