While Mark Orme claims we can’t get out of CalPERS, Irvine California has switched to a Defined Contributions Plan and cut their UAL by 23% in 4 years

4 Apr

This Tuesday, city council will be looking at a number of “MOU’s” – Memos of Understanding – with various employee bargaining groups. I haven’t had time to read them, but I would be surprised if there’s any discussion of employees paying more of their pension and benefits costs.

When Dave Howell brought that option up at last month’s Finance Committee meeting, Mark Orme blurted out “we want pension reform, we’ve lobbied for it, we’ve met with Marcie, the CEO of PERS…” But no further discussion. I doubt we’ll ever be privvy to these conversations, and haven’t the faintest notion what Orme means by “reform”. What stuck out to me was that he knows the CEO of CalPERS by first name.

Marcie Frost, the current CalPERS CEO, has come under fire for allegations that she made false educational claims on her application for the job. But that didn’t stop the board from giving her a salary of $330,720 for the 2019 fiscal year and a 26.7% bonus of $84,873 in 2018. These people, including Orme, who makes a base salary of $207,000/year, are so out of touch with the people they are supposed to serve, I think Orme may really believe he’s doing his best, and that he fully deserves to get 70% of that salary in retirement, having paid less than 10% of the total cost.

But he’s not doing his best. The city manager of Irvine California is doing a lot better. While other cities are considering the high stakes game of Pension Obligation Bonds, Irvine is breaking away from the pack, and saving a ton of taxpayer money without throwing the taxpayers in front of the train.

https://www.ocregister.com/2020/11/15/as-public-pension-costs-soar-some-southern-california-agencies-turn-to-controversial-borrowing-to-fill-deep-holes/

The authors examine the current abyss of debt that most California cities are now facing over false promises made by CalPERS back in the 1990’s. According to Stanford University’s Pension Tracker, there are two different “lenses” through which we can look at this situation.

  • The rosier one, used by California officials, assumes that investments will earn returns of about 7%. That puts unfunded liabilities at $352.5 billion statewide, or the equivalent of $27,187 per household.
  • The darker one, used by Stanford’s Joe Nation, a former Democratic state assemblyman and professor of public policy, assumes the much lower return rate of 3.25%. That pegs unfunded liabilities at nearly $1.1 trillion, or $81,634 per household.

In my opinion, scenario No. 1 is a flat out lie, the dark reality has set in, CalPERS hasn’t made their projected returns for years and years. “While the giant retirement system plans on a 7% return on its investments, it returned just 4.7% this year. ” But public agencies all over California have continued to wear their rose-colored glasses while they have handed out ridiculously over-generous salaries and benefits packages without requiring employees to step up with realistic contributions. That, says the author, has created a hole.

If that hole isn’t filled up with meatier earnings and heftier contributions from public agencies and their workers, taxpayers will be called upon to fill it directly. Some argue that’s already happening. In 2020, there were at least 99 local sales tax measures on the ballot in California. None of them said, ‘We need more money, in part, to pay for spiking public pension costs,’ but they did say things like ‘for municipal services, including emergency response, public safety, clean drinking water, local businesses, street repair, after-school, youth, disabled and senior programs, and addressing homelessness’ and ‘for general city services.’”

Yes, while they didn’t exactly lie, they worded these measures in such a way as to leave the revenues open for general spending, and that means, siphoned into the pensions. POB’s have to be secured with a new revenue stream, and the consultant who came before the Finance Committee said sales tax measures are the easiest and most common way to do that.

For a change, I noticed, those measures did not do as well as they have in past. A good number of them failed, including sales tax measures in Tehama and Shasta Counties. The voters have started to figure out this trend, which I believe is why so many agencies are turning to Pension Obligation Bonds. POB’s don’t have to go on the ballot.

Our council members have all drank Mark Orme’s Kool Aid, they are telling us they’ve done all they can to rein in the pensions. No, they haven’t. First of all, they are doing nothing to control employee costs. Second, they will not ask employees to pay higher contributions. Orme created three new management positions last year, and council has rubber-stamped every new contract that comes in front of them without asking for more realistic contribution from employees, even when doling out raises.

But not every town in California is going along with the scam. While Mark Orme (and Ann Willmann over at Chico Area Rec Dist) says we can’t get out of CalPERS, Irvine started offering an alternative as early as 2003. This article explains how they’ve reduced their UAL 23% over the past four years without issuing Pension Obligation Bonds.

“Irvine continues its streak as the healthiest large city in America when examined through the lens of long-term fiscal soundness, according to Chicago-based watchdog group Truth in Accounting. It has curtailed spending, frozen vacancies and asked its vendors and contractors for price reductions — and most of them actually said yes, said Marianna Marysheva, Irvine’s interim city manager.

“The city has managed to shrink unfunded liabilities by 23% over four years, making millions of dollars in additional payments annually.”

Part of the savings was getting employees to volunteer to drop out of CalPERS and participate in the city’s Defined Contribution Pension Plan (DCPP). Read this, from the city of Irvine HR page:

 https://legacy.cityofirvine.org/civica/filebank/blobdload.asp?BlobID=18082

The provisions of this Section 2.1 shall apply to employees, as
of June 30. 2003. who elected to decline the CalPERS benefits.

  1. The City shall invest an amount equal to 12.448% of each
    employee’s base salary in the City of Irvine Defined Contribution
    Pension Plan (DCPP). Employees shall become fifty percent (50%)
    vested in such plan upon completion of the probationary period.
    Thereafter, such vested interest shall increase at the rate of five
    percent (5%) for every Plan Year in which the employee completes
    one-thousand (1000) hours of service. Once the employee has
    completed five (5) years of service, he/she shall become 100%
    vested in the retirement plan.
  2. The City will deduct an amount equal to 6.552% of each employee’s
    base salary to invest in the City of Irvine DCPP
    this payroll deduction shall be mandatory fo
    elected to remain in the City of Irvine DCPP.
  3. All employees who elected to remain in the City of Irvine DCPP shall
    not be entitled to any CalPERS benefits, past, present, or future, as
    provided under Section 2.1.B of this Resolution. Employees, who

elected to remain in the City of Irvine DCPP, shall continue
participation until the employee terminates his/her employment from
the City for any reason.

  1. The City will utilize retirement plan forfeiture funds to offset the City
    of Irvine DCPP administration and management costs.

In my next post, we’ll look at the difference between DCPP’s and “Defined Benefit Plans”, but I bet you could figure it out. Next time on This Old Lady and the POBs.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: