In a sign of the uncertain times, the CalPERS board last week approved a sharp increase in the cost of terminating pension plans, a rare action said to be taken each year by only one or two of the more than 2,000 retirement plans in the giant system.
After a plan terminates, there is no way to get more money from the employer. The worry is that ending just one big plan could "dramatically" erode a pool currently responsible for the pensions of 4,700 members of 118 terminated plans.
The new safeguard increases the money an employer must set aside to offset or "discount" future obligations. A much lower bond-based earnings rate will be assumed, currently 3.8 percent, rather than the CalPERS earnings forecast, 7.75 percent.
The change touches a hot-button issue. Critics contend that the California Public Employees Retirement System earnings forecast, 7.75 percent, is overly optimistic and conceals massive debt.
Ironically, supporters of these pension plans argue that the CalPERS rate of return is not unreasonable and blasted Stanford University, for instance, for figuring the state's pension debt based on a 4.1 percent rate of return, based on the low-risk bond-based earnings rate. But now CalPERS is using a 3.8 percent for the termination of plans because terminated plans no longer provide a "way to get more money from the employer." In other words, such terminated plans can't keep foisting pension debt on the taxpayer the way CalPERS does.
This reminds me of the liberal activist group ACORN that lobbied for a higher minimum but refused to pay its own workers a minimum wage. CalPERS uses absurdly high earnings forecasts when others are paying the bill, but when their money is at risk, it uses a rate similar to the one used by Stanford.
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