CalPERS reveals its true colors

Steven Greenhut: When the California Public Employees’ Retirement System — the nation’s largest retirement system, albeit one plagued by scandal — was pushing for massive retroactive pension increases for California government employees in 1999, the system released a report that, as former Arnold Schwarzenegger pension adviser David Crane explained in this 2010 testimony before the California Senate, required investment returns that “implicitly required the Dow Jones to reach roughly 25,000 by 2009 and 28,000,000 by 2099.”

CalPERS, whose main goal is to defend the most absurdly generous pension plans, now insists that excess pension benefits are not the cause of bankruptcy in Stockton, San Bernardino and elsewhere. Officials there insist that the pension situation is just hype, just as union spokespeople such as Treasurer Bill Lockyer insist that those of us who criticize the growing list of $100,000 pension club members are merely showing our “pension envy.” Apparently, the rest of us should be good subjects and simply agree to hand over more tax money to the state officials who created this mess and silently accept the slashes in public services that are taking place so that government workers can retire at age 50 with pensions worth $2 million or more.

But now we really see what CalPERS is all about. After a Bermuda-based bond-insurance company named Assured Guaranty complained about Stockton’s plan to stiff bond holders rather than trim the outsized pensions enjoyed by the city’s current workers and retirees, CalPERS said, in essence, “tough luck.”

Wrote Assured Guaranty: “Chapter 9 was not intended to be used as a sword to prefer one class of similarly situated creditor over another. Among the small number of municipalities to file for bankruptcy (43 since 1981), none of the cases resulted in implementing cuts to principal owed bondholders.  Stockton’s attempt to transfer the cost of lucrative, above-market employee wages and benefits granted when tax revenues were flush to capital markets creditors by haircutting bond principal is unprecedented, a contortion of the bankruptcy process and will foreclose Stockton’s access to the capital markets for the foreseeable future.”

Here’s CalPERS’ response:” The obligations owed to the public workers of the City have priority over those of general unsecured creditors including bondholders. Unlike insurance companies, policemen, firefighters and other public employees are not in a position to evaluate credit risk of their employers. Assured Guaranty is in the business of evaluating these risks. CalPERS is committed to working within the legal system to reach resolution of these difficult issues.”

Here is my Bloomberg column from yesterday about this situation. CalPERS shouldn’t be so arrogant given that its rate of returns were barely over 1 percent last year and it continues to insist that a 7.5 percent rate of return is perfectly reasonable. Then again, whether CalPERS predicts a 29,000 Dow Jones or even 20 percent rates of return are irrelevant. Taxpayers are on the hook to make up for any missed predictions and foolish investments. And, CalPERS believes, bondholders can be stiffed when cities go bankrupt.

Aren’t there any adults in California state government to provide some supervision?

AUGUST 10, 2012

 

16 comments

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  1. NTHEOC
    NTHEOC 10 August, 2012, 16:06

    greenhut says,
    CalPERS shouldn’t be so arrogant given that its rate of returns were barely over 1 percent last year
    ===========
    Dont leave out the facts steven.Historically, CalPERS has regularly outperformed the long-term 7.5 percent goal over a 20-year average. Their 30-year average even exceeds 9 percent.
    If the media and critics insist on looking at returns on a single-year basis they should tell taxpayers the full story –Calpers posted gains not just in excess, but in significant excess of their goal of 7.5 percent 14 times in the past 20 years.
    “FIGURES DON’T LIE BUT LIARS FIGURE”..Right greenhut,hah!!.

    Reply this comment
  2. NTHEOC
    NTHEOC 10 August, 2012, 16:10

    greenhut says,
    silently accept the slashes in public services that are taking place so that government workers can retire at age 50 with pensions worth $2 million or more.
    ======
    Now the facts!!
    records indicate that over the last seven years, safety workers who retired at age 50 with 30 years of service represented 1 percent of all those retired.

    Reply this comment
  3. Rex The Wonder Dog!
    Rex The Wonder Dog! 10 August, 2012, 16:51

    The federal court will decide who takes haircuts, and they are not going to put CalTURDS at the front of the line for 50 y/o $100K+ retirees-EQUITY will not allow it, nor would federal law. So when CulTURES cites CA state law that says pensioners go to the front of the line, just tell them federal law rules under the supremacy clause.

    Reply this comment
  4. Rex The Wonder Dog!
    Rex The Wonder Dog! 10 August, 2012, 16:55

    Now the facts!!
    records indicate that over the last seven years, safety workers who retired at age 50 with 30 years of service represented 1 percent of all those retired.
    ==

    Yet that 1% account for 10% of the funds expenses.

    Overall 2% of CalTURDS ($100K club) gets 20% of the allocated pension funds-do the math NTHEOC, once that 2% hits 10% virtually all of CalTURDS funding will go to the $100K club. Unsustainable, and if you cannot figure that out and fix it you’re going to be like Central Falls RI and will be taking a 75% pension haircut.

    Reply this comment
  5. Rex The Wonder Dog!
    Rex The Wonder Dog! 10 August, 2012, 16:57

    Here is my Bloomberg column from yesterday about this situation. CalPERS shouldn’t be so arrogant given that its rate of returns were barely over 1 percent last year and it continues to insist that a 7.5 percent rate of return is perfectly reasonable

    If CalTURDS has a second 1% year it is going to be bottom of the 9th for them, and if tha 1% repeats two for years it is game over. Stick the fork in them 😉

    Reply this comment
  6. Donkey
    Donkey 10 August, 2012, 19:03

    Cut the Pay, benefits,perks, and pensions of all the RAGWUS feeders past and present!! 🙂

    Reply this comment
  7. Rex The Wonder Dog!
    Rex The Wonder Dog! 10 August, 2012, 19:36

    This is what have been saying the last 5 years about state pensions and BK law;

    That would seem to undercut any CalPERS and Stockton argument that Stockton is not permitted to reduce its contractual obligation to CalPERS — especially because Klein goes on to tackle >>>**the question of whether state law prevails over federal law in Chapter 9. It does not**,<<< the judge said flatly. "The federal bankruptcy power also, by operation of the Supremacy Clause, trumps the similar contracts clause in the California state constitution," he said. "In sum, even if the plaintiffs' benefits are vested property interests, the shield of the Contracts Clause crumbles in the bankruptcy arena."

    http://newsandinsight.thomsonreuters.com/Legal/News/2012/08_-_August/Federalism_fight_in_Stockton_s_Chapter_9/

    BAM!!!!!!!!!!!!!!!!!!! Teddy and the Sock Puppets (Queeg and Uhaul) out for the 10 count!!

    Reply this comment
  8. Rex The Wonder Dog!
    Rex The Wonder Dog! 11 August, 2012, 12:28

    Speaking of sock puppets, Teddy must have taken Uhaul and Queeg on vacation with him 🙂

    Reply this comment
  9. Donkey
    Donkey 12 August, 2012, 05:04

    Rex@ #7, great post buddy!! Good Dog!! 🙂

    Reply this comment
  10. Rex the Wonder Dog!
    Rex the Wonder Dog! 12 August, 2012, 12:39

    Hey Donk hvae you noticed that since Teddy has been on vacation his sock puppets-Uhaul and Queeg- have also been on vacation!!!!!!!!

    Reply this comment
  11. Donkey
    Donkey 12 August, 2012, 14:13

    Sure have Rex!! 😉

    Reply this comment
  12. Rex The Wonder Dog!
    Rex The Wonder Dog! 12 August, 2012, 17:43

    It is confirmed, Teddy has more gimmicks than late night infomercials 😉

    Reply this comment
  13. rightwinger
    rightwinger 13 August, 2012, 14:42

    I hope the bond insurers stick to their fight against CALPERS. Someone needs to stand up to this corrupt union loving garbage can! It amazes me why anyone would even invest in any muni bond or pension obligation bond.. there is no real financial information that an investor could use to make an educated descision on if it is a good investment or not… I would say NOT… so bondholders will just keep getting “stiffed” one way or another…either when cities and municipalities go belly up and they get a few cents back on their investment dollars or when the whole market drys up and no one buys. If CALPERS continues down this path soon there will be no public sector workers as there will be no services to keep the ponzi scheme going. I would love to see that!!!

    Reply this comment
  14. SkippingDog
    SkippingDog 13 August, 2012, 21:12

    Calpers has lots of litigation money and will be using the best bankruptcy firms in the nation, so it will be interesting to see how this plays out. Even a decision from the bankruptcy court can be appealed to the Article 3 District Court and further if necessary.

    The bond company is just posturing at this point, as is the bankruptcy Judge whose job it is to bang heads together and get a settlement and workout plan in place.

    Reply this comment
  15. Marlene Meadows
    Marlene Meadows 16 November, 2012, 10:28

    You may not be the place to ask this but I can’t seem to resolve this on my own. I called cal-pers on Nov. 14,2012. They message was there was a 2 hour wait. I took my changes and held for 40min still waiting that was long enough so I hungup. I called back that afternoon and waited another 40min. Still waiting so I hungup. I then called the administer’s office and asked to speak to the Director. The lady,Sylvia, answered and said she would take a message and have some get back to me. I received no call from them as of Nov.16,2012. I called back today, Nov.16,2012, a lady answered I asked for Sylvia she stated that Sylvia was away from the desk. She then transfered me to customer service where I had to hold again. I hung up and called back to get Sylvia, but an answering machine came on. What is going on there this is terrible customer service. Can you help me with this?

    Reply this comment
  16. Marlene Meadows
    Marlene Meadows 16 November, 2012, 10:45

    So sorry if I used your site in error. I decided to try one more time and this time I did get it resolved. Thank You.

    Reply this comment

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Assured GuarantyBloombergCalPERSDavid Crane

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