First, Detroit showed that that wasn't necessarily true. Nothing to see here, move right along, I was told. But now the proof of the lie has hit much closer to home--about 45 minutes away, to be precise:
A judge’s potentially groundbreaking ruling in the Stockton bankruptcy case should send messages loud and clear.Think it couldn't happen to the State of California? States and municipalities cannot override federal bankruptcy laws. The state constitution is no guarantee I'll get my pension if California goes broke. I hope the recent changes to STRS contributions (first link in this post) are enough to sustain the system.
To the Legislature – that it can’t rewrite federal bankruptcy law. To the city of Stockton, Franklin Templeton Investments and CalPERS – that they need to make a deal. And to local officials across California – that they need to get more serious about pension reform.
In his verbal ruling, Judge Christopher Klein declared Wednesday that public employee pensions are not off-limits in bankruptcies. He suggested that insolvent California cities could choose to reduce already-promised pension payments and even walk away from the California Public Employees’ Retirement System...
And the biggest losers are the working people of Stockton, who will be paying for these mistakes for years to come. About 2,400 retirees have lost their city-paid health insurance, while residents are getting slammed by $90 million in budget cuts and by higher sales taxes to shore up public safety.
6 comments:
Actually ... Californians have greater protection of pensions than did Michigan, so it is less likely ...but not impossible ... that they will go away. I encourage you to read measure L on the November ballot very carefully. I still don't know how I intend to vote, because I haven't figured it out yet. But it does attempt to correct the problem ...
I meant Prop 2 ... Measure L is local ...
State law is trumped by federal law. A federal bankruptcy judge is free to ignore state law, a la Detroit and Stockton.
There is no way that the Feds would let what would be in the top 10 economies in the world, were it stand alone, fall in to bankruptcy. So even if that's true ( and I don't know the source, but I swear I read during the Detroit thing that we DO have more protection) they would never let it go that far. It would be nice if we could prevent people from voting for idiotic stuff we can't afford, though...
I'm not an investment professional, but the one thing which is most troubling regarding the CalSTRS situation is the (fictional) 7.5% rate of return that they use for publicly-released projections. In other words, their projections of solvency are based upon CalSTRS earning at least 7.5% annually on their investments going forward.
I once attended a talk given by Jack Ehnes (CEO of CalSTRS), in which he stated that CalSTRS depends on investment returns for 75% of their cashflow needs.
I'm skeptical they can earn that rate of return going forward, and if you study compounding you can see that small changes in the growth rate can have an enormous impact over a 30- or 40-year period.
If the projected returns fail to materialize, CA lawmakers will be forced to "make sausage" with regard to this issue. Whatever solution they come up with, I'm sure it will be painful for retirees who depend excessively on their state-provided pension. You *must* have some significant savings of your own, either in a 403(b), Roth IRA, or preferably both.
Anonymous... for a very long time, both CalSTRS and Cal PERS were enormously successful investors, making well above 7.5% ... since the crash, not so much.
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