Their loss is...your loss

Ahhh we hate to say we told you so..but here comes the bad news (well just for you the taxpayer not for you government workers...and we use the term "workers" lightly). You see as we explained before when "Joe the Taxpayer's" company goes belly up or your 401k drops in value, you learn to live on less in retirement or work much longer. Well that won't cut it for those dedicated government workers on CalPERS. Mr. and Mrs. Taxpayer have (are required) to bail them out too just like the fat cats on Wall St. And no you dont get a vote or a choice or a say in the matter. Gotcha! So when you tell little Johnny he won't be going to college (as your 401k just dropped 50%), tell him its okay as he wont need that education. He can get a government job with short hours, high pay, unending perks, free cars, gold plated healthcare for life and a pension that is better than most on Wall St. get. And then if the economy ever hits the skids he can laugh at all the dummies working in the private sector. Obama could solve the recession issue by just giving us all government jobs. Dont ask who would pay for them. Your kid's kids could figure that out later.

State public worker pension fund takes big hit
The market downturn has walloped the nation's largest pension fund.

Carolyn Said, Chronicle Staff Writer
Monday, December 8, 2008

The California Public Employees' Retirement System portfolio has lost 31.1 percent of its value since peaking last fall, a staggering $81.4 billion drop. CalPERS officials say a "rainy day fund" is helping to defray the losses - for now. But if the market slump continues, they will hit up state and local employers for more money. That's a painful prospect as California struggles through a fiscal emergency and municipalities cope with the foreclosure crisis and economic downturn.

The good news for the 1.6 million CalPERS retirees, workers and family members is that their pension benefits are guaranteed.

"Obviously, if there is a downturn, there are going to be ramifications," said Rob Feckner, president of the CalPERS board. "Our job is to make sure we protect the system and the funds that are there for the pensioners."

The CalPERS portfolio hit a high point of $260.6 billion on Oct. 31, 2007. As of market close on Dec. 4, it had fallen to $179.2 billion - almost back to its value in mid-2000.

The portfolio drop comes amid a time of extraordinary financial turmoil, with wrenching contractions on Wall Street that have wiped out trillions of dollars of shareholder value. The Dow Jones Industrial Average has dropped 39.8 percent during the same period that the CalPERS portfolio fell 31.1 percent, for instance.

Unlike many pension funds, CalPERS can require employers to dig deeper when needed. Since those employers are public entities, their funds come from taxpayer dollars. This fall, CalPERS warned that it might ask for more money from the state starting in July 2010 and from local-government employers starting in July 2011.

If the current losses are sustained, CalPERS said the increases could be from 2 to 5 percent of payrolls. That's a hefty rise on top of the 12.7 percent of payrolls employers already contribute to the pension fund. (Employees contribute from 5 to 7 percent of their salaries.) If losses are more moderate, then the potential increases would be smaller. Although it seems highly unlikely, if the fund finishes the year in positive territory, employers could even see their pension obligations reduced.

"We wanted to give an early warning so they had plenty of time to prepare if the worst were to happen," said Pat Macht, a spokeswoman for the agency in Sacramento.
Long-range focus

She and other experts emphasized that CalPERS focuses on long-range planning.

"It's important to remember that public pension funds exist over decades and their liabilities will come due over decades, which provides the time for markets to recover and funding levels to recover," said Keith Brainard, research director of the National Association of State Retirement Administrators. "Yes, this has been a precipitous market decline, but because (CalPERS and other retirement plans) have plans and mechanisms to smooth out peaks and valleys, the actual effect is likely to be far less sharp."

The nation's second-largest public pension fund is the California State Teachers' Retirement System with 794,812 members. It, too, has sustained heavy losses in the market downturn. Its portfolio fell 20.3 percent, or $32.9 billion from June 30 to Oct. 31, going from $162.2 billion to $129.3 billion.

CalSTRS' defined-benefit pensions are guaranteed just like those of CalPERS. Unlike CalPERS, however, the teachers' fund does not have the authority to ask for increased contributions from employers. Any contribution changes would have to be enacted by the Legislature and approved by the governor. CalSTRS is funded by school districts contributing 8.25 percent of payroll, the state general fund paying in a tad over 2 percent of payroll, and members contributing 8 percent of salaries.

"As a patient, long-term investor, we're built to make it through these ups and downs," said Sherry Reser, a CalSTRS spokeswoman in Sacramento. "We're a forever investor. There is going to be a recovery; we've done this before."

Both funds use various "smoothing" mechanisms to help minimize the impact of market volatility.

During four years of double-digit growth from 2004 to 2007, CalPERS reserved 14 percent of its total portfolio to hedge against drops, Macht said.

"If we had not done this, it would have been considerably worse," she said. "The impacts of today are being softened considerably."

However, that cushion is largely depleted. For the fiscal year ended June 30, 2007, the portfolio was down 5 percent. The "rainy day" funds were used to make up that shortfall and provide the returns CalPERS would have experienced if the portfolio had risen 7.75 percent.

The portfolio fell an additional 25 percent from June 30 to Dec. 4. There are still almost seven months in CalPERS' fiscal year, but if the results are still negative on June 30, then it will ask agencies to ante up.

Hoping for best

California Treasurer Bill Lockyer, who sits on the CalPERS board, said he is hopeful that market conditions will improve by then so it won't have to ask for more money.

But if agencies do have to dig deeper to fund pension obligations, "this would be an added burden," he said. "It means both state and local government employers would be spending more on retirement than on some immediate program needs. Paying the commitments to pension obligation is a high priority, and it would take precedence over many other spendings." (LAAG translation: we pay ourselves first from the trough and you the tax payer gets less in return for your tax dollar by way of "services")

Where would the money come from? Government has just two choices, Lockyer said. "You either cut some other program expenditures or you tax something."

Critics say that underscores their basic gripe with public pensions: Taxpayers end up footing the bill. (LAAG: There's a shocker!)

"This is another example of why, over time, all public entities in California need to think seriously about changing from the defined benefit to the defined contribution plan," said Jon Coupal, president of the Howard Jarvis Taxpayers Association in Sacramento. "With defined contribution plans, which can still be quite generous, the taxpayers' obligation ends when those contributions are made. You don't get in a situation like we have right now, where the economy is heading in a downward spiral and you ramp up taxpayer obligations to meet those pension obligations."

Attempts to change public pensions meet strong opposition from government workers and their unions. In 2005, Gov. Arnold Schwarzenegger proposed reforming California public pensions with a 401(k)-style plan, but later withdrew the idea.

About CalPERS

Mission: Manages pension and health benefits for public workers from about 2,300 California public entities. Pensions, which are guaranteed by law, are defined benefits determined by a retiree's salary, length of service and age.

Members: 1.6 million public employees, retirees and their families (1,126,133 active and inactive members; 476,252 retirees). Members are drawn about one-third each from state government, schools and local government agencies.

Income: Participating agencies contribute an average of 12.7 percent of payroll. Workers contribute 5 to 7 percent of their salaries.

Source: CalPERS
Possible changes in employer contributions

Depending on investment results when the fiscal year ends on June 30, 2009, CalPERS may request additional contributions from employers, which are taxpayer-funded government entities. So far this fiscal year (from July 1 to Dec. 4), the investment return is -25%. Contribution decreases are smaller with larger returns because CalPERS would hold back some gains as a cushion for future downturns.

2008-09 investment return Change in employer contributions as percentage of payroll
-20% 2% to 5%
-15% 1% to 2%
-10% 0.2% to 0.5%
0 0.1% to 0.2%
7.75% -0.1%
10% -0.1% to -0.2%
20% -0.2% to -0.5%

Source: CalPERS

E-mail Carolyn Said at csaid@sfchronicle.com.

http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/12/08/MN1314IRLO.DTL

This article appeared on page A - 1 of the San Francisco Chronicle

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