Southern California has Los Angeles, with its movie stars and beautiful beaches, and the Bay Area has hip San Francisco and Silicon Valley. But working class Fresno has one thing no other city in California does: a fully funded pension.
“The fact they are so rare is a strong indication that government shouldn’t be involved in this business if basically you have to find one of every 100 who is doing it right ” says Robert Fellner of Transparent California, a non-partisan research group.
Fresno is only one of seven cities or states nationwide with a pension surplus, according to a study by Fellner’s organization and the group Wilshire Consulting. The rest are $6 trillion short, setting aside just 35 cents for every dollar promised.
Wisconsin is the only state more than 50% funded, according to the American Legislative Exchange Council. The five worst include Illinois, where 60% of state workers retired in their 50s. In Connecticut, pensions average $40,000 a year, yet state employees contribute just zero to two percent, compared to 6% in North Carolina, according to the ratings company, Fitch.
Back in the late 1990s, pension managers thought they were going to get 7 to 9% returns forever, so they gave in to union demands for bigger benefits. Then the bubble burst – first in 2000 and again in 2008.
“It literally is a system that says give us really rich benefits today that appear to be free. And if it does blow up in our faces it won’t blow up for 20-30 years,” says Fellner.
Fresno, however, is like the tale of two cities. The city pension fund is 100% funded. They actually have a surplus of nearly $300 million but the county of Fresno is unfunded. Pension liability is almost a billion dollars.
The difference? City and union officials agreed to a realistic benefits package.
“The unions have been amenable to keep things reasonable, and since they have been reasonable we are fully funded,” says Robert Theller, the city’s Retirement Administrator. “As for the city, they don’t dither, they don’t argue, they don’t cause problems. They just pay what is needed.”
Pensions in the city of Fresno average $39,000, almost $20,000 a year less than the county. Police leaders say being modest helps them in the long run, especially when it comes to recruitment and job retention.
“It’s better to be responsible and you take less of a benefit so that you have something at the end, than to be reformed and have nothing,” says Jacky Parks, the head of the Fresno police union.
“(What) we’ve been able to do is strike that balance where we offer a really good retirement system that isn’t going to break the bank and allows our city to remain solvent, ” adds Jerry Dyer, Fresno’s police chief.
Until now, the courts have generally held that once a city signs a pension contract, it’s iron clad and can’t be altered or broken. However, a recent appeals court ruling says the so-called ‘California rule’ is not absolute, and a city can treat retirees like any other creditor.
The issue is now before the state Supreme Court. Given how many pension plans are underwater, experts say almost every city, county and state in the U.S. is waiting for a decision.