Update: $400 Billion of CA Pension Spoils

After Governor Schwarzenegger appointed me to the board of the California State Teachers’ Retirement System (CalSTRS) in 2005 I learned that employees and taxpayers make upfront pension contributions but only taxpayers are on the hook for deficiencies and that pension fund board members exploit that asymmetry through the use of unrealistic investment return assumptions to depress upfront contributions and inflate deficiencies. When I advocated for realistic investment return assumptions, the State Senate removed me from CalSTRS’s board.

Since then CalSTRS and its sister state pension fund the California Public Employees’ Retirement System (CalPERS) have continued to use unrealistic assumptions with the result that — just over the last decade — state taxpayers had to pay $130 billion* towards pension costs and are saddled with $273 billion of unfunded pension liabilities** accruing interest at rates (7.1% at CalSTRS and 6.8% at CalPERS) greatly exceeding California’s typical borrowing cost (4.19% per its most recent offering), which means much more taxpayer pension spending to come.

Those pension liabilities were manufactured by pension fund boards acting in the interests of public sector unions and against the interests of taxpayers. More unfunded liabilities are being manufactured every day. Governor Newsom, Speaker Rivas, ProTem McGuire, Treasurer Ma and Controller Cohen should tell CalPERS and CalSTRS to stop that practice.

*See page 68 of May Revision, including pension portion of Footnote 2

**See page 140 of CalPERS ACFR and page 138 of CalSTRS ACFR.