Lockyer, Others Deny Pension Crisis

Brian Calle
Opinion Editor for the Orange County Register, Los Angeles Register and Press-Enterprise. And Editor-in-Chief for CalWatchdog.com

Cross posted at www.calwatchdog.com

Apparently the ideological left, public employment unions and some the state’s top financial officials still don’t get that we have a public employee unfunded pension liability crisis, or they are just in denial.

Late last month, I attended the Milken Institute’s annual “State of the State” conference a usually lively event featuring in depth discussion of the biggest challenges facing the state and sometimes-innovative ideas hosted by one of the state’s most recognizable left-of-center think tanks. Topics discussed ranged from the 2010 gubernatorial election to California innovation to the housing boom and subsequent collapse.

The panels were meaty as one would expect from the institute except for the last panel of the conference. The panel analyzing what I would argue is one of the top three most pressing issues facing the state—unfunded public employee pension liability—missed the mark on almost all counts demonstrating to me little hope for legislative or administrative reform from Sacramento lawmakers, nor a chance at cooperation for labor union leaders.

Panelist Scott Minerd, the chief investment officer for Guggenheim, a financial services firm that buys state debt, set the tone for the misguided panel when he said, “I don’t actually think there is a pension crisis.” Woah! Hold up. According to various recent studies, the unfunded pension liabilities for the state of California ranges from $300 billion to $500 billion. In February, the Pew Center on the States suggested California faced a $1 trillion pension GAP and the Foundation for Educational Choice released a study earlier last month illustrating that “California’s public retirement systems are more than three times underfunded than state officials projected.” That sounds like a crisis. But from Minerd’s perspective given that California is a “longstanding institution” a pension fund roughly funded at 80 percent is “fairly safe.”

Aside from Minerd, the panel was made up of some of the people guiding the pension woes of the state: Bill Lockyer, the California state treasurer, John Hamm, CEO of the California Association of Highway Patrolmen (a union), Jerilyn Harris, chairwoman of the California State Teachers’ Retirement System and the token Republican legislator, the state Senate Minority Leader Dennis Hollingsworth, R-Murrieta.

All sorts of excuses were thrown out for the liabilities including the economic downturn, market returns and lower-than-expected rate estimates, but it was clear from the panelists, especially Lockyer, Harris and Hamm that they were not planning to budge in their positions.

Harris said numerous times that defined benefit plans — retirement accounts that guarantee a set retirement regardless of investment returns— were critical for teachers in particular. She said, “Defined benefit is extremely important to teachers” because teachers are not very good with investments so they need to be taken care of at retirement age. Her remarks were meant to offset calls for moving teachers and other state workers into 401(k)-style retirement packages like most private sector workers have.

Hollingsworth acknowledged that the median rate of investment return over the last 25 years has been 9 percent but in the last several years it was only 3 percent. He asked, “What is an acceptable level of risk?” The bigger issue is the retirees are not taking any of the risk — or even part of the risk, since taxpayers are assuming all of the risk on the government workers’ behalf.

As for Hamm, when pressed about giving more concessions on the pension front he said, “We already shared in the sacrifice,” referring to concessions made by his union during state budget negotiations this year.

Lockyer defended the robust pension system for state workers, saying it was adequate for “a lifetime of service.” He added, “There is a point in having decent pensions in both public and private life and instead of attacking and victimizing people let’s talk about the inadequate pensions in the private sector and figuring out how to fix that problem.” The reason private sector employees have less lucrative pensions is because private companies don’t have taxpayers to depend upon if the market doesn’t perform as predicted.

After agreeing with Lockyer that teacher pensions were not out of line, Minerd asked, “If the percentage is out of whack from the projections, though, should the taxpayers be on the hook or should the employees be on the hook?” Lockyer retorted, “The courts have already decided that in defined benefit plans.”

Unfortunately. the panel of experts was more a panel of enablers and deniers more concerned with taxpayer dollars being diverted from the state budget or state programs to cover pension shortcomings rather than addressing the bigger issues surrounding public employee pensions: unfunded liabilities, their lucrative nature, the taxpayer burden and the responsibility of a worker to share in their investment risk.

This particular pension panel was a perfect microcosm of why many in the fight for pension reform have a pessimistic view of making progress on this issue under the current leadership in Sacramento.

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