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Pension initiative group seeks legal defense funds

Original post made on Jun 29, 2010

The grassroots group that sponsored the Menlo Park pension reform initiative is trying to raise at least $35,000 in private donations to defend the initiative after two public employee unions mounted a legal challenge to keep it off the November ballot.
[Web Link ==B ● Unions sue Menlo Park over pension measure==].

Read the full story here Web Link posted Tuesday, June 29, 2010, 11:56 AM

Comments (40)

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Posted by Compensation Professional
a resident of Menlo Park: Sharon Heights
on Jun 29, 2010 at 12:41 pm

This in Union intimidation. The ballot initiative would give taxpayers -- who in the end fund the union employees -- a chance to be heard. I am more than happy to contribute to the defense fund. Hope more details will be forthcoming.


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Posted by Peter Carpenter
a resident of Atherton: Lindenwood
on Jun 29, 2010 at 12:49 pm

As others have said this is a blatant attempt by the unions to deny the citizens their right to vote. When the ordinance is passed the union can then challenge its constitutionality, but in the meantime there is no harm to the union EXCEPT that they correctly fear that the voters will overwhelmingly approve this measure. I have made a contribution to the pension initiative sponsors defense fund.

However, I believe that even without a rigorous defense by the initiative sponsors or the city that the courts will toss out this challenge.

I urge everyone who wishes to preserve our rights as citizen to appear in court when this case is heard.


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Posted by curious
a resident of Menlo Park: Central Menlo Park
on Jun 29, 2010 at 1:27 pm

Is it too late for the Council to change its decision and adopt the measure (or the equivalent)?


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Posted by Peter Carpenter
a resident of Atherton: Lindenwood
on Jun 29, 2010 at 1:39 pm

The last day on which a ballot measure for this November's election can be removed from the ballot is 11 Aug.


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Posted by Blue Collar Public Worker
a resident of another community
on Jun 29, 2010 at 2:18 pm

Roy, Henry and you too Peter,
Here is your chance to put your money where your mouth is. I think it is only fair that you show your support and I would like to know how much you really believe in your cause. Please let everyone here know how much $ you plan to toss into the hat (Peter how much?). Or do you expect the tax payers to bail you out? I mean really at the end of the day you started it and have supported the initiative so please continue but with your own money! Don't ask the City to defend your plans with it's money that is for salaries and running the City. Your always saying how the Council needs to be accountable now it's your turn. This was your idea not theirs and now it's your turn to be accountable.
BCPW


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Posted by Peter Carpenter
a resident of Atherton: Lindenwood
on Jun 29, 2010 at 2:25 pm

BCPW asks:"Please let everyone here know how much $ you plan to toss into the hat (Peter how much?). Or do you expect the tax payers to bail you out?"

I happily contributed $1000 because I believe that the nuion's suit is a SLAPP in the face of the rights of citizens regardless of where they live.

Wikipedia:"A strategic lawsuit against public participation (SLAPP) is a lawsuit that is intended to censor, intimidate and silence critics by burdening them with the cost of a legal defense until they abandon their criticism or opposition.[1]

The plaintiff does not normally expect to win the lawsuit. The plaintiff's goals are accomplished if the defendant succumbs to fear, intimidation, mounting legal costs or simple exhaustion and abandons the criticism. A SLAPP may also intimidate others from participating in the debate. A SLAPP is often preceded by a legal threat."

BCPW - keep up your efforts. The more you write the deeper the hole you dig. Please tell us why the citizens should NOT have the right to vote on this issue? What other rights do you want to take away from the citizens?


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Posted by roY@sardina.com
a resident of Menlo Park: Central Menlo Park
on Jun 29, 2010 at 2:41 pm

BCPW

Thanks for the nice plug. We are seeking donation to continue the fight! I have personally contributed, as have many of our volunteers. We can not and WILL NOT give up this fight through legal intimidation. That these two unions want their 160 employees to dictate how Menlo Parks' 30,000 residents should be allowed to run the city, is a "tail wagging the dog" issue.

If our elected officials wish to ignore 3000 constituents in an election year, that is their choice. For now we are gearing up to defend the lawsuit if city chooses not to, and we will be assisting the city in any case.

We have already retained council and have begun the process. We would be more than happy to accept a donation from you as well.

For everyone who cares about Menlo Park and it's future, the weblink to donate is: Web Link

Everyone's support is welcome and appreciated.

Thanks
Roy Thiele-Sardina
Co-Chairman
Citizens for Fair and Responsible Pension reform.



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Posted by Peter Carpenter
a resident of Atherton: Lindenwood
on Jun 29, 2010 at 3:02 pm

Roy states:"For everyone who cares about Menlo Park and it's future, the weblink to donate is: Web Link"

I would say, for all citizens, regardless of where you live, who care about your precious rights in a democracy you should both contribute to this effort and show up when the case is heard in court. The unions not only want to use their money, derived from our taxes, to determine who gets elected to local office then also want to block us as citizens from making fundamental decisions about how our tax money is spent.


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Posted by Menlo Voter
a resident of Menlo Park: other
on Jun 29, 2010 at 3:20 pm

BCPW:

you just don't know when to keep your mouth shut do you? I'm sure those folks will be ponying up money to fight the lawsuit as will I. I didn't sign the petition but I will sure as hell kick in to defend my right to vote on it. This is union greed pure and simple. This initiative takes NOTHING away from current employees it only cuts the costs of retirements to more sustainable levels and makes it so the taxpayers (yes, that's right, the opnes that pay your sallary)have input into future negotiations. The unions lawsuit is nothing more than bully tactics and you can bet they will backfire.


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Posted by Henry Riggs
a resident of Menlo Park: Suburban Park/Lorelei Manor/Flood Park Triangle
on Jun 29, 2010 at 4:01 pm

Menlo Voter

You are right. We are committed to this effort - we didn't spend a couple thousand hours to get signatures just to leave the financial structure of the city mortgaged to a pyramid retirement plan. With your support and others, we are all over this, whatever it takes.

Henry


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Posted by E. Moritz
a resident of Menlo Park: Central Menlo Park
on Jun 29, 2010 at 4:02 pm

Dear BCPW,

The donations by Henry, Roy and I can be seen in the reports we submitted to the City Clerk. Just visit her office and you can get a copy. Each of us have invested dollars and time. We don't just moan on public chat boards. We take action.

By the way, BCPW, the silly lawsuit filed by your unions is costing you some money too. You should ask them how much. And it has been a great help to our cause. It has incensed the citizens of Menlo Park. The first day response to our call for financial support has been impressive.

I'd like to encourage you to keep up your ridiculous personal attacks. It helps makes our job of unifying the electorate on this issue easier.

By the way, this issue is not personal, its about math. Sixth and seventh grade math is all that's needed to understand that a mistake was made and the pension gift given by our City Council is unsustainable.

I thought you'd like to know that I don't come from a privileged background. My parents were teachers, back when teachers were "really" paid nothing. After 4 years in the military (have you ever been there"?) I came back and worked my way through an MBA. I worked in the transport / Logistics business for 36 years, dealing with statistical analysis, marketing and operations. I lead a small portion of a major company having 130 people with offices and agents in over 20 countries. I lead the marketing and branding of this company the last eight years of my career. It's that training and experience that convinces me that the pension costs and other compensation to public workers just doesn't make sense.

I saw the same issue corrected in the trucking and airline industry. Deregulation was not aimed at the companies. It was aimed at the Teamsters and other unions who were extracting inordinate wages through the regulatory system. And deregulation has brought the results that were intended.

One final item for you to remember BCPW, Menlo Park has a unique population. I'd guess that the majority of people living here have education levels and real world experience that equals or exceeds mine. They understand your personal arguments are meaningless. But those rants do get them angry. Keep blathering.

We will correct this issue of over-blown pensions and compensation. And in the end no one will be driven to poverty. "Reasonable and Fair" (relative to the open market) is what we want.

To all others........ If you'd like to help us in the effort to defend the right of citizens to vote on pension reform for our city.......

Make your check to "Fair and Responsible Pension reform"

And Mail it to:

P.O. Box "W"
Menlo Park, CA 94026 (Yes. the "6" is correct. It's for P.O. Boxes)


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Posted by Peter Carpenter
a resident of Atherton: Lindenwood
on Jun 29, 2010 at 4:04 pm

BCPW - how much of the taxpayers' money, taken from city workers' paychecks as involuntary union dues, has been spent on this law suit and how much more of the taxpayers' money will the union spend in this futile attempt to deny citizens their right to vote?


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Posted by Dharma
a resident of Menlo Park: other
on Jun 29, 2010 at 4:33 pm

BCPW

Instead of "lawyering up" so everyone has to spend money (my city will spend something, they are who you sued) why don't you ask your privileged union leadership what "work" they do for you? And after they run CalPERS into the ground as more cities buckle under and can't pay, will they share their company cars with you in retirement?

Dharma


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Posted by Blue Collar Public Worker
a resident of another community
on Jun 29, 2010 at 9:23 pm

Roy,Moritz, Henry, Peter,
Just because you dupe 3000 people into signing your initiative dose not mean you have the support of all the people. I can't wait until the truth comes out about all the misinformation that was given to people to get them to sign comes out in court. So Roy how much did you give I mean you are the guy with the Benjamins, if you really believe you should fund this your self? So how much Roy, how much will you give? Maybe it turns out the Council was smarter than they were given credit for. Good move guys get the City into a law suit by your own hand and then expect them to fund it. You did it, you fund it or you have no credibility right? Your just taking advantage of tax dollars for your goals, not everyone agrees with you. So you be Reasonable and Fair Roy and Henry. You created this you spend your money if you want to defend this not tax dollars.
BCPW


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Posted by truth
a resident of Menlo Park: Belle Haven
on Jun 29, 2010 at 9:33 pm

The oozing self righteousness in this forum is kind of comical. Comical and sad that these guys now sound like trained politicos. Be real people and stop making these dry save the world speeches.

"We're just in it for the good of the people. God willing we will make a stand..."

You aren't in battle, you aren't even close to being under siege. You are taking advantage of the moment in time.

I need to take a shower.


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Posted by compensation professional
a resident of Menlo Park: Sharon Heights
on Jun 29, 2010 at 9:53 pm

Viewing City pensions from the perspective of the compensation profession (private sector)--it makes no sense! We are clearly "overcompensating" city workers in retirement benefits compared to the majority of non-governmental workers (though even the Federal goverment long ago ceased providing pensions). IF we are underpaying City workers in terms of salary, then we should address that--but not by adding on generous benefits--paid for life--which practically no one else gets.
I'm sending a check--this lawsuit the union is bringing is a slap in the face to citizens.


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Posted by Hank Lawrence
a resident of Menlo Park: Sharon Heights
on Jun 30, 2010 at 6:31 am

BCPW,

You are our greatest campaigner. Every time you make these ridiculous assertions more people donate money to our cause. We need you! Keep up the good work!


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Posted by Blue Collar Public Worker
a resident of another community
on Jun 30, 2010 at 9:57 am

To all,
I am glad to help in any way I can. By the way you made the deal but now you don't like the deal so you want to change the deal. It is not that the City can not afford it, this is clearly an opportunistic move. Roy how much, how much will you give to defend your misstep? Also you still owe me an answer to my very first question to you. Do you, will you, have you gained now or will you in the future from your efforts on the pension initiative? NO side step give a straight answer? By the way no more chances to take this public ( another misstep). I will not apologize and I told you I would see you in court.
See you in court!
BCPW


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Posted by For Real?
a resident of Menlo Park: Fair Oaks
on Jun 30, 2010 at 10:15 am

Is BCPW for real? Seriously, this blog looks like an aggressive attempt to train or educate a child. Thank you to those that are trying to explain fiscal responsibility to BCPW, thank you to those that are trying to explain to BCPW how the private sector works, and how our economy was founded on the private sector producing, NOT the public sector, government operations are funded by the private sector thriving. Why is this such a hard concept for BCPW to understand? BCPW, knowing these fine gentlemen, I'll answer for them: they like "the deal" but have no idea what the heck you are talking about?? What misstep? Again, what the heck are you talking about? Roy will gain by helping all of us sustain a budget for our city that is currently unsustainable, he's not running for any public position, so he's not gaining anything like you are with your unsustainable pension, "see you in court" - sorry, LOL.


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Posted by been there
a resident of Menlo Park: Downtown
on Jun 30, 2010 at 11:07 am

My check went in the mail yesterday. I encourage everyone to make their contribution. Spending a little money today will save a pile in years to come.


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Posted by POGO
a resident of Woodside: other
on Jun 30, 2010 at 11:12 am

With regard to the unfunded pension liability, BCPW said, "it is not that the City can not afford it..." Actually, that is PRECISELY what this is about. Apparently, BCPW doesn't read the news because unfunded pension liabilities is our country's next economic crisis.

Yes, a deal's a deal and no one is changing it. We are, however, proposing a change to the deal for the next group of employees who haven't even been hired yet. We need to do that to protect YOU and your pension. If we don't make a change, the entire ship sinks and pensions will be paid with IOUs. Newsflash: Safeway doesn't accept IOUs.

So no, BCPW, we won't see you in court. We will, however, give you a polite wave as we leave the voting booth.


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Posted by Blue Collar Public Worker
a resident of another community
on Jun 30, 2010 at 12:27 pm

POGO
I do read the news but I also take that news from the net and papers for what it is. Here is a fact the City is not broke far from it. Is the economy turning around yes is some areas it is. These areas include the tax money the City of Menlo Park receives from the County. So last month if you would have taken Peter's word as the gospel then you would have set your budget to be in the negative. However as it turns out the tax base is on the rise and Agencies will see 3% to 4% not the 1% or even negative forecasted.
So now what will the Agencies do with the extra money, will they fund the pension plans like they should or will they spend it and cry poor mouth when things are tough?
And so now all the negative and the sky is falling unsustainable bull that everyone here has been slinging will begin to turn around and be nothing but a memory very soon. Just about the time PERS gets even and starts making 8% to 12% again. Or will the opportunist still make a run at our pension plan?
By the way I think anyone who signed the initiative should pay for the legal fees if they want to defend it in court. I do not believe it is fair to create this kind of liability for the Cities residents and them ask them to defend it. It has not been voted on and there are questions about the tactics used to get the 3000 signatures.
BCPW


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Posted by POGO
a resident of Woodside: other
on Jun 30, 2010 at 12:43 pm

Calpers getting "8% to 12%." What are you smoking, BCPW?

You say you read the papers but perhaps you missed yesterdays 3% drop in the Dow. In fact, all of those gains that the stock market (and Calpers) made this year are gone. Gone.

As for the robust recovery that you predict, perhaps you should read yesterday's New York Times op-ed piece from Nobel prize winning economist Paul Krugman. Krugman believes a "third depression" is now as likely as even a modest economic recovery... let alone the kind of recovery you seem to anticipate. Web Link Fiscal conservatism would appear to be in order. Those that ignore these signs will pay a huge price.

BCPW, when you find yourself in a hole, stop digging.


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Posted by Henry Riggs
a resident of Menlo Park: Suburban Park/Lorelei Manor/Flood Park Triangle
on Jun 30, 2010 at 2:19 pm

The city of Menlo Park is not broke. Before that happens, we can keep paying and promising for years.

We can close the library on weekends, stop repairing or trimming anything including recreation areas, street lights, storm drains; we can deplete the reserves, we can lay off police, we can sell Burgess Park land and at Bayfront Park - all sorts of things to keep the status quo.

Or we could look at a spiraling budget and make some changes. The numbers don't lie, tho some people are in major denial. If we are going to somehow honor the commitments we've already made to public workers, we will have to stop making those commitments from here forward. Sorry, praying for another tech bubble is not a plan.


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Posted by Blue Collar Public Worker
a resident of another community
on Jun 30, 2010 at 4:19 pm

POGO
In the passed 20 years Cal Pers has had 16 years with over a 10% return, fact not smoking anything just stating the facts.
This year, PERS reduced it's public stock allocation not because they lost confidence in stocks, but in part to make more assets available for private equity. They believe private equity will outperform stock earnings by at least 3 percentage points. Private equity is the strongest long-term performance of an asset class in their portfolio. So I guess they didn't loose the 3% your talking about?
Paul Krugman, Nobel Peace prize winning economist means nothing to me don't forget they gave Obama the Nobel peace prize and for that matter Jimmy Carter also. Was that supposed to be a kudos or a disclaimer, never mind it make no difference. Again I read the paper but just because some guy writes an article does not make it so. One of the biggest issues with any agency has been the loss of tax revenue. Well even that is getting better as per my post above. I agree with being fiscally conservative but lets use some common sense. I think the better the economy gets and more PERS rebounds the less you will hear about pension reform.
BCPW
BCPW


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Posted by POGO
a resident of Woodside: other
on Jun 30, 2010 at 5:44 pm

BCPW -

Stop digging.

Seriously.


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Posted by Menllo Voter
a resident of Menlo Park: other
on Jun 30, 2010 at 6:58 pm

POGO wrote:

"BCPW -

Stop digging.

Seriously."

POGO: he doesn't know how. Seriously. He has drunk too deeply of the PERS koolaid and thinks everything they say is gospel. There are none so blind as those that will not see. BCPW is a lost cause and his posts do nothing but reinforce everyone's negative opinions of public employees.


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Posted by Joseph E. Davis
a resident of Woodside: Emerald Hills
on Jun 30, 2010 at 9:55 pm

The only plan that makes sense for the citizens of this state (as opposed to the parasitic public sector) is the wholesale conversion of all defined benefit public pensions into 401k type plans.


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Posted by Blue Collar Public Worker
a resident of another community
on Jul 1, 2010 at 12:21 pm

MV, POGO and Joe,
Am I wrong, it is true right that PERS did perform at over 10% for 16 years? It is true that they did exchange stock for Private Equity? These are facts not news articles and emotion designed to get people upset, these are facts. So we have some grad students from Stanford produce a paper that uses fuzzy math and they say PERS is "Unsustainable". Now after 70 plus years of documented positive results we toss all that out the window and accept this as the be all and end all? So last month it was the Gospel according to Peter when he said the tax base review was negative 1%. So is it a fact that the returns are more like 3 to 4 %. Just answer the questions without all the name calling and emotion? I am not digging any holes here these are facts.
OK here is a math question for you all, how much revenue will this 3 to 4% produce for the City of Menlo Park this year? Here's another math question for you, where did the City get the 25 million dollars in reserves they have today?
BCPW


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Posted by taxpayer
a resident of Menlo Park: other
on Jul 1, 2010 at 1:15 pm

I am glad to see these individuals paying to defend this very predicatble lawsuit. The City should not do so.

We all agree that the City has limited funds. More importantly, the City Council has already stood up to the unions and voted to "impose" 2 at 60 and many other even better changes that save more money sooner.

It's just not fiscally conservative to expect the City to foot the bill to defend the legality of these private citizen's version of pension reform the City is already moving forward on, just because 3,000 people signed a petition asking that this version be put on the ballot. I am sure these guys wouldn't have wanted the City to pay to defend lawsuits against some of the other types of referendums that got lots of signatures in the past if there were fundamental legal disputes about something in that language (e.g. the likes of "Morris Brown and company" in their Derry referendum). I suspect these pension reform proponents would in a hearbeat viciously attack a Councilmember who supported a legal defense of Morris Brown on "fiscal conservatism" grounds, because there they don't like the proponents and their cause. In other words -- getting 3,000 signatures doesn't mean the measure is for sure "the will be the people" such that the City should have to foot the bill for a defense. That's a really bad "blanket" precedent to set.

Get real - we can see thsi is political posturing. Time grow up and not expect the City to pay to defend what private citizens started. If you initiate something where you know there are major unresolved legal issues, don't be surprised when there is a lawsuit. This was all totally predicable. Time to pony up to see it through.


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Posted by Roy Thiele-Sardiņa
a resident of Menlo Park: Central Menlo Park
on Jul 1, 2010 at 1:28 pm

Roy Thiele-Sardiņa is a registered user.

"taxpayer"

What we are having to defend ourselves against is the right to even ask the voters whether they agree. The Unions have sued to STOP us from getting it on the ballot. This is a direct attack at the initiative process, they want to intimidate people from EVER challenging them.

We will NOT let the voices of the all of our supporters (and 30,000 residents) be drowned out by the union representing 160 employees and a shill......

For all those that are willing to help us, please visit the website: Web Link and donate.

Thanks
Roy Thiele-Sardiņa
Co-Chairman "Citizens for Fair and Responsible Pension Reform"


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Posted by Menlo Voter
a resident of Menlo Park: other
on Jul 1, 2010 at 3:47 pm

Blue Collar:

you just don't get it. You keep pointing to past results and think that they predict future results. You have to look at what is currently happening and base decisions on that. Like they say in the adds for mutual funds, "past results do not guarantee future earnings."


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Posted by Blue Collar Public Worker
a resident of another community
on Jul 1, 2010 at 4:49 pm

NO Roy,
Intimidation is when you publish the names next to the salaries of public employees, honestly a title would have worked just fine. You think that kind of behavior is "the will of the People" of Menlo Park, I bet not. You have 10% of the community who have signed your initiative and the tactics used to get those signatures are in question. I think Taxpayer is right and this could set a bad blanket president. You don't know what the rest of the people want and you could be just forcing this on them. You started it now you pony up and defend your misstep!
BCPW


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Posted by Peter Carpenter
a resident of Atherton: Lindenwood
on Jul 1, 2010 at 4:56 pm

What better way to find out what the citizens want than to give them the opportunity to vote yes or no - and why does the union want to deny the citizens the right to cast that vote?

As for publishing the salaries of public servants, what part of the phrase 'public servant' doesn't BCPW understand?


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Posted by For Real?
a resident of Menlo Park: Fair Oaks
on Jul 1, 2010 at 5:00 pm

BCPW - Here's a homework assignment for you, and if you can complete it, you will have convinced me that your rhetoric makes some sense:

1. Find ONE Menlo Park resident that believes, going forward, the pension plan is not out
of line, and does not need to be changed. This of course after they truly understand the
CORRECT math.
2. Pick up a paper, any paper, any day of the week, and send us back a link to the article that says the current pension plans for city/county/state employees is sustainable, any city, any county, any state.

It's that simple, again if you find this information, I'm a convert. If you can't, I will once again go back to ignoring your blithering comments.


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Posted by Blue Collar Public Worker
a resident of another community
on Jul 1, 2010 at 6:10 pm

Peter,
Public servant or not it's not fair to expose anyone to that type of potential harm.(My opinion) Do you know what the recent tax revenue increases will equal to for the City of Menlo Parks budget?
BCPW


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Posted by Peter Carpenter
a resident of Atherton: Lindenwood
on Jul 1, 2010 at 7:39 pm

BCPW states:"Public servant or not it's not fair to expose anyone to that type of potential harm"

What is the harm in the public knowing how much a particular public servant is paid?

It may well be embarrassing but it certainly isn't harmful.


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Posted by Chuck Bernstein
a resident of Menlo Park: The Willows
on Jul 2, 2010 at 12:35 pm

I just put a check for $100 into an envelope with the "P.O. Box W, MP, 94026" address on it.

I'm not really interested in arguing with an anonymous person like BCPW. Pension reform is the right thing to do and most everyone agrees that a change is needed, so it is time to go forward.

There is one point that several others have made that I do not want to concede: I do NOT believe that "a deal is a deal" means that we are stuck with the current plan for current employees forever. If it is the law, then we have no choice. However, I believe that a deal should be honored until it is changed and there is no reason not to explore changing the current deal. If we can find a way to do it, we should.

If current employees want to seek work in other communities that choose to afford richer or more uncertain forms of compensation and benefits, they are free to do so. However, I believe that many employees will be interested in working for a community that is solvent and responsible.

The defined benefit plan--to the extent that the risk is borne by the city--must be eliminated. If employees wants to accept full responsibility for the uncertainty and risk, that would be a feasible plan for the city to consider, although it is not something that CalPERS permits, as I understand. If CalPERS were to offer a defined contribution plan, that would also be a feasible plan for consideration. Otherwise, the city is going to have to leave CalPERS and put employees, maybe just future employees, into the Social Security system with some contribution to a 401(k)-style plan, like the rest of us. That is the future for Menlo Park.

--Chuck Bernstein
444 Oak Court, Menlo Park


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Posted by Blue Collar Public Worker
a resident of another community
on Jul 21, 2010 at 9:51 pm

PERS released it's returns today and it is 11.4% the fund is now up to 204 billion. The plan is based on a 7.75% rate of return. So much for sustainability LOL. As the plan continues to recover the amounts payable by cities and agencies will decrease. It will be interesting to see how everyone will respond when the City of Menlo Parks funding liability returns to normal or zero again. If the city employee pensions cost the taxpayers zero will they still be too much, anyone care to comment?

BCPW


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Posted by Peter Carpenter
a resident of Atherton: Lindenwood
on Jul 22, 2010 at 6:43 am

BCPW - one swallow does not a summer make.

And here is another view:
Great Expectations

By David Crane
Special Advisor to Governor Schwarzenegger for Jobs & Economic Growth
Wed, July 21st, 2010
During a recent public discussion about expected investment returns, the Chief Investment Officer of a California public pension fund was quoted as saying that "I would argue, and I have, with people who said it's going to be 6 percent or lower that they are basically saying the United States is going to go in the drain in the next 100 years. I'm not willing to go there."

By all accounts this CIO is a very smart fellow. However, in making that statement he's up against some tough math because, for the 100 years of the 20th century - not exactly "in the drain" for the USA - an investor with assets allocated like the typical pension fund would have earned (you guessed it) around 6 percent.

Somehow a perfectly good return in the 20th century has become a poor expected return for the 21st century. How did that happen? As Warren Buffett explained in a remarkably prescient article in 1999, sometimes people extrapolate from statistically insignificant periods to draw invalid inferences about future long-term performance. For example, many people today came of age during the 17-year investment boom from 1982 - 1999, but as Buffett pointed out, "The increase in equity values [from 1982 to 1999] beats anything you can find in history."

There were several reasons for the unique nature of 1982-1999, but the key point is that that period, or any 17-year period, fails as a basis for projecting long-term growth -- especially for pension funds with long-term liabilities (e.g., government employees who are 25 today will be receiving pension payments 50+ years from now). As that same CIO rightly put it, public pension investing is "a marathon, not a sprint." More relevant for pension funds is the 20th century as a whole. For that period the Dow Jones Industrial Average advanced from 66 to 11,497, for an average annual return on stocks of 5.3 percent.

Add 2 percent for dividends and that takes you to 7.3 percent for the equity portion of a portfolio, which in the case of pension funds usually comprises around 72 percent of assets. The other 28 percent is invested in fixed income assets that may be expected to earn 4-5 percent. Blended together and after expenses of 0.5 percent, that's a total return of 6 percent. (Pension funds with a larger equity exposure, e.g., 80 percent instead of 72 percent, might expect closer to 6.25 percent.)

But despite knowing they're in a marathon, our state pension fund boards have long over-estimated investment returns. In fact, at the very time that Buffett was warning investors in that 1999 article that the fast investment growth of the previous 17 years was not a good basis for projecting forward, one of those pension funds (CalPERS) doubled down in the opposite direction by successfully pushing the State Legislature to retroactively and permanently increase pension benefits for state employees while reducing contributions. CalPERS said its expected investment return would provide all the investment returns needed to meet both existing and boosted pension costs and even to cut contributions in the short term. The other major fund (CalSTRS) employed a similar return assumption.

Since then, over the past eleven years, those pension funds have earned less than 45 percent of their expected returns, taxpayers have had to spend more than $20 billion to make up the difference, and hundreds of billions more will be diverted from state budgets to pension costs for years to come.

Why is all this relevant now? The answer is that the boards of CalSTRS and CalPERS are in the process of evaluating investment return assumptions. As of now, both are 30 percent above that 6 percent rate. In fact, they're even 15 percent above Warren Buffett's expected returns for his pension funds. Simply put, they need to get real.

Unrealistic investment return assumptions allow generations to steal money from future generations. The boards of CalSTRS and CalPERS should remember who takes the risk of their great, and unrealistic, expectations.


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