I've been reading a lot of stories lately about the dire need for pension reform in California. Workers, I've been reading, were simply given too many promises the government can no longer afford to keep. Wrote Michael Hiltzik in the LA Times recently: "Unquestionably, state and local political leaders have been profligate with pensions, awarding workers improved benefits and post-employment health coverage -- the value of the latter being perhaps the largest single difference between California retirement plans and those of federal and private workers."
Call me slow, call me ignorant, but I must be missing something here.
Back in 2007, CalPERS had a 102% asset to obligation ratio--meaning the pension could pay everything it owed with a little extra cushion. Then the financial crisis hit and CalPERS lost billions in assets. In some cases, the pension got caught by the same market crash that hurt just about every investor across the country. In other cases it was swindled in shady land deals and dubious financial schemes. CalPERS had a total loss of nearly a billion dollars when it invested in the Newhall Ranch development in northern LA County. Meanwhile, Arcus Property Solutions LLC just paid $32.5 million for some desert land in Arizona that CalPERS invested more than $200 million in back in 2007. And CalPERS didn't even own the whole parcel of land--they only had about a 50% stake.
Over one six-month span in 2008, CalPERS lost $50 billion in assets. Down the tubes. Gone forever. Not because of greedy unions. Not because of too-generous promises. Because of poor investing and because Wall Street blew up the global economy. Not to mention the fact that corruption and bribery inside of CalPERS may have been in play.
Because the Fed is printing trillions of dollars and giving it away for free to banks, an operation they call quantitative easing, CD interest rates are practically nothing. Why should banks pay 5% for cash from retirees and big funds, when it can get free money from the Fed? Couple that with the fact that savings and treasury bond interest rates--for decades your standard safe investment for retirees and big pools of money like pensions--have dropped to almost nothing. The reasons for that are complicated. But the end result is that traditional, safe means of investment with reasonable returns are no longer available to pensions or retirees. As a result, pensions have been getting pushed into riskier investments, and getting clobbered. All while Wall Street licks its lips.
Under the leadership of Anne Stausboll, CalPERS has since recovered from such total losses and can now cover about 70% of its obligations. Still not great, but on the right track.
Any yet, we're now led to believe that the only answer to the pension problem is for California workers is to accept worse health care in their retirement? Or to work for an additional decade before they retire? Or to forgo the whole pension system entirely and just turn that pool of money into a 401k?
Again, am I missing something here? Public pensions make up 3 percent of California's budget. Getting tough with workers and retirees isn't going to do much to make up our budget deficit. Nor is it the right thing to do. Getting tough with Wall Street and unscrupulous banks, on the other hand, might actually work. We need financial reform in California to protect workers and retirees. We don't need to punish them for other peoples crimes.
The L.A. Vitamin Report is a column about quality of life issues by Matthew Fleisher. It is brought to KCET's SoCal Focus blog in partnership with Spot.Us, which receives support from the California Endowment.
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