LEGISLATIVE REPORT: Low Borrowing Interest Rates Can Limit Pension Growth



Pension Law and Policy,
By Michael Karsch,
Legislative Representative


By the time you read this, the financial crisis may or may not be safely rolled away without becoming an uncontrollable disaster with people jumping out of windows out of despair (as happened in 1929). The coronavirus is a serious factor, so is the electoral process, and there are market scares in most countries. For those of us with government pensions, we can be content that we still have a pretty good safety net. Money managers are looking after our investments to the best of their abilities, and the markets are generally showing life, as they always have done in similar downswings before now. I think of the stock market and related things as wild animals that can be tamed for our benefit, but we must know how to do it. I hope our wonderfully smart investment advisers will help us find our way. My inclinations are more to wait and see how my betters can sort all of this out. I do have some doubt about continuing cuts in the interest rates. The closer we get to zero the more I think of a sluggish economy, such as happened in Japan in the recent past. Low rates mean it is easier to borrow, but so much of economics tells me that longer-term borrowing hurts some areas that became dependent on long-term investments tied to interest rate raises. Retirement systems need reliable income from interest-rate-sensitive sources to create positive income flows. Interest rate hikes benefit some people, while others suffer.

Transparent California reports that CalPERS has one of its own employees (who was head of global fixed income for CalPERS) collecting the highest pension by a CalPERS retiree: $418,600! A previous record CalPERS pension was $372,280 for the Solano County Administrator. Locally, we in the Los Angeles area heard of the Vernon City Manager getting $551,000 as a pension several years ago, but due to illegal pension spiking, his pension was cut drastically and reimbursement from the retiree was demanded.

The Santa Monica Daily Press reported on worker disputes over pension and healthcare negotiations. Some of the city positions represented by the Teamsters Local 911 have stalled in benefits negotiations for more than one year. City Manager Rick Cole wants 1,800 employees to contribute more from their paychecks for pension support and healthcare plans. The city has mounting debts from its pensions and is beginning to pay more of its debt of $20 million to $50 million over the next decade. The new proposal would help pay down those debts. The City of Los Angeles has also increased the amount paid into our pensions and healthcare by the active workers.

Opinions expressed in this column are those of the author and not necessarily those of Alive! or the Employees Club of California.