Pension Rhetoric vs. Pension Reality

As California’s public employee retirement system teeters on the verge of complete financial collapse, defenders of the current system continue to deny this, often accusing reformers of being “public servant bashers.” But politically motivated rhetoric will not change financial reality – or the pursuit of reforms so private workers don’t endure punitive taxation to sustain a privileged class of government employees. Last week the Sacramento Bee published a guest viewpoint written by Bruce Blanning, the Executive Director of the Professional Engineers in California Government. His commentary, entitled “State retirement benefits make an easy – and unfair – target,” invites a rebuttal.

The “real truth” about CalPERS, and other public employee pension funds, is they have consistently overestimated their long-term rates of return, adjusted for inflation. Currently CalPERS official rate of return, used for projecting the funds they will have available in the future, is 4.75%. This rate exceeds key long-term indicators that should govern these projections. For example, the inflation adjusted rate of return for the Dow Jones stock index for the period 1925 through 2008 averaged 2.8% per year. Similarly, the real rate of global economic growth for the period 1950 through 2000 averaged barely 4.0% per year, and this rate was skewed upwards by debt-fueled, unsustainable growth during the 1990’s. Even at a rate of 4.75% per year, CalPERS and the other pension funds are in a precarious state, because their asset values have been [...] Read More