<p>California pension funds face huge shortfall</p>
<p>"SAN FRANCISCO (Reuters) - Three big California public pension funds face an estimated collective shortfall of more than half a trillion dollars over the next 16 years that threatens the fiscal health of the state, according to report released on Monday.</p>
<p>California’s pension liabilities are dire and changes in how the California Public Employees’ Retirement System, the California State Teachers’ Retirement System and the University of California Retirement System are funded and invest are urgently needed, the report by the Stanford Institute for Economic Policy Research said."</p>
<p>"Governor Arnold Schwarzenegger has called for an overhaul of the state’s pension plans. He said in a statement that the report “reinforces the immediate need to address our staggering pension debt. … The consequences are clear: increasingly large portions of state funding for programs Californians hold dear such as schools, parks and health care will be diverted to pay for this debt. That is bad enough, but without reform, pension debt will only grow.”</p>
<p>the financial situation in Calif just gets scarier and scarier…</p>
<p>The report that I heard on NPR noted that this problem is not limited to California – many other states are facing the same issues. It’s just that this particular report comes from California, in part because it was specifically commissioned. (In other words, there are other states which could be in the same or worse shape, but they just don’t know it yet.)</p>
<p>Other states are facing these problems, but seeing the pensions and benefits my m-i-l gets from each of these systems I can see where California has a huge problem – she’s getting three pension checks a month which in total provide more than she ever earned while working, health insurance for Medicare retirees is free and really, really generous, and on top of it she gets SS.</p>
<p>The public pensions shakeout coming in CA IL and NY among others will bring these states to their knees. </p>
<p>There has been no such thing as real audits/financials in this sector fromore than a dcade. Many public pension funds have literally just plugged in whatever outlandish investment return projections they have needed to appear solvent to justify increasingly ridiculous pension grants to politically powerful teachers unions (I’m a lefty, not generally a union basher). The bubble in private equity investing was largely caused by public pensions desire to manipulate their books – hey, its illiquid for 10-15 years: we can say it worth anything we want – bump our “valuation” from 15% return to 20% returns (try 4-8% tops) and the numbers work again …</p>
<p>Guess what pensioners, states can go bankrupt too, and will.</p>
<p>As a citizen of Illinois, the financial situation is actually worse than California by a large margin, which the rating agencies have yet to get their heads around.
Never such pretensions about having a world-class university system here, though.
If I were a Californian, I would try to negotiate the situation as well as possible. If I had the money, I would look elsewhere. Or if family income were modest enough and the student was strong enough, apply to the Eastern elites.</p>
<p>“…she’s getting three pension checks a month which in total provide more than she ever earned while working, health insurance for Medicare retirees is free and really, really generous, and on top of it she gets SS.”</p>
<p>And on top of it, she’ll probably get all of this for more years than she spent working. And many (most?) CA state employees have the same gravy train.</p>
<p>Whether one is a lefty or not, it’s common sense that this is unsustainable and unconscionable. It was one thing when public employees were paid far less than their peers in private industry, but that’s no longer the case. Many are paid more, and their pensions are greater than their salary.</p>
<p>I keep getting visions of these public retirees as the Eloi and those working in private industry as the Morlocks, slaving away till they’re 90 to support this circus.</p>
<p>I have to say that between the pension checks, the BMW-level insurance coverage, SS, and incredibly low property taxes because she’s living in the home she bought in the early 60s, she has an available income that is much larger than many families have earning $300K a year, even though she did not work much due to a disability in the middle of her career, and spent many years working just a bit over half time, though she was full time her last three years. (There seems to be some significant benefit in that in terms of pension calculations.) You’d need retirement savings in a 401K of $2,670,000 to generate enough income to pay for her state pensions and insurance coverage, and that’s without factoring in the future cost of living increases.</p>
<p>One thing this convinced us: no plans to either retire in California or buy California bonds.</p>