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In California Dreaming: Lessons on How to Resolve America’s Public Pension Crisis, Lawrence McQuillan discovered that California accounts for $550 billion to $750 billion of the $4.7 trillion in unfunded pension liabilities nationwide. The biggest player is the California Public Employees’ Retirement System (CalPERS) which in 1999 assured legislators that its investment earnings would cover costs of payouts without burdening taxpayers. But as Dan Walters of the Sacramento Bee noted, these assurances turned out to be false. In 2014 CalPERS “earned an anemic 2.4 percent on its investments in the past year, less than a third of its 7.5 percent target.” CalPERS value plummeted by 25 percent in one year alone and the government pension giant “sharply increased its mandatory contributions from the state and its local government clients to cover losses, dramatically raising pension costs.” Unfortunately, CalPERS does more than botch pensions.
As Jon Ortiz of the Sacramento Bee observes, CalPERS set up a long-term care insurance fund 20 years ago and ignored warnings of failure. Plaintiffs in a class-action lawsuit “claim the fund and its business agents misrepresented the insurance in sales pitches and materials, then made poor business decisions that wound up foisting huge rate hikes on tens of thousands of policyholders.” Some 150,000 government employees took out policies for long-term care that guaranteed lifelong coverage, inflation-adjusted coverage, or both. “The program lost money despite incremental rate hikes over the years,” Ortiz explains, and in July a $597 monthly premium jumped to $813 and next year will rise to $1,220 per month.
As Ortiz notes, a long-term care policy with fixed benefits can be had for as little as $237 per month, but that is not what the class-action plaintiffs want. As one of the attorneys told the reporter, they want the legislature to use tax money to make the CalPERS insurance fund whole. In other words, shake down taxpayers yet again to bail out incompetent bureaucrats. Based on past performance, legislators will be delighted to go along.