California’s government-employee pension funds are defined-benefit deals. Employees are promised a set amount of pay for themselves and their spouses, until death do they part, based on a set formula that courts have ruled can never be reduced.
And those formulas have gotten exceedingly generous. For instance, the “public safety” (police, firefighters, billboard inspectors and an ever-expanding class of workers) deal is typically “3 percent at 50,” which means employees can retire with 3 percent of their final years’ pay, multiplied by the number of years worked. That means 90 percent of final pay at age 50, before all those spiking and iffy disability schemes drive it higher. Hence, we see endless scandals with California government employees retiring with $200,000-plus pensions.
These deals are, quite frankly, unsustainable, as I detailed two years ago for the Spectator. But we’d be wrong to suggest the state’s leaders aren’t concerned about pension “sustainability,” although not of the type usually associated with pension funds. California officials want the California Public Employees’ Retirement System to use its immense financial clout to promote climate sustainability. This week, the CalPERS investment committee voted to suggest that climate-change expertise should be a factor when corporations CalPERS invests in choose new board members.
There’s nothing wrong with investors wrestling with those risks. But realistically, the price of all investments is already reflected in whatever risks investors anticipate from climate change — or, more likely, because of expected regulations related to it. This is just another opportunity for CalPERS to do what it loves to do: use its financial leverage to strong-arm private companies into adopting policies that advance its political agenda. Meanwhile, CalPERS insists there is no unfunded-liability crisis, even as its rate increases drive more cities into “service insolvency” (too little cash to pay for an adequate level of municipal services