SAN FRANCISCO Feb 25 New credit evaluation
standards for public pension liabilities proposed by Moody's
Investors Service would swell unfunded liabilities for
California's state and local public pension plans to $328.6
billion from $128.3 billion, according to a report released on
At the higher level, the unfunded pension liabilities would
come to $8,600 per resident of the most populous U.S. state, the
report by the California Public Policy Center said.
Under Moody's new standards, California's state and local
public pensions would be 64 percent fully funded, compared with
a previous estimate of 82 percent, the center said in its
report, which is based on data from the state controller's
The cost of currently honoring public pension commitments as
well as their future costs have become prominent issues for
state and local governments in recent years, during which public
services have been slashed in response to weak revenue and in
order to maintain balanced budgets.
Moody's has proposed adjusting in 2014 how it gauges public
pension liabilities, while the Governmental Accounting Standards
Board next year will require municipal debt issuers to report
unfunded pension liabilities on their financial statements.
A key revision under consideration at Moody's is lowering
the assumed rate of investment returns for public pension plans
to 5.5 percent. Currently, many funds have higher return
targets. The California Public Employees' Retirement System, the
biggest U.S. public pension fund, has a 7.5 percent rate return
The system, widely known as Calpers, said in January that it
posted a return of 13.26 percent in the 2012, a year marked by
strong returns for many investors.
Public pension funds have come under criticism for
maintaining return targets seen as overly ambitious, though
California's state employees' pension fund says it can meet its
target over the long term.
A realistic rate of return is 4.5 percent and the Moody's
5.5 percent represents a best-case target, said Ed Ring,
research director of the California Public Policy Center.
Ring prepared the center's report with assistance from Joe
Nation, Marcia Fritz and John Dickerson. Nation is a former
California lawmaker who in recent years has produced reports
questioning the finances of public pensions in the state. Fritz
is an activist who has called for overhauling the state's
pensions. Dickerson is publisher of the YourPublicMoney.com