San Diegans voted five years ago this month to switch all new city hires, except police, from pensions to 401(k)-style individual investment plans, becoming one of the first big cities to take the plunge.
In another ruling allowing pension cuts, an appeals court last week overturned a state labor board ruling that a voter-approved San Diego pension reform was invalid because the city declined to bargain the issue with labor unions.
The rate increase is expected to take $400 a year from the average salary of $40,000 for the new teachers. About $200 a year would have been taken if the earnings forecast had been lowered to 7.25 percent as actuaries recommended, a 0.5 percent rate increase. . . Ingram said school districts project that “before long” 25 to 33 percent of their general funds will be taken by retirement and health benefits. . . Carlos Machado of the California School Boards Association said his group expects the combined CalSTRS and CalPERS rate increases to add $1.8 billion to the annual $60 billion cost facing school districts.
“Actuaries are recommending that one of the state’s oldest public pension systems, the California State Teachers Retirement System formed in 1913, lower its investment earnings forecast from 7.5 percent to 7.25 percent. If the newly empowered CalSTRS board adopts the lower forecast next week, state rates paid to the pension fund would increase by 0.5 percent of pay, an additional $153 million bringing the total state payment next fiscal year to $2.8 billion.”
State payments to CalPERS next fiscal year are expected to total $6 billion, nearly double the $3.2 billion paid six years ago before a wave of employer rate increases. . . Meanwhile, what had been the fastest-growing annual retirement cost in the budget, retiree health care for state workers, only increased by about half during the last six years, going from $1.5 billion in fiscal 2011 to $2.2 billion next year.
A second appeals court panel has unanimously ruled that the public pension offered at hire can be cut without an offsetting new benefit, broadening support for what pension reformers call a “game changer” if the state Supreme Court agrees.
New annual CalPERS reports no longer prominently display the pension debt of local governments as a percentage of pay, making it more difficult for the public to easily see the full employer pension cost.
The earnings forecast would drop from 7.5 percent to 7 percent, giving the nation’s largest public pension fund one of the most conservative forecasts, possibly setting a nationwide trend in the view of some. . . When fully phased in the lower discount rate will cost the state an additional $2 billion, Eric Stern of Brown’s Finance department told the committee, half from the general fund that contributes $5.4 billion to CalPERS this year and the other half from special funds.
The California State Teachers Retirement System board, for example, was told that in 1971 there were were six active workers in the system for every retiree. Today CalSTRS only has 1.5 active workers for every retiree, similar to the CalPERS ratio.
A surprising reason dissident actuaries advocate using a much lower earnings forecast for public pension investment funds is “intergenerational equity,” ensuring that the pensions of government workers are paid by the generation that receives their services.
A Milliman actuarial report three years ago said if CalSTRS were still operating under its 1990 structure, without the changes made in the late 1990s, pensions would have been 88 percent funded instead of 67 percent.
A long-sought CalSTRS rate increase, more than doubling the bite from school districts, is the reason given last week for a proposal to increase the lump-sum death benefit, unchanged in the last 13 years.
The official analysis of a proposed public pension initiative issued last week said “likely large savings” in retirement benefits would be offset by pressure for higher pay and other costs.
The push back from schools hit with a huge CalSTRS rate increase, expected to be an additional $3.7 billion a year when fully phased in, is not that it’s unaffordable and will hurt students or unfairly lets the state and teachers off the hook. . . As it stands now, school districts would have to pay for the CalSTRS rate increase with money from a new K-12 funding plan adopted two years ago, the Local Control Funding Formula.
Gov. Brown wants state workers to begin paying half the cost of their future retiree health care — a big change for workers making no payments for coverage that can pay 100 percent of the premium for a retiree and 90 percent for their dependents.
The governor also wants state workers to be given the option of a lower-cost health insurance plan with higher deductibles. The state would contribute to a tax-deferred savings account to help cover out-of-pocket costs not covered by the plan.