That was then, this is now.

When Gov. Jerry Brown signed pension legislation last year, the California Public Employees' Retirement System applauded the "comprehensive set of reforms." Its board president, Rob Feckner, said they marked "a more secure era for public pensions."

This month, CalPERS' chief actuary told a different story. In a sobering, but commendable, report, Alan Milligan calculates that the nation's largest pension system faces better-than-even odds of being dangerously underfunded at some point during the next 30 years.

He told the board that CalPERS needs more taxpayer money than previously thought from state and local governments and voiced concern about "slow progress toward full funding." CalPERS, at last accounting, had about 74 percent of the funds it should.

To understand his proposed rate increase, consider pension costs for the California Highway Patrol. The state is already expected to pay 33 cents for every dollar of payroll in fiscal year 2014-15, and 39 cents by 2018-19.

Under Milligan's proposal, the rate would reach 44 cents. That's an overall 33 percent increase over the five-year period, although more than half would happen anyhow.

There are many reasons CalPERS is in this jam, including its unusual practice of deferring investment gains and losses far into the future. As a result, while the economy has improved, the pension system has just begun to adjust rates to account for the financial hit from the Great Recession.


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Milligan proposes ending that accounting practice and requiring CalPERS to more quickly pay off its debts. His changes would also make CalPERS finances more transparent and reduce rate volatility during economic downturns.

These are good, long-overdue moves. The system needs more money up front to stop endlessly piling debt onto future generations.

Let's hope the board, with a history of ignoring its actuary, listens to Milligan's advice this time. It will face intense political pressure to postpone the rate increases. That, of course, would mean continuing to kick the can down the road.

Labor representatives will protest the higher rates, even though Milligan's proposal does not require employees to pay more -- and even though it will make their pensions more secure. The problem for them is that employers would have less money for salaries.

Local government leaders will complain too, saying they can't afford the rate hikes. It's time for them to face reality, to recognize that CalPERS has shielded them for far too long. They've been making unaffordable pension promises while whining about paying a bill that doesn't represent the full cost.

To be sure, Milligan's proposal doesn't fully solve the problem. Consider his forecast for the plan that pays pensions for "miscellaneous" members, employees who are not public safety workers.

Under current contribution requirements, the plan would reach only about 79 percent funded 30 years from now. Milligan says his changes would bring the plan to full funding by then. But that assumes the system earns its ambitious 7.5 percent investment return target -- a goal CalPERS acknowledges it has only a 50 percent chance of meeting.

Moreover, investment returns fluctuate from year to year. So, even with Milligan's changes, the road could be very bumpy, even treacherous. Under current accounting and funding methods, the plan has a 59 percent chance of dipping below 50 percent funded at some time in the next 30 years.

That's worrisome because the system depends heavily on investment returns. To earn those returns, it must have adequate funds to invest. While there's no certain number, dipping below the 50 percent mark is considered by many to be fiscally dangerous, potentially leaving a pension system without ability to recover.

Even with changes Milligan proposes, the state miscellaneous plan would still have a 52 percent chance of slipping below that mark at some point in the next three decades.

That concerned CalPERS board member George Diehr, who said the odds of slipping below that mark "should be down in the 10 percent range or maybe 20 percent range."

Even then, he said, "This is sort of Russian roulette. This is 20 percent, a revolver with five chambers."

Contact columnist and editorial writer Daniel Borenstein at 925-943-8248 or dborenstein@bayareanewsgroup.com. Follow him at Twitter.com/borensteindan. To read Milligan's report or watch video of his presentation, go to www.contracostatimes.com/daniel-borenstein.