February 25, 2013 / 11:56 PM / 6 years ago

California pension liabilities may swell to $328.6 bln -report

SAN FRANCISCO, Feb 25 (Reuters) - 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 Monday.

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 office.

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 target.

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 website.

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