Experts at a business event Wednesday offered competing visions for the future of California’s underfunded public pension system CalPERS.
Other speakers at the Business Journal's 12th annual Business Journal Impact Marin conference in San Rafael touched on Gov. Gavin Newsom’s performance since taking office this year, as well as the vision for the Station Avenue development in Rohnert Park and the expansion of Marin General Hospital.
The California Public Employees' Retirement System had seen solid investment returns of around 8 percent in recent years according to Randall Dziubek, CalPERS deputy chief actuary. He placed the fund’s current value at $358 billion and said it had 1.9 million members. CalPERS oversee pensions for non-teaching school personnel, state workers and some municipal workers.
Dziubek acknowledged that of all the pension fund’s liabilities, at present 29 percent are unfunded.
The largest funds at CalPERS and CalSTRS, the public teachers retirement fund, have reported gaps of more than $138.9 billion and $107.3 billion respectively between their estimated obligations to retirees and the current value of their assets, according to the Public Policy Institute of California.
Pension experts refer to these gaps as the “unfunded” liabilities a fund faces.
State employees and agencies contribute money to the pension fund but many agencies still owe CalPERS money, contributing to the “unfunded” liabilities.
Agencies being in arrears to the pension fund was a huge problem according to former San Jose Mayor Chuck Reed.
“If you don’t put the money in, they don’t work,” Reed said of public pension programs, speaking from his experience as mayor overhauling the San Jose pension program with the implementation of a fiscal reform plan in 2011.
He said it will ultimately be up to the state legislature to ensure 100 percent of the system’s pension liabilities are funded, noting the state Supreme Court would play a role in setting the parameters for how that is done. The court recently ruled against labor unions’ call to support a long-standing practice of allowing workers to “buy” additional years of service to increase their pensions on retirement.
Reed said the tendency to “over-promise and underfund” when it came to public pensions was a powerful political impulse, and it is increasingly forcing municipalities to raise taxes and cut services in order to pour more money into pension funds.
“There’s no denying over the last few years we have seen consistent increases in contribution rates,” Dziubek said, adding while he expected the trend to continue for the immediate future, it should taper off in years to come as members increasingly affected by pension reform received a lower tier of benefits.
CalPERS board meetings had also recently focused on increasing the fund’s shares in private equity investments to increase returns, Dziubek noted.
Speaking toward the end of the conference, Brian Sobel of Sobel Communications in Petaluma noted public pressure from labor unions was an issue that had to be faced on a state political level to control the ever-increasing public agency money handed over to CalPERS.
Sobel also summed up Gov. Gavin Newsom’s first 100 days, focusing on the governor’s decisions to limit the planned multi-billion dollar San Francisco to Los Angeles high speed rail line and stop executions at San Quentin state prison.
“This is going to be a high profile person, a high profile administration,” Sobel said of Newsom’s public spats with President Trump over the high-speed rail funding and immigration issues.