Well, my fellow Californians, looks like we’re all pretty much screwed.
The evidence: a new study by theStanford Institute for Economic Policy Research finds that California’s struggles with giant pension obligations for state workers is getting worse. Much worse. The report finds that unless reforms are taken, pension obligations are almost certainly going to crowd out non-mandated spending for things like education and social services.
The study, conducted by Stanford Professor Joe Nation along with California Common Sense, covered all three of the state’s largest pension systems:CalPERS (the California Public Employees’ Retirement System, CalSTRS (the California State Teachers’ Retirement System) and UCRP (the University of California Retirement Plan.)
Here are the key findings of the report:
- “Contribution rates, the share of payroll that state government sponsors of pension plans pay each year, are likely to double or perhaps triple, crowding out education and social services spending. At the state level, barring new revenues, pension spending is likely to rise from its current 5.7 percent share of General Fund spending to more than 17 percent.”
- The study contends the annual cost to the state of delaying pension solutions is more than $1.2 billion over the next year alone, or $3.4 million per day.
- The June funded ratio, which measures assets to liabilities. is only 74% for CalPERS even using a high-rate of return assumption for its investments. Assume a 6.2% return, and the funded ratio drops to 58%. On the same basis, the funded status is 60% for CalSTRS and 72% for UCRP.
Pension Funding Status [CHART]:
The graphs above show the probability distribution for funding ratio or unfunded liabilities. Use this visualization to explore the impact of the assumed rate of return on the funding status of California’s major pension systems.