This study compares the benefits and the funding for CalPERS pensions vs. Social Security. It also looks in more detail on the financial burden of CalPERS pensions on the Marin Municipal Water District.

1. CalPERS Public Pension
vs.
Social Security
Gaetan Lion, August 18, 2022

2. Introduction
The California Public Employees' Retirement System (CalPERS) is an agency that manages
pension and health benefits for more than 1.5 million California public employees, retirees,
and their families. In fiscal year 2020–21, CalPERS paid over $27.4 billion in retirement
benefits,[and over $9.74 billion in health benefits.
CalPERS manages the largest public pension fund in the United States, with more than $469
billion in assets under management as of June 30, 2021.
Employees covered by such State public pensions are most often not covered by the Federal
Social Security program.
Within this presentation I will compare the retirement benefits of a CalPERS pension vs.
Social Security.
But, first I will describe the two different pension retirement programs separately.
2

3. Social Security
3
I will focus on 4 different salary levels: $50 K, $75 K, $100 K, and $140 K. The current limit of salaries
covered by Social Security is just a bit above $140 K.
I will also look at different retirement ages: 62, 67, and 70.
All estimated calculations were generated using the Social Security Quick Calculator
https://www.ssa.gov/OACT/quickcalc/

4. 4
As you retire later,
Social Security replaces
a rising percentage of
your salary.
If you make $50 K and
retire at 62, Social
Security replaces only
24.4% of your salary. If
you retire at 70, it
replaces 44.2% of your
salary (top blue line).

5. 5
Social Security is very progressive.
It replaces a far lower percentage of
salary for high earners at $140 K vs.
lower earners.
The difference is quite dramatic if
you focus on the $50 K level on the
left vs. the $140 K level on the right.

6. 6
An individual wanting to replace
about 30% of his salary could
retire as early as 64 if he makes
$50 K. However, if he makes
$140K, he would have to retire at
70.
This is another illustration of how
progressive Social Security is.

7. CalPERS Pension
7

8. 8
CalPERS Pension basics
To calculate the salary replacement rate for a CalPERS pension you just need to know:
1) Age at retirement
2) Benefit factor
3) Years of service
The above components are encapsulated within CalPERS pension formula that is often simply referred to as
“2% at 62.”
2% at 62 simply means that someone retiring at 62 would have a benefit factor of 2% per year. And, if he
had 30 years of service, his salary replacement rate would be: 2% x 30 = 60%.
The benefit factor increases with age and so does the salary replacement rate. On the next page, the table
indicates that the salary replacement rate can reach 100% for the ones who retire at 67 with 40 years of
service associated with a benefit factor of 2.5%. Indeed, 2.5% x 40 = 100%.

9. Source: Retirement Formulas and Benefit Factors _ State Miscellaneous & Industrial Member – 2% at 62.
CaLPERS February 2021 9

10. Comparisons
10

11. Social Security vs. CalPERS Pension at 58 with 20 years of service
CalPERS pension at 58 with only 20
years of service has a salary
replacement rate of 32% which is
higher than any of the Social
Security scenarios highlighted in
green.
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12. 12
CalPERS pensions are far more generous than Social Security

13. 13
CalPERS pensions are 2.5 x
to 4.1 x more generous than
Social Security
For instance, someone making
$140 K and retiring at 67 would
have a salary replacement rate of
only 24.9% with Social Security
vs. 100% with a CalPERS pension.

14. Funding considerations
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15. How are the programs funded
CalPERS
2021 - 2022
CalPERS
2021 - 2022 Social Security
Employee 7.00% 8.00% 6.20%
Employer 22.91% 25.37% 6.20%
Total 29.91% 33.37% 12.40%
Contribution by employee and employer as a % of payroll to finance pension
CalPERS
2021 - 2022
CalPERS
2021 - 2022
Employee 1.13 1.29
Employer 3.70 4.09
Contribution multiple CaLPERS/Social Security
Source: Schools Pool Valuation and Employer/Employee Contribution Rates. CALPERS, April 18, 2022
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While the employee contribution as %
of salary is not that different between
CalPERS and Social Security; it is
dramatically higher for the employer
contribution (around 4 x higher).

16. CalPERS projections of employer contribution rates are very volatile and
swing with yearly stock market returns
Projection
date 2021 – 22 2022 – 23 2023- 24 2024 – 25 2025 – 26 2026 - 27
April 2021 22.9% 26.1% 27.1% 27.7% 27.8% 27.6%
April 2022 25.4% 25.2% 24.6% 23.7% 22.6%
Projection
date 2021 – 22 2022 – 23 2023- 24 2024 – 25 2025 – 26 2026 - 27
April 2021 3.69 4.21 4.37 4.47 4.48 4.45
April 2022 4.10 4.06 3.97 3.82 3.65
CalPERS Employer contribution
Employer contribution CalPERS/Social Security multiple
Source: Schools Pool Valuation and Employer/Employee Contribution Rates. CALPERS, April 18, 2022
Schools Pool Valuation and Employer/Employee Contribution Rates. CALPERS, April 19, 2021
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17. Special section:
Impact of CalPERS Pensions on the
Marin Municipal Water District (MMWD)
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18. Source: Comprehensive Annual Financial Reports for the years ended June 30 for the years 2015 to 2021. 18
CalPERS pensions represent an unsustainable financial burden for the MMWD
Between 2015 and 2021, CalPERS pension
contributions have risen from 23.3% to 38.7% of
payroll.
Even though yearly pension contributions have risen
very rapidly since 2015, the MMWD is falling farther
behind as unfunded liabilities keep on rising faster
than its balance sheet.

19. 19
If MMWD was treated as a Federal agency instead of a California State one …
Reviewing impact on fiscal 2021
CalPERS Social Security
Pension contribution as % of payroll 38.7% 6.2%
Unfunded pension liab./Balance sheet 18.8% 0.0%
Financial Leverage (Debt/Equity) 1.48 0.69
Net profit margin 6.3% 14.1%
ROE 2.9% 4.5%
ROA 1.2% 2.7%
As shown, the CalPERS pension financial burden has a huge impact on the MMWD financial condition (in both
terms of balance sheet leverage and profitability). And, fiscal 2021 was a relatively good year. I understand that
fiscal 2022 was less profitable, and the impact of CalPERS pensions probably may have strained the MMWD to
reach breakeven.
Source: Comprehensive Annual Financial Reports for the years ended June 30 2021.

20. 20
Additional reasons why the CalPERS pension burden is so high on the MMWD
• It uses an even more generous benefit formula. Instead of “2% at 62”, it uses “2.7% at
55”. I intuit that may be an older rule that is grandfathered… or maybe a rule applicable
to State agencies instead of schools.
• It has only 227 employees to support 353 pensioners. The resulting Old-Age dependency
ratio for the MMWD is 353/227 = 155% that is huge.

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Considerations
The financial burden associated with very generous CalPERS pensions on schools and State agencies is not
a phenomenon unique to California and the MMWD. This is a nationwide phenomenon at the local and
State levels.
The financial burden falls on State taxpayers (income tax, property tax, sales tax, etc.). Financially strained
school districts, and local & State agencies have to often raise funds through earmarked taxes such as
parcel taxes to fund their basic operations. And, often the underlying causal financial strains are public
pension financial burdens.
The decisions to take State public employees out of the Social Security system were made a long time ago
(during the first half of the 20th century).
If we had kept everyone within the Social Security umbrella, municipal finances would have been on a far
stronger footing.