CalPERS Visits Nevada City Finance Committee

Facts Brought to the Forefront- I Thought Pension Plan Health was Bad, but it was Worse.

Michael McDaniel April 17th 2008

David Lamoureux of CalPERS spent approx 2 hours discussing the role CalPERS serves as Nevada City's pension administrator.  CalPERS is only the administrator, it is the City of Nevada City that is responsible for following through on promises made to past and present employees, a point that was made early on and highlighted throughout the discussion.  In the case of Nevada City the visit from CalPERS (requested by the finance committee) came a few years too late. 

As Mayor Sally Harris insinuated a 25% pension plan increase granted by past city council members has left the current council members and the finances of the city in a compromised position.  When Mr. Lamoureux fielded a question by stating,"when you guys voted for the plan amendment a few years ago..." he was cut off by Mayor Harris for her reply,"for the record I did not vote for it, that was before we [I and others on this finance committee] were here."  It appeared that Mayor Harris understood the damage such raises have had on the financial integrity of the City.  The total unfunded liability of the City of Nevada City was estimated at the meeting to be north of $900,000. Which includes both the City's share of their pools UL and the City's Side Fund which was created by the plan amendments (25% raise) a few years ago.   I had the total UL at approx $677,000, I missed some!

Early on in the meeting Mr Lamoureux highlighted (slide #14) some of the risk characteristics of these dinosaur defined benefit pension plans (my term not his). CalPERS is making ASSumptions for what he titled "lots of unknowns." Such as final year salaries, years of service, inflation, life expectancy, investment rate of return, etc.  Again, it is the Nevada City taxpayer that is on the hook for the promises made via the defined benefit pension plan. It should be noted, however, that if the City should go bankrupt past and present employees would be funded (reduced) to the current funded present value of funds already in the City's pension plan.

The fact that actually hurt my soul was the answer to the question I waited nearly 2 hours to ask,"Is it possible to discontinue the defined benefit pension plan for new hires while still continuing to fulfill promises made to current and past employees?" NO. It is illegal according to California state law to contract with CalPERS and not allow all your current employees to participate in a CalPERS administered plan, paraphrased from David Lamoureux. My follow-up, Are the City Council's of GV, NC and the BOS of Nevada County handcuffed to their current plans? YES, said David Lamoureux.  There you have it.  We have identified the use of dinosaur defined benefit pension plans as a crisis, but there is no easy solutions available.  Their are two roads to take.  Get serious about fiscal responsibility and terminate the existing dinosaur plans (calculate the pay raises needed to keep existing staff, if someone earns $40k, raise the salary to $55k) OR keep stacking another floor on the proverbial house of cards.

Perhaps the most interesting portion of the discussion concerned the ethics involved in not disclosing the unfunded liability or side fund as debt in the City's annual audited financial statements.  It would be interesting to know how much of General Motors unfunded liabilities or debt they are able to conveniently leave off their financial statements..?  Our (SESF) suggestion to the committee was the following: "if you have nothing to hide it would seem wise, in this sue happy world, to fully disclose all the debt to protect your backsides."  We at SESF are eager to see what byproducts result from this informative and educational meeting. Furthermore, we invite all interested parties to use our blog to post relative comments. 

Interesting facts =

• The City is charged 7.75% interest on the amount they are unfunded in the Side Fund.
• Nevada City is one of only a few municipalities that also pays both the employER AND the employEE portion of the CalPERS expense each year.
• Nevada City is in the "Most Generous Plans Available" -David Lamoureux of CalPERS.
• Nevada City also pays into Social Security for employees (double dipping); another feature that is archaic. "Most employers have stopped contributions to social security for employees"-David Lamoureux of CalPERS.
• The City pays an additional 40% on each dollar paid to public safety employees for pension benefits(City pays employER contribution amount, employEE contributions amount, AND social security contributions).   This does not include health benefits. 

Our thanks to the finance committee and CalPERS for setting the meeting up and for allowing the public to participate. 

I can't help but think how helpful this meeting would have been for leaders from both the City of Grass Valley and Nevada County.  I find it extremely hard to believe that the City of Grass Valley could have had this education before voting for a 25% raise in benefits just last fall.  I strongly urge Grass Valley and Nevada County to have the same (open to the public) meeting with CalPERS to understand the health of their pension plans. 

Comments

[John Smith]

You can declare lobbying and election contributions by public employee unions illegal. These aren't unions, anyway, they are the government. Up until 1978 public employee unions were regulated; then a very naive Gov. Jerry Brown signed legislation removing all restrictions on collective bargaining by public employees. As a result, we have gotten to the point where unions don't negotiate with the government, they are the government. It is obscene. When every American worker gets the SAME DEAL, social security and medicare, then we will focus on the quality of those programs. We will also have more crossover between public and private sector workers. Professional public employees who belong to labor unions are not public servants, they are serving themselves. They ought to be ashamed of themselves.

[bal]

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