PD Editorial: Daunting numbers for pension funds

California’s giant public pension fund has something in common with Social Security: The number of people collecting benefits is growing faster than the number paying into the system.

The California Public Employees Retirement System projects that beneficiaries will outnumber working public employees within the next 10 years.

Some smaller funds, including the Sonoma County Employee Retirement Association, already have passed the tipping point.

To remain solvent as the ratio of contributors to recipients declines, Social Security has two options: raise revenue or cut costs.

For future beneficiaries, the latter could mean a smaller Social Security check or waiting longer to collect benefits. For now, the retirement age is 67 for anyone born in 1960 or later.

Several presidential candidates already have floated proposals, and they’re likely to be hotly debated before the 2016 election.

California would benefit from its own debate about retirement benefits - but don’t expect it to occur anytime soon.

The public pension funds and employee organizations say there’s nothing to discuss, and the state’s elected leaders are quietly going along.

Meanwhile, the costs keep climbing and the hole keeps getting deeper.

As the Los Angeles Times put it recently: “California taxpayers have never paid more for public worker pensions, but it’s still not enough to cover the rising number of retirement checks written by the state’s largest pension plan.” Ouch.

CalPERS, which has a fund balance of about $300 billion, isn’t in immediate danger of insolvency. But after six years of a bull market, and despite steep increases in the premiums paid by its 3,000 member agencies, the fund’s assets only cover about 75 percent of its liabilities - down from 100 percent prior to the 2008-09 recession.

It’s less likely than ever that CalPERS - and most similarly situated public pension funds - can make up the shortfall by beating the market.

Moreover, CalPERS is reviewing its earnings forecast, which now promises an average annual return of 7.5 percent. It could be gradually reduced to 6.5 percent, according to a report in Cal Pensions.

As noted above, CalPERS is approaching an inflection point, a time when payments to retired members will begin to exceed contributions from working members and their employers, forcing the fund to liquidate assets to meet its obligations.

A more conservative investment strategy - fewer stocks, more bonds - is common for maturing funds, and it would be a responsible move for CalPERS, the nation’s largest public employee retirement fund. Many other public pension systems would probably follow its lead.

But the combination of unfunded liabilities and less income from investments would trigger a need for larger contributions, which would primarily hit government agencies that, despite a growing economy, are struggling to repave roads, facilitate affordable housing and provide other public services.

Most of the public employees who benefit from these retirement funds are exempt from paying for the shortfall. Only those hired after 2013 would be subject to higher premiums if CalPERS reduces its earnings forecast.

The courts have concluded that benefits can’t be reduced - even unaccrued benefits are deemed sacrosanct - and CalPERS and public employee unions have aggressively, and so far successfully, opposed any attempt to revise these rules, with little push back from state or local elected officials.

We’ve said it before: No one’s retirement check should be cut. But the chasm in California’s public employee pension system is only getting larger. The bill will be due soon.