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.
The report is authored by California Common Sense researcher and Stanford junior Evan Storms and Stanford Professor of the Practice of Public Policy Joe Nation.
The study covers the top 24 independent systems across California, including those in the counties of Alameda, Contra Costa, Fresno, Kern, Los Angeles, Orange, Sacramento, San Diego, San Francisco, San Joaquin, San Mateo, Santa Barbara, Sonoma, Stanislaus and Ventura and in cities of Fresno, Los Angeles, San Jose, and San Diego. The 24 systems account for more than 99% of independent system assets.
The study is available on the SIEPR website at siepr.stanford.edu.