Fuzzy math and public pension hysteria
David Crane is an unserious man with a serious purpose -- attacking public employees and public employee pensions, as he did in his April 6 Times Op-Ed article, “The $500-billion pension time bomb.”
Crane repeatedly asserts the grossly misleading claim that public pension costs have risen 2,000% since 1999. To make this assertion he cherry picks 1999 as a starting point, when the state paid the lowest contribution to its pension fund, the California Public Employees Retirement System (CalPERS), that it had in many years. The $56 million contributed that year resulted from a four-year “pension holiday” that allowed the state to use CalPERS investment earnings to offset required contributions.
In 1996, a more typical year, the state contribution was $1.2 billion. But Crane used neither that year nor any preceding year, allowing him to make the grossly misleading claim that the state would have to greatly increase its future contribution to CalPERS to meet its pension obligations.
Similarly, Crane’s eager trumpeting of Stanford University study purporting to show that CalPERS’ unfunded liabilities are far greater than previously reported reeks of the same statistical manipulation. This particular study and others Crane cites assume a 50% decrease in the rate of return. Naturally, with a lower rate of return, projected unfunded liabilities skyrocket.
The real issue is whether the assumed rate of return, used to discount future liabilities for public pension plans, should be set at such an absurdly low rate. Crane writes not a single word addressing that issue, as he knows that virtually every actuary who studies public pensions disagrees with using the U.S. Treasury rate as the assumed rate of return.
Crane claims the Stanford study is “stunning,” a word that more accurately describes his considerable attempts to mislead the public in discussing the funding of public pension plans.
Douglas Rose is chairman of the San Diego County Retirement Board. The views expressed in this article are his own and do not represent an official position of the board.
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