Pension Shenanigans: The ‘Soft Fraud’ Burdening California Taxpayers

California’s pension crisis isn’t a mystery, and it isn’t just bad luck. It is the predictable outcome of decades of optimistic assumptions that lowered contributions in the short term while pushing massive costs onto future taxpayers.

Call it what you want — accounting games, political convenience, or wishful thinking — but the result looks a lot like soft fraud: a system that may be legal on paper yet consistently shifts risk away from decision-makers and onto the public.

Across California, rising pension contributions are squeezing school districts, cities, and counties. Labor disputes and service cuts are often blamed on politics or economic cycles, but the real pressure comes from retirement costs growing faster than revenues.

The Math Everyone Knows — But Few Admit

Public pension systems such as CalPERS and CalSTRS determine contribution rates based on long-term investment return assumptions. Higher assumed returns mean lower contributions today. When reality falls short, unfunded liabilities grow — and taxpayers make up the difference.

CalPERS reports roughly $563 billion in assets against about $716 billion in liabilities, leaving about $153 billion unfunded. CalSTRS carries another $88.7 billion in unfunded obligations, with funded ratios in the mid-70% range. Together, that’s roughly $240+ billion in pension debt — more than $6,000 for every Californian.

Long-term investment performance has averaged closer to the low-6% range over 20 years — solid, but below the optimistic assumptions that shaped earlier funding decisions. That gap compounds into higher employer contributions later, crowding out spending on current services.

David Crane Saw It Coming

Few insiders were willing to challenge the system publicly — but David Crane did.

As a Governor Schwarzenegger appointee to the CalSTRS board, Crane warned that aggressive return assumptions masked growing risks and would eventually drive costs higher for school districts. He pushed for more conservative projections and greater honesty about long-term liabilities.

For raising those concerns, his confirmation was blocked by the state Senate after strong opposition from teachers’ unions — a reminder of how politically sensitive pension math has become. Nearly two decades later, rising employer contribution rates suggest those warnings were not theoretical.

The Incentive Problem No One Wants to Discuss

Public-sector unions play a central role in shaping pension policy. Their mission is to protect member benefits — and they do it effectively. But the structure of California law creates a powerful incentive: when assumptions prove too optimistic, the plan sponsor — ultimately taxpayers — absorbs the majority of the financial risk.

That means unions can advocate for higher benefits or optimistic projections without bearing proportional downside risk. The rhetoric often emphasizes “50-50 cost sharing,” yet in practice the arrangement rarely ends up balanced over time. When markets underperform or assumptions change, employer contributions rise dramatically while employee rates remain relatively stable.

The result is a system where the public shoulders far more than half of the risk — even when the messaging suggests equal partnership.

Nothing about this is illegal. But when stakeholders push assumptions they know are likely to understate long-term costs because the law shifts shortfalls onto taxpayers, it begins to resemble a form of soft fraud — a structure that hides risk behind technical language and delayed consequences.

How We Got Here

Major benefit expansions in the late 1990s — including the well-known “3% at 50” formula for public safety workers — were justified by projections of strong market performance. Those decisions lowered immediate contribution pressure while increasing long-term obligations.

When markets normalized and demographics shifted, the math changed — but the liabilities remained.

Today, pension costs are one of the fastest-growing expenses for local governments. Every dollar required to service unfunded liabilities is a dollar unavailable for classrooms, infrastructure, or public safety.

This is not an attack on public workers. Pensions are earned compensation. The real problem is a system that rewards optimistic assumptions today while leaving taxpayers responsible for tomorrow’s bill.

Until Californians confront that reality — and stop pretending that risk is shared equally when it clearly isn’t — the cycle will continue.