Public versus Private Comparisons

A few weeks ago, while visiting friends at Californiaʻs capitol, a former colleague mentioned the horrible gap that CalPERS faces with respect to unfunded obligations. If you have followed the discussion of public pension funds over recent years, it is a common basis for beginning discussions about the troubling state of finances facing future generations. Not unlike the discussions surrounding social security, the topic typically moves to a linked discussion: why we must turn to ʻless generousʻ retirement benefits.  The fact that the less generous alternatives (401ks) have their own disastrous performance for a generation of retirees relying on such programs never seems to enter the discussion.

Part and parcel of the agenda for ʻdown-sizingʻ pension obligations is the message that public sector pensions quite simply donʻt measure up to private sector performance. The underlying theme is if CalPERS were run more like those plans managed by private corporations, things would be much better. All of which might sound compelling, unless one happens to have come across recent reports published by that hot-bed of radical financial reporting, Bloomberg News.

S&P 500’s Biggest Pension Plans Face $382 Billion Funding Gap

On July 20, 2017 Brandon Kochkodin and Laurie Meisler provided the following on Bloomberg News: 

 

"People who rely on their company pension plans to fund their retirement may be in for a shock: Of the 200 biggest defined-benefit plans in the S&P 500 based on assets, 186 aren’t fully funded. Simply put, they don’t have enough money to fund current and future retirees. The situation worsened for more than half of these funds from fiscal 2015 to 2016. A big part of the reason is the poor returns they got from their assets in the superlow interest-rate environment that followed the financial crisis. It’s left a hole of $382 billion for the top 200 plans."
 
This morning in an updated version of the July article, Bloomberg repeated a similar magnitude of problem facing the retirees for many of the nationʻs largest firms. While many of these same corporations have used revenues to pay dividends to investors, payments to workersʻ pensions are an unmet and growing obligation. As described in Bloomberg: "Companies are eager to get out of the pension business. Most prefer 401(k) plans, where the employee alone bears the risk of falling short at retirement. More are also offloading their pension plans, paying insurance companies to take them on instead."(see "How America Dug a $375 Billion Pension Hole." Bloomberg, August 4, 2017).

The Bloomberg  report does nothing to relieve the deeper inquiry into troubling practices at CalPERS; it does, however, cast doubt on those who would advance the privatization of pensions as some kind of solution.

The record of private sector managed pension funds is not an inspired one for public sector workers. Indeed, the record of corporate managed pension funds underscores the importance of an open and democratic process in the management of pension funds --  a discussion that should be at the center of the upcoming election for Board members at CalPERS.