New Video: CalPERS New Assumptions Mean Massive Increased Cost to Cities/Counties

BREAKING - CalPERS working to lower its return assumptions which will result in significant increases in pension cost for California government workers in cities, counties, and the state. Every 1/4 point in reduced assumptions raises pension costs 2%-4%. There was a meeting last week with investment advisors to begin this work. The new lower return assumption will be announced in Feb. California Bonds will take a hit!!!

This is video of a CalPERS actuarial presenting to the Huntington Park City Council on monday on how CalPERS is underfunded and why the cities pension costs will be rising dramatically. Notice in the video how CalPERS keep changing its assumption in different years to hide losses.

Because of losses in 2008-2009 CalPERS assets are 50% below what the actuarials expected. In otherwords, we California taxpayers are screwed and about to get more screwed.

With CalPERS, the employee contribution amount is fixed but the employer amount varies so the risk to the plan is borne by the employer (city, county, state).

1. CalPERS COSTS TO CITIES SKYROCKETING NEXT YEAR, BONDHOLDERS BEWARE - The current rate of return assumption CalPERS is using is 7.75% compounded annually. However, CalPERS board is working on a new asset allocation policy based on a meeting last week with investment professionals. The new return assumption rate will be lower and announced in February 2011. For every ¼ point CalPERS lowers its investment return assumption, the city or county or state cost will go up 2 % in one of two categories of contributions it must pay into and 4% in the other. In other words, the burden on cities, counties, and the state is about to balloon come Spring. If the rate is lowered to Bill Gross's "new normal" rate of return of 4% that would mean a city or county would have to pay over 22% MORE in contributions. A sum sure to sink many cities and maybe a few counties. If the return assumption gets lowered a tiny amount and the actual returns are close to the "new normal" then CalPERS will just dig a larger hole to be filled down the road.

2. MADOFF WOULD BE PROUD - Compounding the problem is the fact that in 2005 after CalPERS lost 1/3 of its assets in the dotcom bubble it created a "new rate stabilization policy." The new policy changed the Actuarial Value of Assets (AVA), a method of smoothing the asset valuation, from an avg of 3 years to an avg of 15, thus inflating the AVA due to previously strong years. By doing this they masked the downturn in the AVA thinking the following years would allow them to catch up and smooth out the massive dotcom loss. Trouble is, 2008-2009 came along and shot holes in this assumption and not they are more screwed.

3. MADOFF SLIGHT OF HAND #2 - Then compounding the problem more, after the 2008-2009 losses CalPERS changed their assumptions AGAIN to "smooth" the losses. They then changed the AVA to MVA ratio to 60% to 140% from 70% to 120%. As you can hear the actuarial state o the video, "that means we will defer most of the loss to future years." "This means the city will realize another increase in future years. I hate to bring bad news but those are the facts."

TAX-EXEMPT BONDHOLDERS BEWARE The current rate of return assumption CalPERS is using is 7.75% compounded annually. However, CalPERS board is working on a new asset allocation policy based on a meeting last week with investment professionals. The new return assumption rate will be lower and announced in February 2011.

If Calpers misrepresented financial returns to tax-exempt bondholders, that is prosecutable. The FBI, IRS and SEC should be informed about wrongdoing. The FBI should interrogate Calpers officials with an eye to prosecutions.

For every ¼ point CalPERS lowers its investment return assumption, the city or county or state cost will go up 2 % in one of two categories of contributions it must pay into and 4% in the other. In other words, the burden on cities, counties, and the state is about to balloon come Spring.

If the state, cities, and counties mounted tax-exempt electoral bond issues with falsified data, and is using tax-exempt public monies under false pretenses, that is prosecutable.

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It's time for the FBI, the IRS and SEC to investigate Calpers.

POSSIBLE CHARGES: illegal conversions of public monies; facilitating govt fraud; official acts prohibited; misuse of funds; abuse of tax-exempt monies, violating public office; misuse of government position; abuse of government power; conflict of interest; influence buying; conspiracy to deceive; misuse of elective office, collusion, conspiracy to collude; falsifying official documents, presenting false federal instruments for filing, extortion, forgery.

REPORT TAX FRAUD AND TAX LAW VIOLATIONS HERE:

IRS TOLL-FREE 1-800-829-0433—-you may remain anonymous when reporting tax fraud.

Report fiduciary negligence; signing off on falsified documents here:
FBI TIP PAGE http://tips.fbi.gov/ (you may remain anonymous)

enforcement@SEC.gov.

Anyone with half a brain such as myself would leave this state, we could even walk away with a small amount of equity, but alas, my better half does not have half a brain and wants to stay put. All will be lost.

You can see the train-wreck approaching, but with roots deep and family and friends in the area -- its hard to pack up and leave...
But you're right - the situation in this State is pretty well cooked. There are solutions, e.g., Privatize the schools, renegotiate the Pension plans, cut spending, lower taxes .... But no one has the political guts to make the tough decisions - and with the Dems in control of Government - they will continue to play their one note instrument: Raise taxes ... and when that doesn't work (and has the effect of reducing tax revenue) they'll raise taxes again (or call them 'fees'...)

No surprise here. This has been coming for years. First, the local and state governments are to blame because they have been agreeing to pension benefit increases that are totally absurd. Cops can retire at age 50 after 30 years of service at full pay with cost of living increases and medical benefits for the rest of their lives.

Beyond such absurdities, the unions have gotten control of CalPers board of directors. For several years now, they have been investing pension funds in areas far beyond what any private pension fund managers could, or would, invest in. Many were ventures sponsored by the unions themselves.

The public employees pension system has been corrupted completely. Either, the pensions of both current and retired employees need to be brought back to reality along with other wild state spending or California needs to file for bankruptcy.

As for the new governor, Jerry Brown, he and his family have been feeding at the public trough for their entire careers. He has no new ideas. All he knows is how to kowtow to the union bosses. This state, along with NY, CT, MA, ME and a few others will end up as barren waste zones like something out of a futuristic horror movie.

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