California Policy Center: 20 Counties' Public Pensions Only 60% Funded

California Policy Center: 20 Counties' Public Pensions Only 60% Funded

Bill Monnet, Ken Churchill, and Ed Ring of the California Policy Center published a study on May 6, 2014 titled “Evaluating Total Unfunded Public Employee Retirement Liabilities in 20 California Counties” that determined the official published statements for unfunded employee retirement liabilities in 20 California county pension plans are drastically understated.

Although the counties admit $37.2 billion or 26% unfunded pension liabilities in their financial statements, the actual total – which, the authors note, includes pension obligations bonds and unfunded healthcare liabilities – is $72.3 billion or 40%.

According to the authors, the study is “The first of its kind to compile for these counties not only reported pension fund assets and liabilities, but also retirement health care assets, if any, and their corresponding liabilities, as well as the outstanding balances for any pension obligation bonds.” 

The study argues that the concept of “total compensation” should be recognized as the only accurate way to assess whether or not public employee compensation is either affordable or equitable. Instead of just reporting base pay, total compensation calculations should look at all types of direct pay including “credential pay,” “specialty pay,” “bilingual pay,” “advanced degree pay,” “tuition reimbursement,” etc., along with overtime pay, and along with the costs for all employer paid benefits including current health insurance coverage. 

The CPC believes that “total compensation” calculations should also include current year contributions made by an employer towards an employee’s retirement benefits – namely, health insurance and pensions. Under the expanded definition, total compensation often exceeds “base pay” by 100% to 200% in the public sector.

According to the study, the “total compensation” model for calculating pay should be applied similarly to calculations of retirement benefits – hence the study’s findings.

The top twenty California counties that operate pension plans have a population of 29.3 million, constituting 77% of all Californians. Their total unfunded pension liability in the most recent published financials statements is $37.2 billion. When the other direct retirement obligations calculated by the study are added, the unfunded status almost doubles to $72.3 billion.

The study’s initial results are somewhat “county-friendly” because they do not question the extraordinarily high assumption that counties will earn an average of 7.5% without any losses over the next 30 years. If, for example, the counties only make a 5.5% compounded return, the unfunded percentage spikes to 51% and the $72.3 billion liability would almost double again.

The results of the study demonstrate that households in the twenty counties studied owe $7,369 to fund public pensions, compared to the $3,932 reported in their county financial statements.

The author welcomes feedback and will respond to comments by readers.