California’s pension plans for government workers will be undergoing changes next year, under a new standard set by GASB (Government Accounting Standards Board) and Culver City will be among the cities impacted.
"In 2014, new GASB rules will require California's local governments to acknowledge their actual unfunded pension obligations on their balance sheets," said Mark Bucher, president of the California Public Policy Center (CPPC), which has released a study on the pension changes. "Unless they take action now, the finances of many local governments will be devastated, and they will be forced to cut vital services.”
Unfunded pension liabilities will also be calculated at a much higher rate. CPPC estimates that total unfunded pension liability for California's non-federal government employees will nearly triple to $328 billion, or $8,600 per California resident, from the former sum of $128.3 billion.
Pension liability means that the pension provider (either a private company or as in this case, a government) has to account for making future pension payments. Accounting methods can vary but a larger than expected pension liability can force a private company out of business or cause insolvency in a government’s budget.
“I think there will be significant changes as a result of [the new standards],” said Culver City Manager John Nachbar. “The new standard is going to shed a little more daylight on cities’ local government.”
Nachbar explained that current standards allow the liability to be underestimated, while the new standards will “more closely approximate the liability.
“It’s the same liability but it’s a different way to calculate it, so the conclusion will be a much larger number.”
Nachbar told the Observer that he recently attended a seminar on the topic of pension changes.
“CalPERS (California Public Employees Retirement System) is preparing for this. They know it’s coming. If we have to change policies to try and mitigate this, it won’t be as bad as it appears.”
But the contribution rates for Culver City employers and employees will be going up and “it’s going to be sooner rather than later.”
Since the changes will not take effect until fiscal year 2014-2015, this year’s budget will not be affected.
“That doesn’t mean we shouldn’t start planning for it now,” said Nachbar. “I’m going to get our actuary updated so we can have a clearer picture of the problem.
“We (the city) and the employees—especially the new employees—will be responsible for half of the increase.”
Different types of employees may be affected in different ways depending on their earnings and longevity but over the next few years, all employees will feel the effect.
Nachbar said he would continue to seek to be updated on the plan changes.
Over the next few months, CPPC plans to release follow-up studies that will estimate the impact of the new GASB standards on local governments.
For more information, go to http://californiapublicpolicycenter.org/how-lower-earnings-will-impact-californias-total-unfunded-pension-liability/
Reader Comments(0)