Myth: “Reforming” the pension system will solve the state’s budget crisis.
Fact: No. As a recent column in the Los Angeles Times noted: “Let’s be clear: State employee pension are not to blame for Sacramento’s budget deficit. Not by any math.” An investigative report by in March by McClatchy Newspapers noted: “There's simply no evidence that state pensions are the current burden to public finances that their critics claim.”
Myth: Government workers don’t contribute to their pensions; taxpayers are on the hook to pay those costs.
Fact: All government workers contribute to their CalPERS pensions. For state employees, the range is five to eight percent of their monthly earnings; for public agencies it is five to nine percent. While the vast majority pays five percent, firefighters, peace officers, and the CHP pay eight percent.
Myth: CalPERS is unsustainable.
Fact: As a percentage of payroll, employer contribution rates are returning to the levels of the 1980s. In fiscal years 1979-80, 1980-81, 1981-82, for example, pensions as a percent of payroll for miscellaneous State workers were 19 percent of payroll. View details of State Miscellaneous Tier 1 Rates.
Myth: CalPERS is going to run out of money because of baby boomers retiring.
Fact: CalPERS began putting away money for the baby boomers the day they first came to work for government. CalPERS plans are prefunded and contributions are received in every year that members accrue their benefits. The retirement of baby boomers has already been reflected in the rates using actuarial assumptions. The money needed to pay benefits for retirees is expected to be there when workers retire. CalPERS is expected to be able to keep up with baby boomers retirements and the expected increase in benefit payments.
Myth: CalPERS is in jeopardy because its funded status is dropping as a result of the market downturn.
Fact: Funded status is an important long-term indicator, and it will ebb and flow along with the conditions in the financial markets. The average funded ratio of CalPERS plans stood at over 100 percent on a market value basis at the height of the stock market boom, through fiscal year 2000-01. About 20 percent of that surplus was spent on benefit changes, which left 80 percent of the surplus to reduce future employer contributions. Then came one of the deepest and longest declines in stock market history. CalPERS experienced two fiscal years in a row of negative returns, which dropped the funded ratio to 80 percent. Then the markets rebounded to 103 percent as of June 30, 2007. The 2008-09 fiscal year again lowered the market value of assets, and the funded status is expected to be lower when we complete our accounting for the fiscal year. All plans are similarly situated, and this may be the “new normal” until markets turn around in the years ahead. For example, a funded status of 66 percent means if everyone were to retire today, CalPERS would have 66 percent of what is needed. However, CalPERS is made up of workers who will work full careers and retire 20 to 30 years from now. It is not necessary to keep the system 100 percent funded at all times. It is wise, however, to identify where the System is on this scale and monitor the funded status to ensure continued soundness of the system.
Myth: Increased pension formulas are bankrupting State and local government.
Fact: The downturn in the markets is the cause of greater employer contributions. Even if changes to pension formulas did not exist, CalPERS would need more contributions from employers, due to market losses over the past year. Only a quarter of the cost of State pensions is due to benefit changes of 1999.
Fact: Employer contribution rates have been very stable over the past six years, changing by less than 1 percent of payroll during the past six years, thanks to our rate-smoothing policy. The expected increase in employer rates due to the downturn will increase employer contributions by an average of 1 to 3.7 percent of payroll in 2011-12. View more information on projected increases in employer contribution rates for public agencies.
Myth: CalPERS pensioners can "goose" their retirement benefit upward by manipulating the income that gets included in their final year of compensation.
Fact: In 2003, SB 53 was adopted into law which greatly restricts the type of compensation allowable, and it reduces potential for enhancing final compensation in order to increase pensions. CalPERS has authority to investigate and prosecute pension fraud. Our internal investigative systems help protect against “pension spiking.”
Myth: The average CalPERS pensioner gets 80 percent of their pay.
Fact: The average CalPERS member receives 50 percent or less of their pay in retirement.
Myth: Police and firefighters retire at age 50 with 90 percent of pay.
Fact: CalPERS records indicate that over the last seven years, safety workers who retired at age 50 with 30 years of service represented 1 percent of all those retired. The reason very few ever would receive this level pension is that they would have had to start working age 20 to earn 30 years. Most start their safety careers at age 27, 28, or 29.
Twelve percent of all public safety members are subject to the 3 percent at age 55 formula. They would need 37.5 years of service at age 50 to get 90 percent, and would have had to start working at age 12.5 to earn 37.5 years. And 7 percent of all public agency safety members are subject to the 2 percent at age 50 formula. They would need to have 45 years of service at age 50 to get 90 percent, and would have had to start working at age 5 to earn 45 years.
Myth: The State of California and taxpayers pay the total cost of public pensions.
Fact: All government workers contribute to their CalPERS pensions. For state employees, the range is five to eight percent of their monthly earnings; for public agencies it is five to nine percent. While the vast majority pay five percent, firefighters, peace officers, and the CHP pay eight percent.
Myth: Pension Costs for the State of California have increased by 2000 percent in the last 10 years.
Fact: This statement compares a time when the State paid little or nothing during years of robust investment earnings and took a pension holiday to the recent market cycle extremes and current economic downturn.
Fact: In 1981-82, pension contributions for the largest category of employees cost the State 19.6 percent of payroll. For the current 2009-10 fiscal year the state is paying 16.9 percent.
Fact: The State of California pays less as a percentage of payroll today than it did in the early 1980s.
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1981/82
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2009/10
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|
State Miscellaneous
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19.563%
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16.917%
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State Safety
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20.409%
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18.099%
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CHP
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31.995%
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28.438%
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School Miscellaneous
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13.020%
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9.428%
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Video Links
GFR_feb_11_Media Misconceptions.pdf
