MOORLACH UPDATE — Half Full or Half Empty? — August 9, 2016

The old debate of the glass being half full or half empty seems to spill over into many areas, including the public employee defined benefit pension plan world.

Those who have a vested interest in receiving a retirement benefit from a public employee pension plan, usually public employee union representatives, will tell you that CalPERS is half full. Those that have a strong understanding of the math involved with public employee pension plans are convinced that they are half empty. You can see it by their quotes. The OC Register piece below is below is a fine example of this ongoing debate.

The $100,000 Club is one metric by which to provide an understandable means for most people on the money being bantered around. It resonates. And, members of the media understand it. This information has introduced many reporters to this subject that would not ordinarily have been interested. After all, defined benefit pension plans are a MEGO issue and it is difficult for audio and visual media representatives to present. "My Eyes Glaze Over" is what MEGO stands for. I ran into this phenomenon back in 1994 trying to explain reverse repurchase agreements and inverse floaters.

Folks, the glass is half empty and municipal budgets are being heavily impacted, not only in California, but around the nation. To see the magnitude of how often public pensions now receive media attention, I would recommend that you visit the Pension Tsunami website at http://www.pensiontsunami.com/. And this topic is guaranteed to command more media attention as the months and years pass.

It is time for the Governor of California and the Legislature to get in front of this massive fiscal drain (see MOORLACH UPDATE — Peter Pan Portfolio — July 24, 2016 july 24, 2016 john moorlach). Nibbling on the edges is not going to cut it. Otherwise, the next Governor is going to be the recipient of the Pension Tsunami.

P.S. Happy 36th Wedding Anniversary, Trina!

Public retirees with pensions over $100,000 a growing group

CalPERS: Data showing ‘100K Club’ membership jump not the whole story.

TERI SFORZA
STAFF COLUMNIST

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Back in 2005, just 1,841 retirees pulled down more than $100,000 a year in pension checks from the California Public Employees’ Retirement System.

A decade later, membership in the so-called $100K Club had swelled by nearly 20,000 souls.

CalPERS data provided to the conservative leaning group Transparent California, and analyzed by the Register, found that 21,652 public retirees received annual benefits of more than $100,000 in 2015.

That figure includes a jump of 28 percent in just two years – which might seem jarring at first blush, but actually represents a slowdown in the club’s explosive growth of late. Between 2005 and 2009, membership in CalPERS’ $100K Club tripled. Then, between 2009 and 2013, it nearly tripled again, largely a function of higher working salaries and more generous retirement formulas.

Orange County landed just one retired worker on the Top 25 statewide: Dave Ream, longtime Santa Ana city manager, at $263,202. Los Angeles-area cities, special districts and universities dominated the Top 25.

‘ZEALOTS’

Tracking this number is acontroversial endeavor.

“What makes the ‘$100,000 Club’ some magic number denoting abuse other than the claims of anti-pension zealots?” said Dave Low, chairman of Californians for Retirement Security, a coalition of 1.6 million public workers and retirees.

“The classifications in the ‘club’ are doctors, lawyers, hospital administrators, city managers, superintendents, college chancellors and presidents, etc., who are often earning far less than their counterparts in the private sector,” Low said.

The average CalPERS pension is less than one-third of that, said Amy Morgan, spokeswoman for Cal-PERS.

But advocates for major public pension reform cite the $100K Club boom as evidence that the system – which guarantees payouts for life, regardless of whether CalPERS has enough money – is unsustainable over the long haul and must be revamped to protect taxpayers, who are ultimately on the hook.

“What this information does is remove the shroud that defines public pensions and lets people see what things cost,” said Robert Fellner, research director for Transparent California.

“Contrary to the incredibly misleading averages they cite – which include people who worked for just a couple of years but still get a pension, which pulls down the average – you see the benefits are rich when you look at the folks who worked a full career. There aren’t people who work a full career and get the average pension.”

Our spin through the data shows that the average pension for retirees with 25 or more years of service – roughly one-third of the people in the system – was $55,189.

SMALL SLICE

CalPERS has pointed out that the $100K Club has remained relatively stable at 2 percent to 3 percent of the total pool of retirees through the years. In 2013, we calculated the club at 2.9 percent of all retirees; for 2015, we calculated it at 3.5 percent.

“Measuring the percentage increase is an absurd measure, as the number was low and continues to be so as part of the overall workforce,” said Steven Maviglio, spokesman for Californians for Retirement Security. “Of the top earners, these employees tend to be upper management or public safety workers who have put substantial hours of OT on the job – and have no Social Security.”

Unlike in the private sector, about 29 percent of Cal-PERS retirees don’t get Social Security benefits, said Morgan, CalPERS’ spokeswoman, so their CalPERS pension may be their sole source of retirement income.

Though pension reforms for new hires enacted in 2013 will eventually make it much harder to crack the $100K Club – even for upper management – it will take decades before those new hires retire, and the effects are seen.

That means membership in the club will keep growing, “if for no other reason (than) because salaries will go up over time,” Low said.

IN O.C.

Transparent California found that, in all, 1,495 Orange County retirees collected benefits worth at least $100,000, an 11 percent increase from last year.

The list is dominated at the top by city managers, but public safety officers largely round it out.

In California, public pension promises are considered etched in stone and cannot be altered, at least not outside of federal bankruptcy court.

Most cities and special districts in Orange County –and statewide – contract with CalPERS to run their retirement systems. It covers all state workers as well. CalPERS is the largest public retirement system in the world and largely viewed as a bellwether and a trendsetter.

Climbing unfunded liabilities, weak investment earnings and expectations for less-robust earnings over the next 30 years are fueling cries for reform.

“The next governor will have a big job on his/her hands,” said state Sen. John Moorlach, R-Costa Mesa, long a pension-reform warrior. “And if the nation enters its next recession, the situation will get even bleaker.”

CONTACT THE WRITER: tsforza

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