State pension commission prepares to submit recommendations

The 12-member panel formed by Gov. Arnold Schwarzenegger last year to guide the state’s policy on pension and retiree benefit reform is set to make its recommendations public as early as Monday morning.

A spokeswoman for the Public Employees Post-Employee Benefits Commission said the commission is just putting the finishing touches on its formal recommendations, which must be presented to the governor and Legislature.

The recommendations are the product of monthly meetings up and down the state. The final commission meeting was Dec. 12 at UCLA.

Ideological divisions divided the group, which was made up of labor leaders, pension system veterans and private investors. The commission’s chairman, Gerry Parsky, a former president of the UC Board of Regents, tried his best to maintain consensus among the commission members.

The report is expected to make numerous recommendations on issues ranging from more transparency and openness about the financial condition of state pension funds, to recommendations on pension spiking and how to deal with federal reporting requirements for public pensions.

Along with the recommendations, the commission is expected to release “the first-ever survey of local governments in California of how much is owed” in other post-employment benefits. Those benefits, which are known as OPEB include things like retiree health care, were a major focus of the commission’s work.

Judging from the final meeting, there did seem to be some consensus that OPEB benefits should be treated the same as pension obligations. And while commission members all seemed to agree that prefunding those obligations should be a general goal, there were still some divisions on how to get to that goal.

But those divisions will likely be absent from the report. Commissioners seem content to let the governor and the Legislature deal with the partisan haggling over what to do about pensions and how to do it.

Among the major topics of the commission was whether all pension providers should move from a “pay-as-you-go” benefits system to a system of “prefunding,” similar to what the large state pension funds do. Many local public pension providers offer benefits on a pay-as-you-go basis.

Under the pay-as-you-go system, “governments pay for the benefits used by retirees and their eligible dependents each year,” according to a description from the state legislative analysts’ office.

“When governments prefund retirement benefits (rather than funding them on a pay-as-you-go basis), they avoid forcing future taxpayers to pay for the compensation provided to public employees for services rendered in prior decades. Prefunding retirement benefits also reduces governmental costs over the long term,” states the LAO.

The commission dealt in part with how to comply with a statement from the federal Governmental Accounting Standards Board, known as GASB 45. That statement says public employers must start charting costs of post-employment benefits on financial statements as a separate line item.

GASB 45 recommends, but does not require, employers to prefund OPEB expenses. Whether or not state pension funds should begin prefunding those obligations has been a divisive issue.

Those divisions were evident at the final commission meeting. All commission members agreed that, generally speaking, prefunding of OPEB and pension obligations should be a goal. Union representiatives on the panel wanted the recommendation to state that prefunding should occur “as soon as possible.”

That was opposed by some of the fiscal conservatives in the group. Anaheim Mayor Curt Pringle, a Republican and former Assembly Speaker, said that as a former legislator, “‘as soon as possible’ means ‘whenever you get around to it.’”
The recommendations will be available on the commission’s Web site: http://www.pebc.ca.gov.