Pension Truth in California

By Carla Miles

Unfunded state pension liabilities are a huge problem for everyone. The PEW Center on the States has estimated the national shortfall at $757 BILLION. (An SBS, State Budget Solutions, report says -nationwide- it's more likely a $4.6 TRILLION shortfall.) *SBS is a nonpartisan budget reform organization that compiles data on budget trends across the 50 states.

A Public Employees Retirement System's recent report, showing only a 1 percent return for the fiscal year ended June 30th, should raise red flags. Fitch Ratings says this is "well below" the 7.5 percent return which the system uses to calculate its condition, according to Bloomberg.

What does that mean? Well, if you are a public service worker, you are likely concerned. Or, if you are a private sector worker suffering through this economic crisis and worried about keeping your job or paying your housing, food, and other financial obligations, the golden years are not looking good either.

Many people are seeing they have few options, and will likely need to delay retirement. That's bad news not only for workers, but also for companies trying to stay competitive. "If all of your older workers are feeling the pinch, they might not retire. So there is an HR aspect," says Olivia S. Mitchell, Professor of Business Economics and Public Policy at the University of Pennsylvania according to a Wharton School article. "Baby boomers think they're never going to retire [and many] are quite morose...."

As billionaire investor Warren E. Buffett predicted in a 2008 letter, according to the Washington Post, taxpayers will one day pay the price when the reality of pension forecasts hits the proverbial fan. "Public pension promises are huge and, in many cases, funding is woefully inadequate," he wrote. "In a world where people are living longer and inflation is certain, those promises will be anything but easy to keep."

Findings from the Stanford Institute for Economic Policy Research are also alarming. Looking at three big state systems- CalPERS, the California Teachers Retirement System and the University of California Retirement Plan- the minds at Stanford believe that if the return was at 4.14 percent then the three state funds would be $500 billion in the red, according to one editorial in the OC Register.

Can we all agree that 1) officials must re-think the investment-return assumptions being made and 2) stop making promises which cannot be kept?

I hope so.