CalPERS CEO Issues Statement on Governor’s Pension Reform Proposal
SACRAMENTO, CA – Anne Stausboll, Chief Executive Officer of the California Public Employees’ Retirement System (CalPERS), today issued the following statement in response to Governor Edmund G. Brown, Jr.’s 12-point pension plan:
“CalPERS is closely involved in the pension policy dialogue that will affect our employers and members in the State, schools and local government. We encourage discussion between all parties to ensure that public employee retirement plans are sustainable, secure and cost-effective.
CalPERS pensions have provided retirement security for California’s hard-working State and local public employees for nearly 80 years. Retirees with a dependable income contribute to stimulating our economy. In 2010, CalPERS $12 billion in monthly pension checks resulted in more than $26 billion in economic activity throughout the State, including $14 billion in business revenue and more than 93,000 jobs.
In today’s fragile economy, many employers are facing budgetary challenges and have already made changes to their pension systems. We have observed more than 175 cities, counties and local governments negotiate changes to lower near-term and future costs by increasing employee contributions, modifying benefits for new hires, or both. Changes in the State plan that have already occurred will result in significant savings of about $13 billion over the next 30 years. Some of the Governor’s proposals may require constitutional changes, while others may require collective bargaining.
At CalPERS, we believe that defined benefit plans are an important cornerstone to adequate and secure retirement. Pension change dialogue should focus on the critical policy issue of how to provide adequate and secure retirement income for public workers in a cost-effective way, while honoring vested rights for existing employees. We are committed to serving as an honest broker of information and an expert in pension administration as all parties work together on pension solutions. As the pension policy discussion progresses through the Legislative process, CalPERS can assist with information on costs and potential savings over time to facilitate lawmakers in a fully informed discussion.
CalPERS provides retirement benefits to 1.6 million State, public school, and local public agency employees, retirees, and their families, and health benefits to more than 1.3 million members.
CalPERS Pension Quick Facts (as of June 30, 2011)
Average monthly service retirement allowance for all retirees: $2,331
Average monthly service retirement allowance Fiscal year 2010-11 retirees: $3,065
Average years of service for all retirees: 20.3
Average years of service for Fiscal Year 2010-11 retirees: 21.2
Average monthly service retirement for school miscellaneous members: $1,250
Average years of service for school retirees: 16.9
Average monthly service retirement for State members: $2,597
Average years of service for State retirees: 23.2
74 percent of all service retirees receive $3,000 a month or less.
86 percent of CalPERS retirees, survivors, and beneficiaries live in California.
$12 billion in pension payments in 2010 resulted in $26 billion of economic activity in California and 93,651 jobs.
$22 billion of CalPERS assets are invested in California.
CalSTRS Response: http://www.calstrs.com/Newsroom/whats_new/pension_reform_response.aspx CalSTRS appreciates that Governor Brown has taken a very important step in addressing the critical and complex issues facing the state’s public pension systems. We look forward to receiving more detail on the proposal and having the opportunity to review it in depth. The most important reform CalSTRS needs is a plan of action to address its long-term funding shortfall, which only the Legislature and Governor have the authority to implement. We will continue to work with the Governor, Legislature and our stakeholders to develop a plan that includes contribution increases that are gradual, predictable and fair to all parties. It’s important to note that some provisions of the Governor’s proposal, such as board governance and health care costs, do not apply to CalSTRS. Moreover, since CalSTRS contribution rates are set in statute by the Legislature, our contribution structure is extremely predictable and has not experienced pension “holidays.” CalSTRS members contribute 8 percent of salary to fund their pension, while their employers contribute 8.25 percent. These rates haven’t changed since 1972 and 1990, respectively. The State’s contribution of 2.541 percent was reduced from 4.607 in 1998. CalSTRS administers a hybrid pension system consisting of a mandatory traditional defined benefit pension and a cash balance plan which is similar to a 401(k). CalSTRS also offers its members a voluntary defined contribution supplemental savings program such as 457(b) and 403(b) plans. A look at the average CalSTRS member who retired in 2009-10 further illustrates the unique aspects of CalSTRS: • Retired at age 62 • Performed 27 years of service • Earned a pension that replaces nearly 60 percent of salary • Receives approximately $49,000 in earned benefits annually • Does not earn Social Security benefits for their service • Does not receive employer-paid health care benefits after age 65
Main Points of Governor Brown’s Pension Reform Plan
1. Equal Sharing of Pension Costs: All Employees and Employers
2. “Hybrid” Risk-Sharing Pension Plan: New Employees
3. Increase Retirement Ages: New Employees
4. Require Three-Year Final Compensation to Stop Spiking: New Employees
5. Calculate Benefits Based on Regular, Recurring Pay to Stop Spiking: New Employees
6. Limit Post-Retirement Employment: All Employees
7. Felons Forfeit Pension Benefits: All Employees
8. Prohibit Retroactive Pension Increases: All Employees
9. Prohibit Pension Holidays: All Employees and Employers
10. Prohibit Purchases of Service Credit: All Employees
11. Increase Pension Board Independence and Expertise
12. Reduce Retiree Health Care Costs:
State Employees Savings will be in the neighborhood of $900 million per year to the State.
The Sacramento Bee recently reported that a group, looking to abolish collective bargaining rights for all of California’s public sector employees, filed three ballot initiatives this week. The group is called the California Center for Public Policy and arrears to be led by a UC Santa Barbara economic lecturer named Lanny Ebenstein. Mr. Ebenstein’s group has started fundraising to begin a signature campaign to get the initiatives before the voters.
The three initiatives are focused on both public sector employees and retirees. The first measure would ban recognition of all public sector labor unions to prevent government from collectively bargaining with them. The second measure would impose a higher tax burden on pensions paid through CalPERS or CalSTERS for retirees who earn an annual pension of over $100,000.00 per year. The Third measure would raise the retirement age of state employees to 65 and, and public safety workers to age 58.
The most troubling aspect of the news was the initial reaction from representatives of public employee groups. Steve Maviglio, of a group called Californian’s for Retirement Security, responded by saying “these will end up in the same trash bin as the proposal to require Christmas music in public schools. These proposals are wildly out of synch with California; fortunately there is a $15 million dollar gap between dumb ideas and the ballot box.”
Let’s hope Mr. Maviglio’s comments are not shared by a majority of public sector employee organizations throughout the State. Californians and members of public sector employee organizations should take these measures very seriously. Many voters, especially those who work in the private sector would view positively some, if not all of the element s of the measures. Union recalcitrants, inflexibility and lack of creativity is exactly the posture that lead to the abolition of collective bargaining in other states, including Wisconsin. The public sector employee union can no longer used tried and true methods like strikes, picketing, or PR smear campaigns to meet their objectives. The world out there is much more complicated now and requires an entirely different and smarter approach. The public sector employee unions need to position themselves as partners with a solution and regain the trust and respect of the citizens of California. Mr. Ebenstein is quoted in the Sac BEE article by saying, “[g]overnment does not exist to provide compensation and pensions for government workers. Government exists to provide good public services at a reasonable cost.” A vast, vast majority of California voters would agree with this statement. Unions need to incorporate this message in their strategy and convince the public that the good public service Ebenstein references depends upon hiring and keeping skilled and motivated government workers. Remember, the California private sector employees out number public employees over 25 to 1 at the ballot box. California’s public sector employee organizations would be wise to take seriously the three initiatives filed by Mr. Ebenstien and similar ones that have already been filed or will be filed in the coming months.
If you would like more information from us, regarding how you can craft a message of cooperation and partnership, please contact Jennifer at the Firm.
Sacramento County has given us yet another piece of evidence that certain elected officials and managers of California government entities have devolved into nothing more than their own personal existence justification system. Over the last three years we have repeatedly seen government managers go to extraordinary lengths to protect themselves and their friends.
On Wednesday, May 26, 2010, the Sacramento Bee reported that during 2009, the number of Sacramento County’s highest paid employees significantly increased. Yes, that’s right, increased. During the worst fiscal crisis in Sacramento County’s history the number of Sacramento County employees making over $100,000.00 a year in base salary increased. Remember, for the last three years Sacramento County has had budget deficets over $100 million.
Sacramento County officials were quick to defend themselves by saying that the salary increase were the result of collective bargaining agreements they have no control over. However, what is clear is Sacramento County leaders and most government officials do not want that control. They do not want to make hard decisions that are necessary in today’s economic climate. Government officials are quick to slap a band-aid on the severed artery by furloughing employees, laying off some of the lowest paid employees and attempting to freeze wage or benefit increases. Government leaders hold on from one pay period to the next, use smoke and mirrors to pay their bills, all while fending off difficult questions as to why they are making the decisions they make. Here is what drives them: Sacramento County officials and most government leaders first and foremost want to protect themselves and their closest allies and friends. In Sacramento County’s case that starts with supervisors and goes to the County Administrator’s office. They refuse to recognize the obvious solution which is significant parts of their governmental empires have to permanently go away. A massive restructuring of California government must occur so that these government entities can provide the basic, fundamental, and indispensable services they are required to provide.
I for one want more government workers on the streets doing the actual work and less bureaucrats thinking of ways to justify their existence. Some form of real leadership needs to arise arises in California state and local governments for it’s fiscal problems to be fixed.