Commentary: The problem with Calpers

CALPERS is the pseudo government agency set up to manage the defined benefit retirement program for government employees.  Their charter is to collect retirement contributions, invest these contributions to maximize return and provide defined benefits to the actual retiree.  CALPERS is controlled by and largely for the benefit of the legislature and government employees.  
The “Defined Benefit Retirement” means that the retiree receives a set sum of money each month regardless of the underlying investment results or the adequacy of the employees’ initial contribution.  This payment liability is open ended and goes on until the death of the recipient.  Because this is an open ended commitment/obligation against the employer, most private employers have gone away from this type of retirement to a defined annual contribution by the employers; such as a K401 or 403B plan.  The government is one of the last bastions of the “Defined Benefit Retirement” plan and this was viewed as a benefit that made the nominal lower pay of the government employee acceptable.  But how things have changed!  The open ended retirement funding is burying communities in immediate and long term red ink.  Further, the current pay of government employees well exceeds the salaries in the business sector which makes the problem even worse.  It is the classic “Pay Me Now AND Pay Me Later”.
In addition to these systemic problems, CALPERS has been given the authority to project the returns on its investments as an input to the funding required to support retiree payments.  In these tough economic times, the CALPERS projection for FY2011 was 7.55% return on its investments.  The reality is that they have received 1.0% return.  Even less than the 1.8% return achieved by the California Teachers Retirement System, giving them an unfunded liability of $64.5 BILLION dollars.  When the return on 10 year government bonds is less than 2%, how can CALPERS project their return to be 7.55% and would you want this type of organization controlling your investments?  Further, when CALPERS fails to meet its investment goals, and they are short of funding, the tax payer covers the shortfall so that the retiree continues to receive the retirement check.  There really is no penalty for failure under this system.
Given the preceding, what can be done about it?  The most direct thing would be to limit the number of government employees.  This would save on a future open ended retirement liability as well as the current inflated salaries.  Is this really acceptable?  I say yes.  As various governments have found, many of the functions of government can be contracted out wherein the costs are defined and limited, and in most cases the population is better served by the contractor arrangement.  Of course this approach can be sabotaged but I think it should be honestly considered.  
CALPERS needs to be challenged as to its approach and control.  The continued bankruptcies of California cities will start this process but it needs to be continued through the political, legislative and legal systems.  A greater range of retirement plans is called for as one size does not fit all.  Communities should be allowed to go outside the CALPERS umbrella to pursue better/cheaper retirement options.  
This is a serious problem that impacts Healdsburg both now and in the future.   Solutions are difficult and will impact select people, but doing nothing will impact all of us and could force Healdsburg to follow Vallejo and San Bernadino into an unacceptable financial situation.  
Vernon P. Simmons is a Healdsburg resident