Posted on 02/18/2005 8:36:43 AM PST by NormsRevenge
California taxpayers could save over $1 billion annually under a proposed overhaul of the state employee pension system being pushed by Gov. Arnold Schwarzenegger and his allies, according to a nonpartisan government analysis of the plan.
The nonpartisan Legislative Analyst's Office determined that providing all new state employees with a 401(k)-style retirement plan could save the state "hundreds of millions of dollars to over $1 billion annually." The overhaul initiative was authored by San Fernando Valley Republican Keith Richman and sponsored by the Howard Jarvis Taxpayers Association, a Schwarzenegger ally.
Assemblyman Richman, of Granada Hills, said the LAO's analysis confirmed what he already knew.
"Importantly, it will also bring budgeting predictability and allow us to pay our pension obligations every year rather than passing them on to our children and grandchildren."
State employee labor unions are adamantly opposed to the overhaul, as are many top Democrats.
Treasurer Phil Angelides has accused Schwarzenegger of trying to bring President George W. Bush's Social Security "privatization" plan to California, while labor officials claim his plan would decimate the retirement protection state employees need to survive when they retire.
"His proposal will not save one dime in the budget this year, or for that matter, in the next year either," said Jim Hard, president of the Service Employees International Union Local 1000, the largest union of state employees in California.
"It will cost taxpayers a great deal more to make the transition from a defined benefit retirement system to individual risk accounts."
Since 2000, the state's general fund contributions to CalPERS have jumped from $160 million annually to $2.6 billion, and estimates show they will continue to climb -- hitting $3.5 billion in 2009 before heading even higher.
For Schwarzenegger and his allies, the answer is creating a 401(k) system similar to the one commonly used by private-industry employees, where each worker's retirement payout fluctuates according to how well their investments perform in the market.
As with the typical 401(k), both the state employee and the state would contribute to each worker's retirement fund. Proponents of this plan say any initial transition costs would be made up -- and then some -- from the annual savings it generates.
Under the current "defined benefit" program, state employees are guaranteed a certain amount of money every year until their death after they retire at 55, regardless of how the massive CalPERS investment fund is performing.
Employees' annual take equals a percentage of the salary they earned in their final 12 months of service. For example, employees that work 20 years for the state and are earning $60,000 at retirement receive 40 percent of that salary -- or, $24,000 annually -- every year.
Schwarzenegger believes this system is untenable in light of the chronic budget deficits -- including this year's $9.1 billion shortfall -- that Sacramento continually experiences.
"The governor is taking the long view on this because he doesn't want future governors and future legislatures to confront a multibillion-dollar pension crisis of the kind he inherited," Schwarzenegger's chief budget spokesman H.D. Palmer said.
regardless of how the massive CalPERS investment fund is performing.
Retire at age 55? And get benefits for life? Where do I go to apply for a job? Who pays for this program now? The state and the employee? What sort of state employee gets this golden parachute? So taxpayers are paying for this as well? Retire at age 55 benefits for life unbeleivable!!
This is another reason why the rats in California hate Arnold even more than they hate GW.
It's about time.
The 'rats can't dig fox holes fast enough to duck the clusters bombs being thrown at them...
If Arnold drops this bomb, it will be a MOAB instead of a cluster bomb.
No wonder so many rats have decided to finally retire or to take an early retirement. They have probably been aware of this possible MOAB coming from Arnold.
A MOAB, wow, this could get good!
How many plans similiar to CalPers are in the other Blue States?
If they are as inept, PC and as criminal as CalPers, the last thing they want is an ownership system replace their pork trough retirement systems.
I don't agree that CA's Dems fear Arnold more than Dubya! What has actually happened to them to make them actually have anything to fear? I'm not being contentious, I just can't come up with much of a list based on reality. Sorry...
Now they're gonna have a big laugh at his expense when he comes back from his D.C. Schwarzenbegger trip empty handed to a large degree, bellerin "Oh, Woe is Me! Dubya Wouldn't Help Me!!!"
I sure hope he and "the powers that be" had something choreographed before Arnold left town on this trip.
It's not gonna help either of 'em, either way, anyway!!!
BBC: US data sparks inflation worries (View from Europe?)
Inflation is the politician's friend.
You can apply with any state or local govenment agency. And actually, CalPers allows you to retire at 50.
As for who pays, everybody pays. These are jobs funded by State and Local taxes and fees.
What the article fails to mention is that the investment fund averages 8+%/year ROI, so most years, employers underfund their contributions. Most local governments have no pension problems using CalPERS, because they are smart enough to fully fund every year.
If you and your employer were allowed to have a program like CalPERS instead of Soc Security, you could do just as well or better. Maybe you should be thinking, how can I get the Feds to allow me to have this opportunity?
The State budget crisis is because the governor and legislature have tried to do too many things with too little money. They underestimated employee costs because they assumed that CalPERS would sustain a 15% ROI. Now they want to make you jealous, so they can try to cover up their incompetence.
It is also the borrower's friend! That's why Arnold is so fearless about it and being an optimist, believes the CA economy, when it comes bach, vill pay bach dose puny dollahs with big buff dollahs an Cauleeforneeah vill become beddah than evah!!!
See? It's hopeless! You can't get me to change the subject that easily, even though I was balancing comment with this one, right? (grin)
Just ask a few liberals you know and don't know about how they feel about Arnold and then shut up listen to their response.
Ok, I will and I'll probably learn something from the effort. That's a good idea!
It is amazing with the liberals within 60 miles of here re Arnold. They hate GW and mutter their old mantras re oil, Halliburton and dumb GW.
However, they get very nervous even trying to discuss Arnold. You can see the fear coming over them as they try to discuss him. Many who could have retired before Arnold, have retired post Arnold or are putting in their papers. Teachers, college professors, administrators in education, and then other state drone types are moving fast into retirement.
If you want to really make them nervous, ask them what Arnold will do in his second term.
But the way he's been all over the place with his rhetoric lately, I would think they might be starting to relax just a little, but maybe not. His credibility has got to be suffering at least a tiny bit around the edges.
Believe what you want to.
Arnold will never please many on this board regardless of what he does. I wonder if Ronald Reagan would have pleased many on this board.
In the meantime the liberals are truly scared of Arnold.
Just in:
BULLETIN >>
Merck shares jump 12% on FDA's Vioxx vote
So please don't try to get me to swallow any possible equivalence between Reagan and A.S., other than them both being actors!!! Besides, I seem to see the minority on this board being the only ones questioning/challenging A.S. Certainly not the majority from what I've seen. Maybe I'm mistaken.
California taxpayers could save over $1 billion annually under a proposed overhaul of the state employee pension system being pushed by Gov. Arnold Schwarzenegger and his allies, according to a nonpartisan government analysis of the plan.
Or, maybe not ... nor in this lifetime.
From the Legislative Analysts Office analysis of the proposed inititative:
February 11, 2005
Dear Attorney General Lockyer:
Pursuant to Elections Code Section 9005, we have reviewed the proposed constitutional and statutory initiative regarding public employee retirement contributions (File No. SA2005RF0007).
Background
State and Local Governments Sponsor “Defined Benefit” Retirement Plans for Their Employees. As part of employment, the state provides defined benefit retirement plans for its employees and for those of public schools. The Public Employees' Retirement System (PERS) administers the retirement plans for state employees and nonteaching school employees, while the State Teachers' Retirement System (STRS) administers the plans for teachers.
Local governments also provide these types of plans for their employees. Some cities and counties have their own retirement boards to administer their plans. Other cities, counties, and special districts contract with PERS or their county retirement systems to administer their plans.
Guaranteed Benefit. Defined benefit plans provide a guaranteed annual pension based upon age at retirement, years of service, and some period of highest salary (typically the last one or three years of work). These plans generally provide an annual cost-of-living adjustment and additional inflation protection that maintains purchasing power over time at a specified minimum level.
Defined Benefit Funding. Defined benefit plans have three main sources of funding—employee contributions, employer contributions, and returns on assets invested by the retirement boards that administer the plans. Investment returns are the biggest component of defined benefit funding.
Employee contributions are typically fixed. Employer contributions usually exceed employee contributions and vary annually, depending on returns from assets invested and other factors. (School district and state contributions to STRS, however, are fixed in statute.) Less-than-assumed investment returns require higher future contributions, while returns that exceed expectations result in reduced contributions.
Employer Contribution Consists of Two Parts. The annual employer contribution for retirement is comprised of two parts—the “normal cost” and the “unfunded liability/actuarial surplus.” The normal cost is the average annual cost (generally based on a percent of payroll) of a defined benefit plan. Normal cost contributions collected over the working life of an employee, combined with employee contributions and investment earnings, should be sufficient to pay that employee’s future retirement benefits. For various reasons—such as lower-than-expected investment returns—pension fund assets can fall short of benefit liabilities, resulting in an unfunded liability. (An actuarial surplus, by comparison, occurs when investment returns have provided more assets than necessary to pay future retirement benefits.) Unfunded liabilities are typically addressed through “add-on” employer contribution rates. Retirement plans spread out payment of unfunded liabilities, usually over 10 to 30 years, to “smooth” the impact on these rates.
Plan Contribution Rates Vary. There is a great deal of variation in retirement contribution rates among state and local government plans. In general, employer contributions for police officers and firefighters are higher than for other employees. Over the last 25 years, the state has paid between 12 percent and 21 percent annually on average for most of its employees. In total, the state and local governments have paid, on average, in the low billions of dollars annually for retirement contributions.
Proposal
This measure makes major changes to state and local government employee retirement plans.
Closes Defined Benefit Plans, Allows “Defined Contribution” Plans. This measure closes public sector defined benefit plans to new entrants effective July 1, 2007. Employees hired after that date could only enroll in defined contribution retirement plans. Defined contribution plans provide fixed annual employer contributions (typically as a percent of pay) to employee accounts. These assets, along with employee contributions, are invested and the employee has whatever these assets have generated for retirement income. Unlike defined benefit plans, the employee has no guaranteed pension benefit and employers never incur any unfunded liabilities.
Maximum Employer Contributions. The measure establishes maximum employer contributions (with specified employee contributions) of 9 percent for police officers and firefighters and 6 percent for other employees, assuming participation in federal Social Security. These maximums could be up to 3 percent higher for employees who do not participate in Social Security. In order to receive these maximum employer contributions, employees would have to contribute to their accounts as well. Without employee contributions, the maximums would be 3 percent for nonsafety employees and 4.5 percent for safety employees.
Authority to Exceed Maximums. Local agencies could exceed the specified maximum contributions with a two-thirds vote of their electorate. The state could amend these limits with three-quarters approval of both houses of the Legislature in two consecutive sessions.
Current Employees Could Opt Out of Defined Benefit Retirement. The measure also provides a six-month window from July 1, 2007 through January 1, 2008 for current public sector employees to opt out of defined benefit programs in favor of the new defined contribution accounts. These employees would be able to transfer the “net present value” (not defined by the measure) of their retirement benefits earned to date to a defined contribution plan.
Fiscal Effect
The measure would have two main fiscal impacts for state and local governments, pertaining to:
· Retirement costs for future employees.
· The closing out of existing defined benefit plans.
Retirement Costs for Future Employees
Plan Funding. Under the measure, public agencies would begin contributing some level of payroll to individual defined contribution accounts for new employees, instead of contributing toward defined benefit pensions. (This would also be the case for current employees who opt out of defined benefit plans.) The maximum employer contributions to the individual accounts would be between 6 percent and 12 percent. These maximum rates are generally lower than the employer normal cost contributions the state and local governments are currently paying for their defined benefit plans. Consequently, the measure would result in a net reduction statewide in retirement contributions for new employees. The amount of savings would depend on the extent to which public agencies choose employer contributions that are less than the maximums allowed. Once fully phased in for all public sector employees after several decades, these savings in annual retirement costs could potentially be in the hundreds of millions of dollars to over $1 billion annually.
Offsetting Employee Compensation in Other Areas. Reductions in retirement compensation for employees could lead to increases in other types of employee compensation. For instance, in order to attract and retain employees, some governments might need to increase salaries to compensate for lower retirement benefits. Over time, these types of increased public employer costs could offset a significant portion of the retirement savings.
Administrative Costs. Some administrative costs associated with defined contribution plans could include the following:
· Start-up costs to set up defined contribution retirement plans for new employees and to inform them of their investment options.
· Ongoing costs of investing funds and managing individual retirement accounts.
These types of administrative costs would likely be higher than those for existing defined benefit programs. This is because of more contacts with customers to direct investments and report account activity and results. There may or may not be added costs to the state and local governments, however, depending on whether the costs were borne by public agencies or employees. Any government costs would be relatively minor compared to the magnitude of the contribution changes under the measure.
Closing Out Defined Benefit Plans
Public agencies would still be responsible for funding the now “closed” defined benefit plans for several decades, until the last plan retiree or beneficiary dies. The change in status of these plans could have fiscal impacts on the state and local governments. The net fiscal effect is unknown and would depend on a number of factors and on future decisions by retirement boards and existing government employees. For instance, the closing of plans could change how quickly retirement boards require governments to pay off their unfunded liabilities. To the extent that boards required unfunded liabilities to be paid off more quickly, governments would experience increased near-term costs with comparable longer-term savings.
Fiscal Summary
The measure would have the following major fiscal effects on the state and local governments:
· Over the long term, major reduction in state and local government retirement costs for employees hired after July 1, 2007, offset to an unknown extent by increased costs for other types of employee compensation.
· In the shorter term, unknown net impact on public employer costs related to the closing out of existing defined benefit plans. The fiscal effect would depend on the decisions of both retirement boards and existing government employees.
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