CalPERS has hit out at a report calling for radical change in the way California public sector pension benefits are calculated, describing the authors’ methodology as flawed and ideologically slanted.
The report commissioned by the lobby group California Foundation for Fiscal Responsibility claimed that public sector workers earned a comparable wage to private sector employees but received three times more in retirement benefits.
The authors of the report compared state and local public sector retiree benefits with those in the Federal Government and private sector.
CFFR also had authors model two alternatives aimed at cutting government pension costs and addressing a potentially $240 billion funding shortfall face by the State’s 10 biggest pension funds.
A CalPERS spokesman said that the fund had earned back $70 billion since its low point during the financial downturn.
The fund is set to report to the board a strong fiscal year to date return through to the end of March of 18.6 per cent.
The report also warned of a spike in health care related liabilities, saying costs are expected to quadruple by the middle of next decade.
CalPERS attacked the various modelling in the report as “artificial constructs based on formula” that did not reflect actual demographics or trends.
An example was a California Highway Patrol officer who could retire at age 50 with 90 per cent pay.
While not disputing this generous retiree benefit, CalPERs argued most officers do not start working at the age of 20, making retirement payouts such as this relatively rare.
It also attacked as “smoke and mirrors” the authors’ advocating a 6 per cent discount rate, while basing their analysis on a 7.25 per cent return on investment.
It claimed the result was to drive up the total value of a public sector retiree’s benefits and distort the potential liability funds could face.
The report also compared private sector benefits that in some cases resulted in a final benefit just three times annual salary at the time of retirement, CalPERS claimed.
“CFFR promotes a ‘race to the bottom’ philosophy, promoting the notion that no-one – public or private – deserves an adequate, reasonable retirement,” CalPERS said.
CalPERS noted that the authors’ proposal to declare a state of “fiscal emergency” and put government current employees onto new pension plans would be legally fraught.
Californian courts have recognised that a pension plan between an employer and an employee constitutes a contract.
Any move to override an employee’s existing pension arrangements could be challenged on constitutional grounds.