The Biden administration is trying to prohibit California from receiving billions of dollars in new federal aid because, the administration claims, the state’s 2013 Public Employee Pension Reform Act (PEPRA) denied workers the right to bargain for changes to their retirement benefits. The move could undermine state-worker pension reforms passed over the last decade.
In a letter to the state, the Department of Labor says that the 2013 pension-reform act “significantly interferes” with the collective bargaining rights of public employees, including transit workers. As a result, California risks losing some $12 billion in transportation money, most of it from the recently passed federal infrastructure bill. The administration is strong-arming the state and its municipalities to choose between tens of billions of dollars in savings for a deeply indebted pension system and grants from Washington. And its move raises serious questions about similar reforms enacted by other states that allow collective bargaining by public employees, including New York and New Jersey.
The Labor Department’s ruling, California governor Gavin Newsom said in a letter to Walsh, “deprives financially beleaguered California public transit agencies that serve essential workers and our most vulnerable residents of critical support, including American Rescue Plan Act funds that those agencies need to survive through the pandemic.” Newsom called the decision a “complete reversal” from a 2019 ruling by the Labor Department, which held that the state’s pension reforms did not represent a violation of federal law.
Newport Beach City officials are advocating for policies aimed at increasing long-term sustainability in the state public employee pension fund, CalPERS, as Newport Beach continues to make significant progress in paying down its debt obligations to the system.
On November 16, the CalPERS Board of Administration decided to maintain the fund’s discount rate, or the expected rate of return of the pension fund investments, at the current 6.8 percent. The discount rate had been lowered from 7.0 percent to 6.8 percent in July through CalPERS’ Funding Risk Mitigation Policy, which automatically lowers the discount rate in years when investment returns are above the assumed rate of return. Prior to the recent discount rate change, Newport Beach had asked CalPERS to lower its discount rate to 6.5 percent or below, a more conservative number that could help further reduce future risk.
Newport Beach expects to eliminate its unfunded liability by 2030, thanks to an aggressive payment schedule. Beginning in 2018, the City Council decided to increase annual payments to $35 million a year, $9 million more than required. This fiscal year, for the second year in a row, the City will contribute $5 million more as an additional, discretionary payment, bringing the total contribution to $40 million.
The CalPERS board voted Monday to select a portfolio with a return of 6.8% and an expected volatility rate of 12.1%. This expected rate of return is two-tenths of a percentage point lower than last year’s target of 7%. The vote concluded a review of the pension fund’s assets, which occurs once every four years.
This expected reduction in the rate of return means that some employees will have to contribute more to their pension funds because the fund expects to earn less from its investment portfolio.
For employees hired after the implementation of the Public Employees’ Pension Reform Act (PEPRA) in January 2013, CalPERS estimates they will contribute an average of 1.2% to 1.5% more toward their pensions. These changes will go into effect for school employees, excluding teachers, in July 2022 and will be enacted for most other local government employees in July 2023.
The California State Teachers’ Retirement System (CalSTRS) is now expected to hit full funding in 2041, five years ahead of last year’s prediction of reaching that level in 2046, according to a presentation from CalSTRS Deputy System Actuary David Lamoureux at the fund’s most recent board meeting on Friday. Additionally, board members anticipate that CalSTRS will hit 80% funding in 2024, 10 years ahead of schedule.
The timeline shift is due to the unexpectedly high 27% return CalSTRS earned in the most recent year. The CalSTRS board plans to release the excess funds from this year’s record return over the course of three years. This means that this year, only one-third of the excess funds will be used to alleviate the funded rate. “Because of that, our funding levels will improve, but they will improve slowly over time,” Lamoureux said at the board meeting.
The graphic “Settlement Bet” shows options that policyholders have to choose from in the Settlement. The graphic “Settlement Happens??” shows the consequences of the “Settlement Bets” if the Settlement happens or not.
Policyholders not wanting to terminate their CalPERS policies will select not to participate (“opt out”) in the Settlement (as participation will end policyholders’ policies if the Settlement is approved).
Policyholders whose preference in light of announced rate increases would be to terminate because of the new CalPERS rate increases can be divided into two groups in light of the Settlement options: (1) those that wish simply to terminate and stop paying premiums; and (2) those who wish to terminate but are prepared to gamble with CalPERS to get a refund.
In making these choices, all policyholders are being forced to gamble a lot of money. Why the Settlement is structured as a gamble is unclear, but it is. That seems incredibly unfair to policyholders who can ill afford more financial losses after their losses already caused by CalPERS LTC.
An audit of the California Public Employees’ Retirement System, America’s largest public pension fund, found regular payments to pensioners well after they died, so much so it’s challenging to get the money back.
Around 1,800 CalPERS pensioners die every month, according to a June memorandum from the fund’s Office of Audit Services that recently become public. CalPERS had more than $41 million in wrongful pension payments outstanding as of July 31, 2020, the audit said. It estimated CalPERS made those payments to about 22,000 dead pensioners.
The CalPERS Death and Survivor Benefits Division (DSBD) is responsible for verifying a pensioner has passed away and stopping payment. The audit found this process is done by a part-time employee that’s not given regular supervisory oversight.
Of the sample of 30 cases audited, the report found DSBD learned pensioners had died an average of 47 months after the date of their deaths, resulting in $2.34 million in wrongful payments that had yet to be recovered.
The ongoing CalPERS long-term care insurance program crisis continues to unravel. It is also revealing overarching behavior which is both unethical and contrary to law.
CalPERS announced insurance premium increases of 52%-90% that become effective very shortly, at the same time that CalPERS has agreed to a class action lawsuit settlement over its last 85% rate increase. (In my next article I will discuss why I suspect the settlement is another con job by CalPERS.) But here I first must address a shocking revelation previously unreported about CalPERS long-term care insurance program (LTC) which needs to be recognized before moving on to the issues of the proposed settlement.
There is new and truly disturbing information about the CalPERS long-term care insurance program from a recent review of the enabling legislation prepared by a former California Deputy Attorney General and Court of Appeal Attorney, Linda J. Vogel.
According to Vogel’s analysis, the CalPERS long-term care insurance program since inception in 1991 has operated contrary to law.
The 80 percent mark long has been considered the minimum threshold for a pension fund. However, that’s actually still too low. An Issue Brief by the American Academy of Actuaries called it, “The 80% Pension Funding Standard Myth” (pdf).
It said, “An 80 percent funded ratio often has been cited in recent years as a basis for whether a pension plan is financially or ‘actuarially’ sound. Left unchallenged, this misinformation can gain undue credibility with the observer, who may accept and in turn rely on it as fact, thereby establishing a mythic standard. … Pension plans should have a strategy in place to attain or maintain a funded status of 100 percent or greater over a reasonable period of time.”
As many Contra Costa residents are well aware, the county fire departments have absorbed ambulance services – previously provided by private operators at a lower cost to taxpayers – to pad their already bloated pensions since 2016. What many residents probably don’t know, is that 60 to 80 percent of the fire department’s budget goes to paying off their pension obligations. The California Pension Tracker notes that the market basis pension liability per household is $81,634. That sum surpasses many residents’ annual income. To fund upcoming pension payments that are currently underfunded, fire unions have called for additional tax measures and service redistribution that ultimately leaves county residents at a disadvantage. So, while residents are seeing costs go up, they’re seeing EMS response times and quality of care diminish. That’s just not right.
On Thursday, the California legislature unanimously passed a budget trailer bill that will create the state’s first guaranteed income pilot program.
Under the lawmakers’ plan, the state’s Department of Social Services (DSS) will get $35 million to dole out in grants to cities and counties that will then set up local basic income schemes. Grants will be prioritized for programs focusing on “pregnant individuals” and young adults 21 or older who’ve aged out of extended foster care programs.
State Sen. Dave Cortese (D–San Jose) said in a press release Thursday that participants of these pilot programs could end up receiving monthly payments of as much as $1,000 each.
Lackluster vaccination uptake drove the Newsom administration to pursue the more personal approach that public health experts favor, but the still-nascent campaign leaves out large swaths of the state. The administration launched its “Get Out the Vax” campaign in April, enlisting 70 community-based organizations and 2,000 community canvassers, now focused on Los Angeles and Central Valley neighborhoods where vaccinations have plateaued or declined.
But county public health officials say the campaign isn’t big enough to combat the vaccine misinformation that has infiltrated regions such as California’s rural north.
The metrics on the OGSP give a high-level view of how progress can be measured, but they are just part of the data that Regan’s office collects. Hundreds of other data points are in a performance scorecard that includes factors that contribute to attainment of large targets such as reduced crime rate.
High-level goals may take time to achieve. The StocktonStat portal, scheduled for launch on June 30, will include data on the number of potholes and streetlights repaired, or square feet of graffiti removed, says Regan. “The stat process, and this shared data, are part of a continuous conversation and relentless follow up toward our performance targets.”