CalPERS is focused on the challenges ahead By Richard Costigan | CalPERS board member
If you didn’t know any better, you’d think that CalPERS is the source of all California’s ills: higher taxes, bankrupt cities, reduced public services, lavish pensions, the list goes on. We’ve even been blamed for failing to catch the fact that Wells Fargo employees were creating fake bank accounts.
There’s undoubtedly a cost to pensions. And as a member of the CalPERS Board and a committed fiscal conservative, I was just as anxious as anyone to understand the costs and inner workings of the system. But what has surprised me during my six-year tenure on the board is how the finger pointing and outright criticism of CalPERS and its leaders is often misplaced, misinformed and too often even mean-spirited.
You can’t beat the drums for a rate reduction and then unleash an onslaught of criticism and complaints when we do.
It does little to advance the legitimate discussion we should be having about public pensions – and about retirement security. Hear me out. For years the media critics and policymakers have chastised us for using investment return assumptions they said were too high, while at the same time they complained about rising pension costs. So in December, we reduced those return assumptions, which are often called the discount rate, a necessary and responsible move given that financial experts everywhere believe we’re stuck in an era of slow growth. That move, however, comes with real costs – to many public workers and to the more than 3,000 employer partners who contracted with CalPERS to deliver the benefits they promised their employees.
What did some of these critics say after the rate was reduced? That our decision was a shady deal, cut in a proverbial, clichéd smoke-filled back room, that boosted costs in unexpected ways, resulting in increased taxes or cuts in services.
But here’s a fact none of us can escape: Discount rates and pension contributions are inextricably linked. Cutting the rate increases pension contribution costs – that’s how the math works. And that’s why the decision to reduce it is so difficult and why it was made only after carefully reviewing and thoroughly analyzing the current economic climate. You can’t have it both ways. You can’t beat the drums for a rate reduction and then unleash an onslaught of criticism and complaints when we do.
We need to hold local elected officials accountable too. The pension benefits public employees receive didn’t just appear magically in public agency budgets overnight. They were bargained for with all parties at the negotiating table, and the agreements approved by elected leaders. Go back to what I wrote just a couple of paragraphs ago – the local agencies contracted with CalPERS to deliver the benefits that they promised their employees. Elected officials and city managers made the decision what to offer their workers in retirement – and it’s wrong now to think that CalPERS can just invest its way out of their actions.
CalPERS doesn’t control the benefits public employees get. Public agencies and elected members of school districts in your community do.
Richard Costigan is chair of the CalPERS Board Finance Committee and former deputy chief of staff to Gov. Arnold Schwarzenegger.