A new website expected to be launched soon, “CalPERS Responds,” is part of the fallout of the stock market crash last fall.
At the urging of members and labor unions, the big public pension fund is responding to a wave of criticism, much of it fueled by fear that state and local government pension costs will soar in the future.
The website, with a “mythbusters” feature to correct misinformation, is part of a response campaign that includes meetings with newspaper editorial boards, op-ed newspaper articles and “taking to the air waves” in some areas.
“We heard the need expressed by our member organizations to make sure that we are out there providing information at this time, and we definitely are trying to step it up,” Pat Macht, CalPERS director of external affairs, told the board last week.
Historic losses in public pension funds, a $90 billion hit for CalPERS from peak to trough in the market, will require higher annual pension payments from state and local governments.
Gov. Arnold Schwarzenegger and other critics contend that the current level of pension benefits are too generous and must be reduced for new hires. Benefits promised current employees and retirees are vested rights that the courts say can’t be cut.
The view that current pension benefits are unaffordable, and will crowd out funding for other programs in the future, got powerful if perhaps surprising support last month from the CalPERS chief actuary, Ron Seeling.
Without a significant turnaround in assets, Seeling said in a brief personal remark at the end of a seminar presentation, the pension system faces decades of “unsustainable pension costs. We’ve got to find some other solutions.”
The market crash is not the only thing that has made it a rough year for the California Public Employees Retirement System and other public pension funds.
A public pension scandal in NewYork, where some Californians were named, prompted CalPERS in June to adopt a registration and disclosure policy for “placement agents,” who get large fees for introducing money mangers to deep-pocket pension funds.
Reports by the Contra Costa Times earlier this year that two fire chiefs, retiring at about age 50, are receiving pensions far larger than their final salary drew national attention to the problem of “pension spiking.”
A reform group posted a searchable database with the names and pension amounts of more than 5,000 retirees receiving pensions of $100,000 or more through CalPERS, topped by a former city of Vernon official receiving $499,675 a year.
The group also posted the “$100,000 club” members receiving pensions through the California State Teachers Retirement System. Similar listings of big pensions from other government agencies have received widespread publicity.
“I think in Los Angeles nothing is as dramatic as the list of retirees in this state with public pensions making over $100,000,” said CalSTRS board member Carolyn Widener.
She made the remark during a CalSTRS board discussion last month of criticism and misinformation about public pensions. In a milder response than CalPERS, the teachers’ fund will post some key facts on its website.
“We probably need to think differently than we did several years ago when these same attacks came on the system,” Jack Ehnes, the CalSTRS chief executive officer, told the board.
“I think for all of us, we recognize that we can’t do this alone,” Ehnes said in an apparent reference to powerful teacher groups. “Our stakeholders are more important than ever in what we are facing going forward here.”
Public pension funds in the past have worried about moves to replace “defined benefit” plans, lifetime monthly pension checks, with “defined contribution” 401(k)-style individual investment plans, now common in the private sector.
Former President George W. Bush made an unsuccessful proposal to switch part of Social Security to a 401(k)-style plan. Schwarzenegger briefly backed a proposal in 2005 to switch all new state and local government hires to a 401(k)-style plan.
But critics say 401(k)-style plans were only designed to be supplements, not a full retirement plan. The market crash last fall also underscored the vulnerability of an individual investment plan that rises and falls with the markets.
“I don’t find myself in these days trying to defend ‘defined benefit,’” CalPERS board member Tony Oliveira said during a committee meeting last week. “They stand on their own … As of late I have not heard anyone really go after legislation that does away with our system.”
Schwarzenegger proposed last June that new state hires be switched not to a 401(k)-style plan but to lower pension amounts, a rollback of increased benefits authorized a decade ago by SB 400.
The 401(k)-style plan backed by the governor five years ago was proposed by former Assemblyman Keith Richman, R-Northridge, a founder of the reform group that posted the “$100,000 club” pension data.
The reform group, the California Foundation for Fiscal Responsibility, proposed an initiative several years ago that would reduce pension benefits for state and local government new hires.
There was no mention of an initiative during the CalPERS and CalSTRS discussions of growing public pension criticism. But whether the time is ripe for a reform initiative may have seemed like a subtext to some.
Marcia Fritz, the Fiscal Responsibility foundation vice president, said this week that the reform group has done some polling, talked to a signature-gathering firm and is fine-tuning an initiative for the November ballot next year.
She said it’s similar to the initiative on the foundation website, delaying retirements and reducing benefits.
Most police and firefighters can retire at age 50 now with 3 percent of their final salary for each year served. She said the formula under the initiative would be 2 percent at age 57.
Most miscellaneous state workers can retire at age 55 now with 2 percent of their final salary for each year served, increasing to 2.5 percent at age 63. The formula under the initiative would be 1 percent at roughly 65 or the Social Security retirement age.
“We need funding for the petition,” said Fritz.
If the group can gather enough signatures to place the initiative on the ballot, a lot more money may be needed to campaign for its approval by voters. Public employee unions would be expected to mount a well-funded opposition campaign.
Hard-hitting opposition ads could feature some of our most respected public servants: teachers, police and firefighters — maybe even their widows and offspring, as happened during the 401(k) campaign five years ago.
Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at https://calpensions.com/ Posted 24 Sep 09