The report, which was released by the Stanford Institute for Economic Policy Research (SIEPR) and California Common Sense (CACS), documents the public pension challenges among California’s independent, or non-CalPERS pension systems. The study covers the top 24 independent systems across California.
Key findings from the report include:
• The June 2011 funded ratio for the aggregated 24 systems is 53.6%, based on an assumed rate of return, or discount rate, of 5%. This is higher than the 45.1% estimated under the same assumptions for CalPERS.
• The City of Fresno’s two systems have an aggregate funded ratio of 78.5%, while the Kern County system is only 41.5% funded. None of the systems is at or above 80% funded, which is the conventional benchmark for the minimum funded ratio.
• The unfunded liability for the aggregated 24 systems is $135.7 billion.
• Benefit levels vary significantly. The average annual pension benefit in 2009-2010 for miscellaneous members was $34,461; for safety members, it was $67,718. This includes all beneficiaries, regardless of the number of years of service.
• For retired miscellaneous employees, the highest annual average benefit in 2009-2010 was $46,211 in Los Angeles City, and the lowest is $24,179 in Stanislaus County.
• A majority of independent systems base final average salary on the last one year of work, while a minority base it on the final three years. All systems contain some form of cost of living adjustment.
• Average benefits for retired safety employees range from a low of $48,732 in Fresno County to $90,612 in the City of San Jose.
• The aggregate reported 2011-2012 employer contribution rate is 23.8%. About one-half of this rate is due to contributions for unfunded liabilities.
• Aggregated pension costs were 4.1% of aggregate municipal spending in 1999; by 2011, that figure had more than doubled. The highest share is 17.7% in San Mateo County and the lowest is 6% in Los Angeles County.
• Between 1999 and 2010, pension spending grew at 11.4% per year, more than the rate of growth for any other expenditure category.
• If the investment rate of return is 6.2% annually, which is a typical rate of return for private pension systems, total pension costs would total 17.4% of all municipal expenditures by 2012.
• The 24 systems discount their liabilities at an expected rate of return, typically 7.75%. This practice is at odds with that used in the private sector, and it is also at odds with standard practice in economics, which holds that pension liabilities are full-recourse obligations that must be paid without regard to the performance of pension fund investments. As such, each of the systems substantially understates liabilities and overstates funded ratios.