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CalPERS CEO Issues Statement on Governor's Pension Reform Proposal
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.
Main Points of Governor Brown’s Pension Reform Plan
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.
PUBLIC SECTOR EMPLOYEE ORGANIZATIONS NEED TO CAREFULLY CHOOSE THEIR MESSAGE IF THEY HOPE TO KEEP THEIR CURRENT PENSION BENEFITS
As the movement for pension reform gains momentum in Sacramento and throughout California public employee organizations need to carefully look at their message, much of which has not changed in many years. First, public sector employees should be sure that their message or argument is accurate. Next, does that message make sense to the voter? In other words, will that argument persuade the voter to vote against drastic pension reform measures? Public employees should stay away from some of the mythical arguments that national and international unions have traditionally made. These arguments have become a part of the very fuel of the pension reform movement. Here are a few of the classics that, believe it or not, I have recently heard from union leaders:
Old School Union: Public Employees Are Taxpayers Too and Basically Pay for Themselves.
Try It This Way: Public Employees Provide the Essential Services to Keep Our Communities Running.
The old school union argument enrages pension reform activists. Of course most public employees pay taxes, just like everyone else. But the fact is tax revenue generated by public employees only pays for a fraction of their cost. Depending on the study, tax revenue generated from public employees only covers between 8% and slightly over 10% of their costs. It takes many private sector taxpayers to pay for one public sector employee. The old school union argument misses the point entirely. The focus should not be on the actual taxes paid by public sector employees. Rather, the focus must be on the value of the services provided by those employees. For example, most communities would not be desirable places to live without services such as police, fire, parks and road repair. A community without a high level of these services begins to look like a third world country.
Old School Union: Payment of Pension Benefits Stimulate the Economy to Such a Degree That California’s Economy Will Fail Without Them.
Try It This Way: Pension benefits are an investment in the future of our communities.
According to the California Public Retirement System expenditure of pension benefits by CalPERS retirees generates about 26 billion dollars in economic activity in California. That represents less than one half of one percent of California’s overall 1.2 trillion dollar economy. The economic footprint of pension benefit expenditures by CalPERS retirees is inconsequential to California’s overall economy in a pure economic sense. However, public sector employee organizations must focus on a different type of benefit that stable pension benefits provide the community. Stable and attractive pension benefits attract a high quality, committed employee. California public employee organizations need to focus on the overall benefit to the community and not boil it down to economic analysis. Stable pension benefits are the foundation to a stable workforce. In many ways, 1.9 trillion dollar California economy is not possible with a relatively inexpensive stable public sector workforce to support it.
Old School Union: Public Employees Could Easily Make a Lot More Money Working in the Private Sector.
Try It This Way: Public Sector Employees Have Chosen the Path of Public Service, are Valuable, and Should be Recognized.
While historically public sector jobs tended to pay lower salaries than their private sector counterparts recent studies show that is no longer the case. Over the last fifteen years public sector base salaries have increased dramatically, in some cases more than 100%. Those gains have far out distanced their private sector counterparts. Today, in many jobs the public sector employee actually makes more money than a similarly situated private sector employee. What public sector employees have done is make a choice of public service. Many public sector jobs take extensive training and years of experience to master. A community as a whole benefits from this experience. By making a commitment to public service, the public sector employee has undoubtedly sacrificed career opportunities that existed in strong economic times. And those times with return. The skill, expertise and experience of the public sector employee should be recognized and respected by their private sector counterparts.
Old School Union: We’ve Earned It. The Rich Taxpayer Is Just Going to Have to Figure out a Way to Pay.
Try It This Way: The Payment of Wages and Benefits To Quality Public Sector Employees is an Investment in Our Community’s Future.
Believe it or not, the “just tax the rich” argument is still commonly made around the union boardroom and enrages pension reform activists. Again, the focus of the union’s argument should be the value the public employees provides to its industry and the community as a whole. For example, teachers’ unions should focus on school reform and ways of making our schools more effective educational institutions. The primary tool for reform in the schools is a highly skilled, motivated teacher. That teacher will make the real difference in the classroom.