Maggie's Farm

There are a small handful of very explicit problems with Calpers that has created this mess. If they corrected those problems there wouldn't be a Calpers mess.

Understand that most state retirements are desigend along the lines of a 401k. The state pays 6% and the employee pays in 6% and the pooled money is paid out at retirement. If proper accounting procedures are used then everything works as advertised.

What went wrong is the unholy alliance between politicians and unions. First and possibly the biggest problem is: The employees contribution must be deposited as it comes due. That is if your June 6% contribution was $100 then Calpers receives $100 at the end of June or at worst in early July. However the legislature in their infinite wisdom didn't require the employee 6% contribution to be deposited at any specific date and in fact it isn't depositied at all. The money for the employer contribution is funded in the yearly budget but the administrator simply spends it where he needs/wants to. This worked really well for the state for years until employees begin to retire and half of the 6% contribution plus interest simply wasn't there. By now that $100 the state didn't contribute back in June of 1970 was, thanks to the power of compound interest, equal to $5000, sometimes more. The "fix" was that the state required each employer (department) to pay into Calpers an amont based on a formula that equated to their share of that contribution plus interest never paid into the system when it was due. THIS is the primary reason the state is paying about 18% rather then the 6% they bargained for.

The second problem is the police and firemen. The legislators and unions decided that police should be able to retire 8-17 years earlier then everyone else AND that they should get more retirement then they would have even if they worked the required number of years to qualify. In other words the legislators gave them a present from the other state workers piggy bank.

The third problem is that all retirement should be based on what was contributed and how much the total investment pool grew over the years. This option is called "money match". If they did this then the system couldn't go broke. But they also included a couple other options. For example the retirement was calculated based on your last three years income and the number of years worked. That is you could be a low level peon and get a promotion after 30 years to a $100,000 a year job and after three years you would get about $100,000 a year retirement instead of the $30,000 you would qualify for based on your total contributions.

These three "problems" doomed Calpers and other state retirement systems. The federal government is doing some of the same things to Social Security so it will fail one day as well.

The last word on this is to be decided by the courts. I'm sure each court will decide something different. But when you hear that a judge has required the state (the taxpayers) to bail out the retirement system just understand that it was the government that wrote the contract and then scuttled the retirement system. It is popular to blame the workers but this is 99% the governments fault. When the judge says you must pay up it is because the state failed in it's responsibility 10, 20 or 30 years ago and hid this failure and is now pointing fingers at everyone else.