Why Public Employee Pensions matter

By Marc Davis

Very few people understand the deep financial problems that exist in our current public employee pensions. Marc is an expert in these matters.

Major problems exist in the current defined pension systems within the state, problems that have the potential to make our current budget problems pale in comparison. I saw some statistics recently that made the problem easy to understand, even for non financial people.

In 1999, the State of California was required to make a total pension contribution of $159M across the 3 pension systems it administers (UC, CalSTRS, CalPERS). By 2009, that state mandated contribution was more than 20 times larger at $3.9B! Consequently, there was $3.741B less money for all state functions including K-12 education. How did this happen?

It is quite simple really. This massive increase in funding for public government employee pensions is a function of 2 basic things -

1. The massive pension increases that were passed into law in 1999 (SB 400) WITHOUT requiring any increase in pension contributions from the employees who are the future beneficiaries of these increases. Not only did none of the plans increase the required employee contributions, but the UC systems hasn't even had their employees make ANY contributions to their pension plan for almost 20 years. Teachers (CalSTRS members) should be hopping mad about this since they've been having 8% a year taken from their paycheck to fund their retirement while the UC employees have paid nothing. Zero, zip, nada.

2. Poor performance by the investments held in these various pension plans - While general market under performance has affected every pension plan, CalPERS and CalSTRS have made major investment blunders that are or will be forcing the tax payers to pony up more money. CalPERS former President is also currently involved in fraud litigation regarding corruption in selecting investments for the CalPERS system.

Without a correction to the above mentioned problems, more and more state money is going to get siphoned away from funding student achievement in the classroom. Additionally, the underfunded nature of these pension systems leave our PUSD employees retirement more vulnerable that it should be.