Public Pension Costs: Potential Good News for Californians

The California Supreme Court has decided to hear the MCERA case, which as explained here is potentially good news for citizens. Now citizens should turn their attention to CalPERS’s board, which in February will decide on its consultant’s recommendation to use a 6.1% investment return assumption when establishing pension contributions. That decision will have a big impact on citizens and the MCERA case will take on even greater importance if CalPERS’s board doesn’t accept the recommendation.

6.1% is aligned with the rate derived from the methodology Warren Buffett long ago suggested for pension funds. It’s good news that pension fund consultants — long fearful of losing contracts with public pension funds— are showing nerve. CalPERS’s board should do the same. Not doing so would be another confirmation they stack the deck against citizens in order to benefit employees, as explained here. We should hope for the best — CalPERS has a wonderful opportunity to lead the country’s public pension funds to start doing the right thing — but given its refusal to respond favorably even when Governor Brown asks, we should expect the worst.

MCERA is important in any and all events because pension deficits are already clobbering public services but would take on even greater importance if CalPERS’s board continues to employ unreasonably high investment return assumptions. That’s because reversal of the lower court ruling would put citizens and future generations in an even tighter vice, squeezed on one side by pension fund boards creating deficits in order to benefit government employees and on the other side by courts ruling that government employees are immune to the consequences of those deficits.

Stay tuned.