Public pensions are not simple. Few people gravitate toward discussions about annual rates of return, long-term debt obligations or the latest actuarial report.
But most people can relate to watching their tax bills rise or their public services cut, in recent years, in large part due to state and local government having trouble keeping promises made to their workers and the retirement of those employees.
Locally, the Marin County Employees’ Retirement Association announced that the county’s largest pension fund earned 1.68 percent from its investments. That’s far short of its projected earnings of 7.25 percent, a figure that pension critics say should be, at most, 6.4 percent.
The pension fund’s investment-return shortfall could set the stage for its member agencies — the largest of which are the county, the city of San Rafael and the Novato and Southern Marin fire departments — to have to pay more to cover their active and retired workers’ pensions.
That’s a cost that comes right off the top of the budget. It is a contractual promise made by government.
The structure of the public pensions is built on a projected rate of return and the financial risk of that return falling short is borne by the employers — governmental agencies, not their workers.
Certainly, their workers bear the brunt of resulting budget cuts, delayed pay raises and layoffs caused by increased pension payments. But taxpayers feel their share through cutbacks in services, increased fees and tax measures.
This financial risk and its legacy costs are reasons why many private businesses replaced their pension programs with 401(k) plans where the investment risks are borne by the workers and the employers’ cost is far more certain.
Public employees, not surprisingly, have strongly defended their pensions, often lashing out at those who seek reforms.
Even Sacramento has been unable to come to grips with the issue. Only a fraction of Gov. Jerry Brown’s 2012 pension reforms were signed into law and there were promises that others would be subsequently taken up by lawmakers, most of whom enjoy the support from public labor unions to get re-elected.
Since, however, Sacramento lawmakers have veered far from the issue.
Meanwhile, local leaders say they have implemented cost-saving measures, but lacking statewide reforms they can’t make significant changes without hurting their ability to recruit and retain workers.
At the same time, promises have been made and workers have relied on those promises.
That leaves taxpayers holding the bag.
The cost of political inertia in Sacramento and shortfalls in pension fund investment earnings will be extracted from the budgets of local government.
While issues regarding anticipated investment returns and long-term debt obligation can be complex, the cost to taxpayers in taxes, fees and strained municipal finances is not.
Solving this problem is not going to be easy, but avoiding it is a costly and risk-filled strategy.