Are public pensions really “bulletproof”?

Besides Warren Buffett, I seem to be one of the only people who continues to worry about a brewing crisis in our state and local retirement systems.

Like most complex — and long-trailed — problems, this is one of those things that everyone assumes will somehow work itself out.

Until it doesn’t.

Consider just the latest happenings here in California …

The state’s primary public pension plan, known as the California Public Employee Retirement System, is the largest such fund in the nation. It covers about 1.8 million people, including workers at both the state and …

The state’s primary public pension plan, known as the California Public Employee Retirement System, is the largest such fund in the nation. It covers about 1.8 million people, including workers at both the state and local levels. (Interestingly, it covers most public school employees but does NOT cover teachers because they have their own separate plan.)

CalPERS has about $300 billion in assets under management, and is funded by a combination of things:

1. Contributions from participants

2. Contributions from employers (equal to a percentage of each employee’s earnings)

3. Investment returns

Of course, as you probably know, investment returns vary from year to year. And it’s quite easy for plan administrators to overestimate how much they will make in gains … especially when they face a series of market bubbles and a prolonged period of ultra-low interest rates.

The upshot is that CalPERS currently has about $100 billion LESS than it needs to fund current and future obligations.

You might also be surprised to hear that the amount of money contributed by plan participants pales in comparison to the amount put in by employers.

Contrast that with the Social Security system, where contributions are evenly split between employers and employees.

Or compare it to a typical 401(k) arrangement, which might have employee contributions getting an equal match from the employer up to a single-digit percentage of compensation.

Of course, the most important point here — which The L.A Times is right to note — is that taxpayers are really “the employers” here.

In other words, underfunded and local pension problems are TAXPAYERS’ problems.

Before you start saying, “Hey, Nilus. You’re the dummy who moved to California … ”

It isn’t just the Golden State.

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