CalPERS May Consider Adjusting their Earnings Forecast Downward

pension-reform-stockIn a week with no council meetings, the biggest news for the city, other than shake ups in the local city council race, are coming from the California Public Employees’ Retirement System.

Two weeks ago, CalSTRS, the teachers’ pension fund, cut its forecasted earning rate from 7.75 to 7.5.  That reduction marked the second reduction for the California State Teachers’ Retirement System in a year’s time.

At the time, we predicted this would put renewed pressure on CalPERS to lower their forecasted earning rate to 7.5 – a move that would cost the city $1 million to all funds and between $400,000 and $600,000 to the general fund.

This morning the Sacramento Bee is reporting, “CalPERS is going to look again at adjusting its investment forecast, a move that could increase taxpayer contributions while ramping up the political heat on public pension funds in California.”

It was a year ago that the pension giant that funds the retirement for many California cities and state government ignored warnings from staff to cut its forecast a quarter-point to 7.5%.

However, the Bee reports this morning, “Senior actuary Alan Milligan said CalPERS staff will make another recommendation to the board next month.  He didn’t say what the recommendation will be. But other big public pension funds have been cutting their forecasts in recent years to reflect a tougher investment climate.”

Concerns began rising last month when it was reported that CalPERS earned just 1.1 percent on its investments in 2011 – far below their forecasted 7.75% model.  It should be noted that the 7.75 is a projected 30-year average which gives the fund considerably more leeway.

While pension plans rebounded in 2009 and 2010 from their devastating losses in 2008, they never got back to even.  In 2009, the fund got a 12.6% return followed by 12.1% in 2010, but the 1.1% return in 2011 is troubling.

“Despite a strong January, chief investment officer Joseph Dear warned earlier this week that the markets remain tumultuous,” the Bee reports.

In late 2011, Mr. Dear was still comfortable with current targets.

“Over 20 years I’m comfortable with our return target,” Mr. Dear said. “That’s long enough to ride through these cycles. On the short term, I think it’s going to be difficult, and I have said that. I was advised not to be so pessimistic on my point forecast.”

Ed Mendel, who runs the Calpensions website, in late 2011 wrote, “Dear said the next 20 years are likely to be different from the past 20 years. He said part of the evolving CalPERS investment strategy is a shift of focus from asset classes to risk factors.”

“I’m confident that as we do this work, we will find a way to produce the returns that are necessary, even if we run the risk of being different than a lot of other pension funds who are pioneers in that effort,” Mr. Dear said.

But not everyone is convinced that is true.

Ed Mendel reported a few weeks ago, “While CalPERS reported weak earnings in 2011, a prominent private-sector investment manager, Robert Arnott of Research Affiliates, told the board last week he thinks the most they can expect from stocks and bonds next decade is 4 percent.”

“Consultant Girard Miller said in Governing magazine this month, while discussing 12 basic public pension issues, that earnings ‘closer to 7 percent’ are more realistic until global debt is reduced,” Mr. Mendel reports.

And yet, CalPERS has remained steadfast in not revising their earning assumptions, despite recommendations by actuaries who argue they should lower their forecast to 7.5 percent.

Davis’ new city manager has been skeptical about CalPERS’ claims and their forecast.

In early January, he told the Chamber of Commerce that he strongly disagrees with the CalPERS claims “that they have enough money at the moment and that they’re not going to increase our rates over the next two years.”

He told the chamber in his State of the City address, “We think they’re wrong.  We think they’re basically doing that so that they don’t have to give the state an increase in their rate this year so they don’t contribute to the state budget deficit.”

“But we think they’re in complete denial.” He said that they don’t anticipate any additional cost pressures from CalPERS at this point in time, but the city still plans to set additional money aside in case they change their mind, which he said happens “just about every year.”

“Long-term, what’s happening with CalPERS is completely unsustainable,” he continued.  “There’s no way they can ever meet their obligations and so at some point in the next five years they’re going to come clean and there’s either going to be a ballot initiative or some legislative change and both future employees and existing employees are going to see some reduction in the accounting methods – it’s just not sustainable.”

He hopes this realization comes before they hit the city with a 30 to 40 percent increase in our contributions rates.  “There is some point in time when the fiscal laws of nature are going to catch up with [Cal]PERS,” he said noting that non-PERS cities are having to increase their rates by as much as 70 percent.

That view is now bolstered by a growing criticism of CalPERS’ decision to leave the ARR untouched at 7.75 percent.

Ed Mendel notes, “Even a small drop in the earnings forecast could boost the annual employer payment to the pension fund.”

In fact, the City of Davis has projected that for each quarter percentage drop in the earning expectation, the city will have to make an additional $1 million in payment from all funds.

There are differences between CalPERS and CalSTRS, however.

The Bee reports, “Unlike the teachers’ fund, CalPERS has the power to impose higher contributions on state and local governments without the Legislature’s permission.”

They add however, “But a big rate increase could provide more ammunition to Gov. Jerry Brown and legislative Republicans, who want to overhaul the pension system to curtail costs.”

Governor Brown has already made his proposal, which was heavily criticized by unions and employee groups.  Last week, however, another group announced that they had fallen short in their attempt to put pension reform on the ballot.

It is in this political context that CalPERS must operate and adjust accordingly.

Meanwhile, cities like Davis will wait and watch to see what happens.

—David M. Greenwald reporting

Author

  • David Greenwald

    Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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30 comments

  1. [quote][b]In 2011, the fund got a 12.6% return[/b] followed by 12.1% in 2009, [b]but the 1.1% return in 2011 is troubling[/b].[/quote]Highbeam… suggest you start here…

  2. [quote]”I’m confident that as we do this work, we will find a way to produce the returns that are necessary, even if we run the risk of being different than a lot of other pension funds who are pioneers in that effort,” Mr. Dear said.[/quote]

    This statement I find troubling – is the implication to go outside the box and think about riskier investments to increase the rate of return???

    [quote]They add however, “But a big rate increase could provide more ammunition to Gov. Jerry Brown and legislative Republicans, who want to overhaul the pension system to curtail costs.”[/quote]

    Is this the real reason CalPERS is resisting decreasing its rate of return – bc it fears decreasing the rate of return and the attendant cost to local gov’ts will result in the call for more serious pension reforms???

  3. Have they been listening to Rifkin?

    The rates of return used by public pension funds are scandalous and demand increased oversight and regulation by government.

    Wait… they are already government-run business, so why would we need to increase regulation since there is no greedy, private-sector, wealth-stealing CEO running the show?

    I got a better idea, how about we demand that government employees and politicians pick up the tab for any shortfall resulting from any too high estimate of returns? Heck, we could even let them keep any excess they earn from too low estimates of returns. When you think about this idea, it is the same as getting rid of all the public pension funds all together and instead just allowing each employee to invest in their own 401k. What a novel idea that would be… spread the investment risk across the entire population of the public-sector employees that get the benefits instead of forcing the risk on private-sector workers that will never see a penny of benefit. For the private-sector worker taxpayer, there is only downside to the risk of missed estimates.

    The left seems newly enamored with the word “fair” these days. Someone tell me how is it fair that people working in the private sector are forced to carry the risk for too high estimates of return from public-sector pension funds without any power or representation for how those pension funds operate?

  4. Jeff… sounds fair to me… let the public employees contribute to 401k (no public match, of course) … keep them and the public employer out of Social Security… should save the taxpayers a lot of money, so the private sector can succeed…

  5. More realistic rates of return will create so many municipal bankruptcies that the ramifications are hard to imagine for the city, the nation and for retired people. In the end, I can only see the country inflating its way out of this, which will devastate pensions.

    I’ve been discussing this risk since about 2003 (I’ve got to look that date up — I still have the binder somewhere) when I attended a Calpers workshop for finance directors and city managers. In one lecture, the presenter was upbeat about the projections, but made passing reference to the huge variations in contribution rate with small rates of variation in rate of return along with a very scary graph projected on the wall. This opened my eyes.

    I went home and looked up global historical rates of return on equities, and they are lower than U.S. historical rates of return — not much over 6% if I recall. Maybe Rich can help me out with that. But the scary part to me was that historically, pension funds were supposed to invest primarily in safe investments, not equities.

    Now remember, these rates of return are not inflation adjusted, so the real rates of return to the funds are much lower. However, most pension programs that I am aware of are only inflation adjusted to 2%. If that is true, much of the inflation costs will be born by the retired people, which over time, will be devastating.

    It no longer makes sense to look at the historical rate of return of U.S. equities for many reasons, but chiefly because we are in a global economy now. One of my concerns is that our pension funds are shifting their investments overseas in pursuit of higher rates of return, which could result in disinvestment in the U.S. economy.

  6. [i]”One of my concerns is that our pension funds are shifting their investments overseas in pursuit of higher rates of return, which could result in disinvestment in the U.S. economy.”[/i]

    Exactly! These funds are exclusively to support retiree income. If you and I go see a qualified investment broker/advisor, we would be recommended to diversify in lower risk investments… bonds, treasuries, money market devices, and some blue-chip type stocks. I’m 52 and I just did a portfolio evaluation and re-balance accepting the highest recommended risk for my profile (because I plan to work until I drop), and my five-year return was a tad over 6%. If these pension fund manager are seeking 7.75% or even 7% rates of return, it means they are playing too loose and taking on more risk than they should. Of course institutional investors have more leverage to get in on things like Google and Facebook IPOs, but I think we should be seeing even MORE risk-aversion in these portfolios. The reason is that the bad bets by these pension fund managers will be pushed on to the taxpayers.

  7. David Greenwald: [i]”I predicted this would put renewed pressure on CalPERS to lower their forecasted earning rate to 7.5 – [b]a move that would cost the city $1 million[/b] to all funds and between $400,000 and $600,000 to the general fund.”[/i]

    The important thing over time is not how much CalPERS [i]predicts[/i] it will earn from its investments. The important thing is how much they actually earn. It is their actual earnings which ultimately determine the rates they will charges agencies like the city of Davis.

    The only real importance of the predictions is if reality has changed and that they can no longer earn 7.75% over 30 years. I think a wisely run fund could earn that. But perhaps CalPERS is too poorly run by its team of gonifs ([url]http://cell2soul.typepad.com/cell2soul_blog/images/2008/10/04/approved_gonif_logo_copy.jpg[/url]) to do so.

    [i]”Concerns began rising last month when it was reported that CalPERS earned just 1.1 percent on its investments in 2011 – far below their forecasted 7.75% model. It should be noted that the 7.75 is a projected 30-year average which gives the fund considerably more leeway.”[/i]

    The most disturbing fact to my mind about the 1.1% ROI for CalPERS in 2011 is that the unmanaged S&P 500 did twice as well. If an investor simply bought the index on January 1, 2011 and sold in on December 31, 2011, he would have made 2.05%. That is not great for a full year, but it is double what the highly paid investment managers for CalPERS** got back.

    I just looked up my own ROI in 2011. I mostly own large cap stocks, a few unmanaged mutual funds (which are based on stock indexes) and a variety of low-risk bond funds and I keep cash in a money market fund. My ROI for 2011 was just over 4%. In other words, without any expertise I did 4 times as well as the very highly paid CalPERS professional investors.**

    [i]”While pension plans rebounded in 2009 and 2010 from their devastating losses in 2008, they never got back to even. In 2009, the fund got a 12.6% return followed by 12.1% in 2010, but the 1.1% return in 2011 is troubling.”[/i]

    In 2009, the ROI for the S&P 500 was 27.11%. Compare that with the 12.6% that PERS earned. In 2010, the ROI for the S&P 500 was 14.87%. ompare that with the 12.1% that PERS earned.

    **Here is how much CalPERS paid its professional investment advisors in 2011:

    * Joseph A Dear CHIEF INVESTMENT OFFICER, $522,594.30
    * Curtis D Ishii SENIOR INVESTMENT OFFICER $500,129.70
    * Eric B Baggesen SENIOR INVESTMENT OFFICER $467,049.79
    * Theodore H Eliopoulos SENIOR INVESTMENT OFFICER $457,979.24
    * Janine M Guillot CHIEF OPERATING INVESTMENT OFFICER $448,247.19
    * Thomas M Mcdonagh SENIOR PORTFOLIO MANAGER $444,812.12
    * Kevin A Winter SENIOR PORTFOLIO MANAGER $417,450.16
    * Ho Ho PORTFOLIO MANAGER $407,647.33
    * Real R Desrochers SENIOR INVESTMENT OFFICER $406,636.08

    I would highly recommend PERS fire every one of these folks. They are unnecessary. PERS would do far better over the long term simply investing in a broad market index. These “professionals” have wasted tens of millions of dollars investing in bad real estate deals and trying to pick stocks. They also have, from time to time, invested based more on political considerations than financial considerations ([url]http://www.publicsectorinc.com/forum/2011/12/barrons-slams-calpers-political-investing.html[/url]).

  8. “The important thing over time is not how much CalPERS [i]predicts[/i] it will earn from its investments. The important thing is how much they actually earn. It is their actual earnings which ultimately determine the rates they will charges agencies like the city of Davis.”

    The rates are set over 30 years, so they have to predict their earnings over that period and set their ratings accordingly. If they do not, then down the line, governments could really get screwed. Think about how much of an impact being off by just a quarter percentage has one our budget – $1 million for a city this size. now have them be off by a lot more and you can imagine the devastation it would cause.

  9. Jeff… the PERS portfolio is meant to cover the pensions of those who have already retired, AND those just entering the workforce at maybe 22-23 years old… if you started saving/investing for retirement at age 25 with a conservative portfolio aiming for 5-6% (max., per holding), you would be going against the advice of just about any competent investment advisor I’ve ever heard of… be aware that CalSTRS has never matched CalPERS in ROR… if you have a track record of (for illustration only) of 6%, and have been basing your strategy on 7% ROR, just because you lower your expectation to 5.75%, doesn’t mean that your sibling, who has been experiencing a 10% ROR, and planning on it, should reduce their expectation to 5.75%.

  10. hpierce, that is a fair point. It is one I understand but it did not come through in what I wrote.

    I challenge you to talk to a financial advisor today that would agree to a high propability of a rate of return exceeding 6.5% unless you also accept a much greater risk of investment losses.

    Note that the ratio of retirees to new employees exceeds 1 to 1 and will continue to grow. Pension funds are increasingly supporting retirees or near retirees. Also consider that this is not play money… it is not like the funds held by a wealthy investor that he can afford to lose and can gamble with.

  11. Sue: [i] “ I .. looked up global historical rates of return on equities, and they are lower than U.S. historical rates of return — not much over 6% if I recall. Maybe Rich can help me out with that.”[/i]

    According to the calculator found on moneychimp ([url]http://www.moneychimp.com/features/market_cagr.htm[/url]), the historical ROI for S&P 500 stocks* from January 1, 1871 to December 31, 2011 is 10.56% in nominal terms.

    If you adjust for inflation, the return is 8.36%. When you are talking about the pension debts of CalPERS, it is a nominal debt and thus you should not account for inflation. However, from the perspective of a pensioner, or anyone who is investing his own money in stocks, inflation is an important risk to keep in mind and real returns, not nominal returns, are what counts.

    *The S&P 500 index was only created in 1957. I presume that the 1871 to 1957 part of the calculation is a re-creation based on the 500 leading large cap stocks. I don’t think the fact that it had to be re-created makes it less credible.

    [i]”But the scary part to me was that historically, pension funds were supposed to invest primarily in safe investments, not equities.”[/i]

    This is right. Public pension funds did originally only invest in t-notes, high-grade bonds and municipal bonds. However, I think that is an incorrect read on “safe investments.” Aside from the risk of default with bonds—low when the bonds are high-grade, but not zero—there is a very serious long-term risk with bonds that needs to be accounted for: Bonds never perform as well as stocks over the long-haul. So by exclusively investing in bonds and not stocks, you know you will get a lower rate of return. You may be safer for the short term, but you are harming you own interests in the long term.

    Also, stock prices tend to reflect inflation. So in a high inflation environment, the nominal prices of stocks will go up. It is just the opposite with bonds. Their nominal returns are locked in,* so bonds have a built-in inflation risk. Given the high risk of a collapse of the US dollar in the next 10 to 20 years, the inflation risk on long-term bonds strikes me as quite high (though I should admit that the bond yield curve assumes the US will have very little inflation over the next 20 years ([url]http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield[/url])).

    * The US government does sell some inflation protected bonds. The problem with them is they pay a terribly low interest rate, even compared with t-notes and t-bills.

  12. [i] “… most pension programs that I am aware of are only inflation adjusted to 2%. If that is true, much of the inflation costs will be born by the retired people, which over time, will be devastating.”[/i]

    True. However, the vast majority of Americans have no pensions, and certainly don’t have pensions which pay them 90% of their final salaries. So even if a PERS pension is reduced in value by inflation, adjusting to a higher inflation rate for most PERS pensioners will be much easier than it will be to almost all other retirees who made similar salaries when they were working.

    [i] “It no longer makes sense to look at the historical rate of return of U.S. equities for many reasons, but chiefly because we are in a global economy now.”[/i]

    If you look at the 500 major companies which make up the S&P 500 or even the Dow Jones Industrial Average (30 companies), they are all global companies. Most of them make most of their profits overseas. The fact that the economy is global has harmed the interests of low-skilled Americans. It has in no way harmed the interest of great multinational corporations. They will (in almost all cases) invest in the countries that pay them the greatest return.

    I think it is reasonable to think that the investment returns inside a mature economy like the United States will be lower than the investment returns in a country like China or South Korea. But that does not mean it will be harder for US-based multinationals to make great profits. Most of them will. And the ones that don’t will fall out of the S&P 500. Further, if the most profitable multinationals are based in India or Germany or China, there is no reason that an investment fund like PERS will not invest in the stocks of those companies. Globalization does not mean lower returns on investment for global investors. In fact, it means higher returns.

    [i] “One of my concerns is that our pension funds are shifting their investments overseas in pursuit of higher rates of return, which could result in disinvestment in the U.S. economy.”[/i]

    The absolute amount of capital investment in the United States is always a function of the profitability of investing here. If our government pursues multiple policies which lower the return on investment, less money will be invested in the United States. The opposite is just as true.

  13. [i]”According to the calculator found on moneychimp, the historical ROI for S&P 500 stocks* from January 1, 1871 to December 31, 2011 is 10.56% in nominal terms.”[/i]

    Here are some 30-year annual average returns on investment in the S&P 500 from moneychimp’s database:

    January 1, 1982-December 31, 2011 = 11.03%
    January 1, 1977-December 31, 2006 = 12.50%
    January 1, 1972-December 31, 2001 = 12.29%
    January 1, 1967-December 31, 1996 = 11.89%
    January 1, 1962-December 31, 1991 = 10.27%
    January 1, 1957-December 31, 1986 = 09.88%

    What I notice is that there is no pattern to suggest that the returns on the S&P 500 are getting worse over time. If anything, they are getting better.

    I also think this is a telling number. Look at what happens when you close out your portfolio in one of the truly bad years, 1929 and 2008:

    January 1, 1900-December 31, 1929 = 09.92%
    January 1, 1979-December 31, 2008 = 11.04%

    In other words, even if a Great Depression hits or the entire housing market collapses the day before you retire, you will do perfectly over 30 years investing in the S&P 500. I think the reports of the death of stock investing have been greatly exaggerated.

    [img]http://www.racheldewing.com/NealDewing/wp-content/uploads/2010/05/mark-twain.jpg[/img]

  14. [i]”In other words, even if a Great Depression hits or the entire housing market collapses the day before you retire, you will do perfectly over 30 years investing in the S&P 500.”[/i]

    Of course that depends on when you got in and the amount of your expected or needed rate of return. Markets likely continue on into perpetutiy, but humans, fortunately, likely do not. If you reach a retirement age at the time that the market tanks, and your investments were concentrated in higher-risk stocks, you would likely need to extend your retirement. But there is currently a limit to this called life expectancy thing that prevents you from waiting too long.

    This brings up another idea… a variable retirement age or a variable pension formula for public-sector workers depending on investment returns. For example, Calsters could set a high-med-low estimate and index this to retirement age and/or contribution amount for their covered members. So, instead of 1.8% @ 55, it could be 1.6%/1.7%/1.8% @ 55… or 1.8% @ 55/56/57.

    It is time for all those public-sector workers to get more skin in the game of retirement saving and investing.

  15. [i]”Of course that depends on when you got in and the amount of your expected or needed rate of return.”[/i]

    If you got in 30 years before, it does not matter at all. The historical returns do not support your argument, even when you get out at the worst possible time.

    [i]”If you reach a retirement age at the time that the market tanks, and your investments were concentrated in higher-risk stocks, you would likely need to extend your retirement.”[/i]

    That is a circular argument, because you are calling stocks “high risk.” The S&P 500 over 30 years is about the lowest risk, highest reward instrument you can find. It is much lower in risk than buying T-notes or T-bills, because it acccounts for inflation risk those do not. It is far less risky than buying muni bond funds or high-grade corporate bonds for the same reason.

    Four big mistakes that many individual investors make are 1) they underinvest in stocks and overinvest in bonds and real estate; 2) they invest in managed funds which eat up their profits by rewarding portfolio managers; 3) they invest in a small number of stocks which are overly concentrated in certain sectors or certain individual companies; and 4) they sell off their stocks or most of their stocks when they retire and are perfectly healthy.*

    *The old yarn is take the number 100 and subtract your age and that is supposed to tell you what percentage of your portfolio should be in equities. If you are 30, it should be 70 percent. If you are 60, it should be 40 percent. If you are 80, it should be 20 percent. You could do worse than following this advice. However, I think it is bad advice if you are healthy and expect to live a long time and you are not in need of eating your seed corn.

    A 60-year-old who reasonably expects to live to age 90 or 95 (based on family history) should have the vast majority of his investments in stocks. They will do better than bonds. If he overinvests in bonds, he will be gradually impoverishing himself over the last 30 or 35 years of his life.

    On the other hand, if you take a 60-year-old who expects to die by the time he is 65 or 70 and he needs cash, then he should have most of his money in short-term bonds, CDs or money market funds and almost nothing in stocks (save perhaps those which pay a big dividend).

  16. Thanks, Rifkin… you explained the strategies for investments for retirement much better than I… everything you wrote fits with everything I’ve read in a number of sources…

  17. [quote]True. However, the vast majority of Americans have no pensions, and certainly don’t have pensions which pay them 90% of their final salaries.–[b]Rich Rifkin[/b][/quote]I think it would be more accurate to say: up to 90%. Non-public safety employees would have to work in PERS for 36 years before retiring at 90% of salary, in other words from age 24 to age 60.

  18. One of the best benefits the City of Davis gives to its employees–one which I concede I am jealous of, but not one I think needs to be touched–is the long-term healthcare coverage in old age. It cost the City of Davis $2,448/employee/year a few years ago. It’s probably now $2,600 per this year.

    I don’t get any kind of coverage like this, though I could, of course, for a lot of money buy insurance for it (but I don’t). I would guess most private sector workers and owners of small businesses and even most public employees* don’t get free convalescent care insurance paid for by their employers. If anyone in the private sector gets this, I would guess it is fat cat executives, some already highly paid workers, and maybe some unionized workers in high margin industries (such as a carpenter in the movie industry).

    Why that is so nice to have is that a lot of elderly people–maybe a majority of those who reach age 80?–will, due to dementia or due to some debilitating physical problem need some convalescent care. If the need is modest, then it can be done at home with a visiting nursing service. If it is more severe, it will likely mean moving into a nursing home. Either way, it is expensive if it lasts a year or more.

    And if you don’t have good health insurance for it, there is a good chance it will eat up all of your life savings** that you had hoped to pass on to your loved ones. The normal routine is that the nursing hospital will drain all of your assets until you have nothing left, and then you will qualify for MediCal (poverty) coverage. Most people in nursing homes in our state are covered by MediCal. It would not surprise me if this system is unsustainable, but I have not read that.

    Yet if you work for the City of Davis or a similar agency which covers convalescence, you don’t have to worry about the costs; and you likely will go into a convalescent hospital sooner, and perhaps you are more likely to come out of one if you get well, because you will have the income and capital to sustain yourself that most others won’t.

    *My nearly 90 year old mother, who is a Yolo County retiree, never got this sort of coverage with her job. However, as a PERS pensioner, she qualifies to buy coverage for herself for convalescence. She has paid for it out of her pension check for the last 25 years or so. Even though PERS gives a better rate than one could buy in the private market, it is still very expensive and it only covers her for something like 18 months of convalescence. So if my siblings and I thought she needed to go into a nursing home and she were still alive 18 months later, we would either have to take her out (which might be impossibly hard on everyone involved) or bankrupt all of her savings in short order. It strikes me as a very tough choice.

    **Your home is actually protected, if you owned it when you went broke in a nursing home.

  19. Rich: [i]”If you got in 30 years before, it does not matter at all.”[/i]

    Agreed, assuming you didn’t just bank on the high return years. Related to this point and your point, you have to ask why are the pension funds suddenly in trouble as a result of the Great Recession. They had been in for more than 30 years.

    I know several people with a long-term investment strategy heavy in stock that had to delay their retirement because their portfolio value shrunk by half or more after 2008. If they had held on until 2011 or 2012, they would have made it all back and then some. However, timing is important… especially when Uncle Sam forces you to start taking cash withdrawals.

    [i]That is a circular argument, because you are calling stocks “high risk.”[/i]

    No, that is not what I meant. I was referring to high-risk stocks… small caps, foreign stocks, etc… Sue mentioned foreign stocks and I consider most of them high-risk. Certainly there are other high-risk investment instruments, so I should have clarified this point.

    That is very interesting about the long-term care insurance. It is a very low premium even for a group rate. My father and mother in-law I think are paying almost $2000 per month for their coverage (covers both of them). I agree it would not make any business sense to touch that benefit at that cost; but it does extend the argument of “unfairness” when private sector workers have to pick up the tab while lacking anything close to the level of benefit coverage.

    Does Calsters also cover retiree healthcare in addition to the pension and long-term care coverage?

  20. [quote]One of the best benefits [b]the City of Davis gives to its employees[/b]–one which I concede I am jealous of, but not one I think needs to be touched–is the long-term healthcare coverage in old age. It cost the City of Davis $2,448/employee/year a few years ago. It’s probably now $2,600 per this year. [/quote]BS! This statement is, at best, ill-informed, if not a lie. PERS makes LTC available, at decent rates (if you sign on young), but it is the [b]sole[/b] cost of the [b]employee[/b], and the premiums are paid directly to PERS. There is no city contribution nor “sponsorship”. Please, Rifken, put facts in gear before stating “facts”.

  21. I hope my previous post also partially answers Mr Boone’s question… I do not know if CalSTRS offers it, and if they do, I have no idea of whether DJUSD contributes to the premiums. I suspect, not.

  22. [b]” it is [u]the sole cost of the employee[/u], and the premiums are paid directly to PERS …”[/b]

    If the employees have to pay part of the cost, I was not aware of that. Yet you are wrong if you think the City is not contributing its share.

    This comes from the management contract: [i]”The CITY shall provide long (LTD) term disability insurance coverage for all employees. Effective July 1, 2010, and continuing for the term of this AGREEMENT, CITY shall contribute towards each EMPLOYEE member’s cafeteria benefit plan the amount to purchase the Long Term Disability Benefit provided in City of Davis Self-Insured Long Term Disability Plan. Purchase of this policy is mandatory.”[/i]

    This comes from the fire contract: [i] “The CITY shall provide long (LTD) term disability insurance coverage for all employees. Effective January 1, 2010, and continuing for the term of this AGREEMENT, CITY shall contribute towards each UNION member’s cafeteria benefit plan the amount to purchase the Long Term Disability Benefit provided in City of Davis Self-Insured Long Term Disability Plan. Purchase of this policy is mandatory.”[/i]

    This comes from the police contract: [i] “The CITY shall provide long term disability (LTD) insurance coverage for all EMPLOYEES. Effective January 1, 2010, and continuing for the term of this AGREEMENT, CITY shall contribute towards each EMPLOYEE’s cafeteria benefit plan the amount to purchase the Long Term Disability Benefit provided in City of Davis Self-Insured Long Term Disability Plan. Purchase of this policy is mandatory.”[/i]

    This comes from the PASEA contract: [i] “The CITY shall provide long term disability (LTD) insurance coverage for all employees. Effective January 1, 2010, and continuing for the term of this AGREEMENT, CITY shall contribute towards each ASSOCIATION member’s cafeteria benefit plan the amount to purchase the Long Term Disability Benefit provided in City of Davis Self-Insured Long Term Disability Plan. Purchase of this policy is mandatory.”[/i]

  23. Rifkin… again you should clarify the difference between LTD, (related to “active” employees) and LTC (nursing home, home care, hospice, etc.). The former is to cover loss of wages, the latter is insurance for costs beyond normal medical insurance. Your quotes are correct, but the context is WRONG.

  24. Missed one of my points… LTC is basically for retirees, either regular or due to service retirement… LTC is optional, and the city contributes 0 to it… the premiums are based on the employee’s age and medical condition… why cannot you admit you misspoke, Mr Rifkin?

  25. LTD is usually long-term disability and not long-term care. LTD generally is offered by private insurance that coordinates with state disability.

    The prime age to purchase LTC insurance is generally 55. It gets more expensive at more advanced age, but of course you don’t want to start it too young either. So, the current recommendation is to buy a policy at age 55. Even so, $2,600 per year is much lower than the premiums I have heard of. So in this case the city would either have to be subsidizing the costs, or have access to some marvelous group rates.

  26. Yes, I wondered about the confusion in the use of the terms LTD and LTC. They are two completely different things. And Jeff is correct, LTC is generally extremely expensive…

  27. Yes, the city put $ in the cafeteria plan to pay for LTD, but it counts toward the employee’s total comp, and therefore the city can use this when comparing to other agencies. This is also MANDATORY, so unless you become disabled while working for the city, you see no benefit.

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