In 2011, the hope was that Proposition C, by changing pension formulas for new hires and capping some payments, would lead to city pension spending peaking in 2014. Instead, these costs are still growing, and are easily the single biggest factor in the $99 million hole projected in San Francisco’s 2016-17 budget.

The news of the projected deficit has triggered shock in San Francisco. The local economy is booming as never before, thanks to the rapid growth of local tech companies, and the assumption was that abundant revenue could let city leaders pursue ambitious plans, such as sharply adding to proposed transportation infrastructure upgrades.

Matier & Ross have details in their San Francisco Chronicle column:

Numbers crunchers say the pension payout for retired government workers could grow to $380 million a year from the city’s general fund by 2019. That’s $113 million more than was projected just last year. … Of the $99 million deficit that the city will have to eliminate by the start of the fiscal year July 1, $42 million is attributable to more going out in pensions than the city is taking in from the fund’s investments. …

 

Retirees are living longer than expected — and investments are coming in with only a 4 percent return versus the 7.5 percent that actuaries had predicted.

 

Plus, the city lost a lawsuit filed by retirees, invalidating the portion of Prop. C that did away with an automatic 1.5 percent increase in years when the system wasn’t fully funded.

Revised actuarial study ‘good news and bad news’

In October 2014, the Society of Actuaries issued its first updated predictions on Americans’ longevity since 2000.  The study triggered sharp concern among private pension plans and was featured in the Wall Street Journal. Its key finding, as reported by Modern Health Care:

Men at retirement age are now expected to live to 86.6 and women to 88.8, an increase of two years and two-and-a-half years, respectively, since the last actuarial adjustments were made in 2000. While hospital officials have made some revisions over the intervening decade-and-a-half, many systems are only now coming into line with the latest projections.

 

These changing demographics have increased pension obligations by 4 percent to 8 percent over that time period, the Society of Actuaries estimates. “It’s one of those bad-news, good-news things,” said Gregg Nevola, vice president for total rewards at North Shore-Long Island Jewish Health System, where the cost of promised pension benefits increased about 16 percent last year to roughly $2 billion. “The bad news is we’re all living longer. The good news is we’re all living longer,” Nevola said.

But government pension agencies, at least in California, haven’t reacted with the alarm seen in the private sector. In an April interview with PlanSponsor, a website devoted to government pension plans, Richard Costigan — chair of the CalPERS Finance and Administration Committee — never even mentioned that retirees living longer adds to CalPERS’ longtime obligations and increases its unfunded liabilities. Instead, he depicted the development as something that could be addressed with technical tweaks:

“As the fund matures, and the retired population grows, it’s important that the rates reflect the changing demographics of our members. … Pension plans require stable funding, and the new rates incorporate the Board’s actions over the last several years that will reduce rate volatility in the long term.”

NEW YORK (AP) — Americans are living longer than ever before, according to a new government report filled mostly with good news. U.S. life expectancy inched up again and death rates fell.

Rates also dropped or held steady for nearly all the leading causes of death.

But if people live longer, they take more in pensions. In the the private sector, that’s not a big deal. Almost all firms have switched to “defined contribution” plans, in which employees contribute to funds investing in private companies. If the retiree lives longer, his investments in the plan just keep paying dividends. If there’s a big recession and investment funds decline, then the retiree gets less — too bad, but at least nobody else is on the hook.

By contrast, most government employees still are on “defined benefit plans.” The funds are supposed to pay out large benefits no matter what happens to the investments of such funds as CalPERS and CalSTRS. If the investments tank during are recession, taxpayers are on the hook — at least theoretically.

Longevity comes in because, if defined-benefit retirees live longer than actuaries had anticipated, the pension fund has to pay out more. Unless investments rise much faster than anticipated — something unlikely — the taxpayers inevitably must pick up the extra payments.

Also slammed are tax-funded retiree health plans, which obviously will cost more if people live longer.

But also damaged financially will be Social Security and Medicare, which already are the major contributors to the federal government’s incredible $200 trillion (with a “t”) in unfunded liabilities, according to calculations by Boston University economist Laurence Kotlikoff. That’s more than $700,000 in debt the feds ran up for for each person in America; more than $2.8 million for a family of four.

It can’t last.

It’s why pension reform is inevitable. The longer it takes, the more pensioners will be hurt.

“It may seem the stuff of gothic horror novels, but transfusions of young blood could reverse the ageing process and even cure Alzheimer’s Disease, scientists believe. …

“Now scientists have found that young blood actually ‘recharges’ the brain, forms new blood vessels and improves memory and learning.

“In parallel research, scientists at Harvard University also discovered that a ‘youth protein’ which circulates in the blood is responsible for keeping the brain and muscles young and strong.”

We can expect to see a Manhattan Project-sized push to be able to make synthetic enriched blood in coming years.

When a lifetime pension means 50 years on the dole

It may seem strange to see such stories and consider them through the prism of public policy disputes. The wonk in me can’t help it. What about the implications of lifetime pensions if the average CalPERS pensioner lives to 100 or more?  I wrote about this for Cal Watchdog last September:

“Having a defined-benefit government pension when you live on average until you are 81 or 85 is already an immensely lucrative and reassuring fact of life for public employees. But having such a pension when you live until 100 is a gilded gift, one that makes past complaints about government employees being a special protected class seem simply inadequate.

“Barring a change in benefits or a dramatic increase in the minimum retirement age, public employees would enjoy an advantage so pronounced that it would be somewhat akin to that owned by the privileged elite who live in a satellite colony rotating around a decaying Earth in the science-fiction film ‘Elysium.'”

If we really did have giant life-expectancy gains, or course that would have a million effects beyond government pensions. But if that means we have a society with a life expectancy of 100 in which Social Security and Medicare are supposed to provide enough sustenance to people over 67 so they don’t have to work, then …

“… it is impossible to conceive of a federal budget in anything even vaguely resembling its present form.

“The main hope of averting fiscal disaster then might be what economics writer Matt Yglesias and some futurists call the emergence of a ‘post-scarcity’ world — one in which combinations of technology have sharply reduced the cost of material goods.

“But if praying for a ‘post-scarcity’ world is the best that most private-sector workers can do in contemplating how they’ll fare in a California with life expectancy of 100, that’s a striking contrast to the outlook of government workers. They can look forward to three or four decades of retired life at 75 percent to 90 percent of their final pay. The rest of us? We can pray our reverse mortgages prop up our lifestyles for a while before we’re forced to mooch off our children or to move into a new urban phenomenon: slums for the elderly.”

This is a wildly exciting time to be alive, all belly-aching about pensions aside. If there is a “post-scarcity” world, California is likely to come up with many of the key tools as biotech, computer sciences and nanotech intersect to produce a science-fiction-feeling 21st century.

Count on Jerry Brown taking the credit.