It's time to take the long view on public pensions, starting with the fact that the current system isn't sustainable.
Although the stock market improvements of recent months have reversed some of their 2008 losses, retirement funds such as the Stanislaus County Employees' Retirement Association shouldn't expect to see the soaring investment returns they experienced in the past.
The StanCERA board has made several difficult decisions this year, responding both to investment losses and to poor forecasting by a previous actuarial firm. These included:
%#149; Suspending non-guaranteed health benefits for retirees in 2010, and suspending the extra cost-of-living bump for the oldest retirees.
%#149; Shifting $50 million from the so-called excess earnings reserve into the vested reserve, where it counts toward the financial solvency of the retirement fund.
As it looks ahead, the retirement board needs to remain conservative in its spending and investment expectations.
As recently as 2007, StanCERA leaders were boasting that their retirement fund was almost fully funded -- in line to meet 96.6 percent of its long-term obligations. By late 2008, it had dropped to 85 percent, and a new forecast shows it will drop to 60 percent funding by 2013.
To correct that troubling downward trend, the board should:
%#149; Suspend indefinitely the practice of paying out health benefits and other non-guaranteed add-ons.
%#149; Set realistic expectations for the returns on investment. StanCERA currently expects annual interest totaling 8.16 percent, which is above the state average and above what is happening these days.
%#149; Avoid paperwork gimmicks that protect some accounts from the market's ups and downs.
%#149; Educate its members -- retirees as well as current employees -- about how the fund works. The board took a positive step with a workshop last week.
The retirement board will have no choice but to raise the contribution rates for Stanislaus County, the city of Ceres and other employers, but the goal should be to minimize increases and make them predictable from year to year.
Far greater responsibilities fall on the employers, however, because they, not StanCERA, set the retirement benefits as part of their negotiations with unions.
Stanislaus County and other agencies need to start addressing the problem -- and the public's perception of the situation -- by cleaning up the way pensions are calculated in order to prevent people from earning more in retirement than they did when they were working.
More difficult, but more important, there need to be new expectations for future generations of public workers.
Legally and morally, employers must honor commitments to existing employees and retirees. But for future hires, there needs be a new tier of benefits, starting with higher retirement ages.
The idea that public safety employees are physically incapable of working past age 50 has acquired legitimacy it doesn't deserve. Recent figures from the state retirement system show that the life expectancy of public safety employees is just about the same as it is for all government workers -- into their 80s.
Many public employees argue that they deserve generous retirement because they earn less in the public sector that they would in private jobs. That may have been true at one time, but except for some specialties -- say engineering and legal professions -- it's not the case across the board today.
Also, some union contracts include employers' picking up employee contributions to retirement in lieu of salary increases. That can be a good trade-off, as long as the employees understand and appreciate what they are getting. But there's a tendency to put so much focus on salary that within a few years the workers want the salary hikes as well as the money in their pocket from not having to pay into the pension fund.
Financial illiteracy is a big problem in this country, and it's a factor in the mushrooming public pension debt, too.
Addressing that must be part of solving the public pension problem.
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