Pension panel meets with fund official
A nearly four-hour meeting on Costa Mesa’s public pension plans Wednesday brought modest debate to the fore of what’s been called an “out-of-control” financial situation for taxpayers.
The city’s Pension Oversight Committee met with Kerry Worgan, a senior pension actuary with the California Public Employees’ Retirement System (CalPERS), who provided them with a chance to hear the pension fund’s side of a complex debate.
Like many municipalities, Costa Mesa faces an unfunded liability to CalPERS that, according to some estimates, is within the range of $220 million.
Eight committee members attended. Rick Kapko was absent, as were the City Council liaisons, Mayor Jim Righeimer and Mayor Pro Tem Steve Mensinger — two vocal critics of the pension system and its financial liabilities.
Costa Mesa’s municipal workforce is divided into three CalPERS funds — one each for police, firefighters and municipal, or “miscellaneous,” employees.
For many on the pension committee, though, the fact that CalPERS continues to assume a 7.5% discount rate is a major sticking point in a system they allege has an overly optimistic forecast. To critics, the result leaves taxpayers to foot the brunt of the bill that continues to grow as the years go on.
The discount rate reflects the fund’s assumed rate of return and is just a target. It is used to calculate the present value of future pension liabilities.
Committee member Ron Robertson noted that 10 years ago, Costa Mesa’s unfunded liability was $9 million. By 2008 and 2009 it had risen to $45 million, he said.
“We sit here tonight with more $200 million,” Robertson said. “How did we get that far off?”
On that particular question, Worgan offered no specifics and said he isn’t always aware of the happenings within specific cities. His CalPERS coverage area is for cities within Orange, San Bernardino and Ventura counties.
Worgan said he was curious as to what happened in Costa Mesa “that created such a big hole,” and that he could examine if the cause was rooted in poor CalPERS investment returns — namely around the recession — or actions taken at the local level.
Part of the problem may be because Costa Mesa’s average pay is higher than most cities, Worgan noted.
Gene Hutchins, another committee member, said he didn’t agree with the 7.5% discount rate, especially because “everybody throughout the state of California” is facing some kind of unfunded pension situation.
“So, somehow, CalPERS’ calculation didn’t include what it should have to protect those cities like Costa Mesa,” he said.
Attorney John Stephens, who ran for council last November, asked Worgan if cities that outsource employees or issue layoffs see any benefits afterward to their pension liabilities.
Worgan replied that fewer people contributing to the fund can potentially hurt it, leaving the remaining employees to pick up the slack.
The committee was also told that leaving CalPERS would be extremely cost-prohibitive.
Worgan described the difficulties in running the fund and, from his vantage point, keeping its objectives balanced among all concerned parties.
“We basically serve the employees and the employer,” he said. “We have to try and look after everybody in this umbrella.
“We can set really high rates, make the plans fully funded and put a bunch of cities out of business, or we can set really low rates, which means these plans never get funded. So we’re walking this tightrope of trying to collect enough money without seriously damaging a lot of these agencies.”
He urged the committee to speak to the CalPERS board of directors and to Chief Executive Anne Stausboll.
“You do have a voice,” Worgan said, “and I would encourage you to use that.”
