CalPERS counters attacks as initiative looms

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 forplacement 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 Posted 24 Sep 09

17 Responses to “CalPERS counters attacks as initiative looms”

  1. tOUGH lOVE Says:

    Quoting …

    (1)” Gov. Arnold Schwarzenegger and other critics contend that the current level of pension benefits are too generous and must be reduced for new hires. ”


    (2) “Benefits promised current employees and retirees are vested rights that the courts say can’t be cut.”


    (3) “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.”


  2. Drew Says:

    Have a look at the U.S. Constitution, Article 1, Clause 10 for state guidance on trying to dilute or impair current retirement contracts (or any sort of contract, for that matter) Article 1 is a pretty old article, (as in the FIRST one … ?)

  3. napablogger Says:

    Could we not do a consititutional amendment to cap pensions at say, 70%? I keep hearing that the courts say you can’t change it, but I wonder how accurate that really is. Has it really been tested?

    Many of those receiving 3% now worked years before that came into place, meaning that the money paid into the system was calculated based on a lower benefit. That is part of the reason the future looks so bleak.

  4. tOUGH lOVE Says:

    We need to keep in mind that those who often give quasi-official positions on the legality of formula reductions are MOST OFTEN Civil Servant who benefit from the status quo and ….. DO NOT WANT CHANGES.

    A PRIVATE University legal professor is a possible unbiased option.

    I recall that in NJ (where the law is less clear) they asked the “NJ Office of Legislative Services” for their legal opinion on formula reductions for current employees. The response was that the formula could not be reduced for any current employee already employed for 5 years.

    Now, nowhere can the “5” years be found in any law. It makes one wonder if the least senior Civil Servant employed by the NJ Office of Legislative Services just happens to have passed 5 years of service.

  5. Drew Says:

    Illinois, within the last several years, went through a Constitutional Convention initiative process that included (among many other issues) state-affiliated pensions and the legality of changing them for currently contracted employees. The legal concensus/conclusion, based upon extensive examination of the U.S. Constitution was that the current contracts cannot be impaired. There are over 200 years of court decisions on this subject; of states that might be party to impairing contracts. Article 1 protects ANYONE who has a contract with a state. It was enacted in response to former colonies-turned-states that wanted to short change Revolutionary War service people (both military and civilian) out of their pensions/ stipends as well as various arms/ munitions vendors. The mentality was similar to some in present-day California state government. Just another example of why the U.S. Constitution is a timeless document and a tribute to the Age of Enlightnment.

  6. napablogger Says:

    Drew and all, I wonder how it is then that they can do an initiative limiting the percentages. It must apply to new employees only.

    The actuarial reality of all the people that have been hired with all these high pensions hasn’t even hit us yet. This cost is going to keep California mired in budget crises for years.

    They need to start laying off people who are going to be getting 90% plus and hiring new people at the new lower rates. Otherwise the unions are going to have to agree to some reduction, because there is no way the state can afford this. Not to mention how grossly unfair it is to everyone else.

    We really need to fight this.

  7. tOUGH lOVE Says:

    Drew ……

    So, its unacceptable …by U.S. Constitution dictate … to reduce the formula benefits (for FUTURE) years of service for any CURRENT Civil Servant …. noting that EXACTLY THIS is done almost daily in the PRIVATE Sector ???

    Hardly sounds fair …. and perhaps the basis for the next Revolution.

    (Or perhaps … you are simply a Civil Servant ….. putting forth YOUR opinion.)

  8. Drew Says:

    Tough Love, I think that BOTH you and I should have defined benefit plans provided through a combination of Federal/ State taxation. Most other developed nations have this, in addition to their forms of Social Security. ‘How do they afford this ?’; you might ask. ‘By not starting (and losing) Trillion dollar wars’: I might respond !

  9. Jeff Says:

    Defined contributions don’t necessitate individual ownership. Sharing investment risk across a large pool over time is a good idea. It’s called insurance, a valuable social construct. But defined benefits are subject to moral hazard, where promises are made that aren’t funded and obligate future taxpayers, who didn’t have a voice to pay for them. They are a recipe for corruption and that has proven to be true.

  10. Drew Says:

    I feel that ALL Americans deserve to get something for their tax dollar, besides wars that benefit large corporations and contractors. I cannot understand why this is arguable. There is nothing corrupt about secure futures for senior citizens in the form of pensions. The rest of the western world knows this; it’s only Americans who are still in the dark. Want a revolution that counts ? Start demanding something for yourself from your government instead of your tax money going to corporations and killing machines.

    Not singling anyone out here. However, I’m busy for the rest of the afternoon so have a good (and no doubt more pleasurable) debate without me

  11. DrewIsAn Idiot Says:

    Drew- the Contracts Clause of the Constitution has nothing to do with public pensions. The legislature could easily lower pensions going forward for ANY gov employee. Pensions are no more protected by the Contracts clause than are the property interests in public employment-they can be changed at anytime because they are products of the legislature-not the Constitution.

    As for your comment that everyone deserves a pension-no one deserves a gold plated Cadillac pension they didn’t earn or pay for- YOU pay for YOUR pension. Not poor or middle class taxpayers. Right now we have public employees in a non competitive market that is not subject to the laws of supply and demand who are scamming ther system, where GED educated cops, FFs and prison guards are making $200K per year and more with their benefits. NO ONE owes any of these pe$ople 5 million dollar pensions-which is what they are receiving.

    So take your boguc claism home-no one is buying.

    So put your public union talking poinbts back in you bong and smoke them, because they are jsut that-purte nonsense.

  12. DrewIsAn Idiot Says:

    BTW “Drew” since when a 50 year old GED educated cop or FF receiving a $250K (plus COLA’s) per year for life pension (plus another $25K per year in healthcare) a struggling “senior citizen”…….?????

    Another bogus claim by the scamming gov employees.

    “There is nothing corrupt about secure futures for senior citizens in the form of pensions.”

  13. Jim Reilley Says:

    You will NEVER change the retirement system for current workers. You can write anything you want and call it “nonsense” but it’s the law and YOU LOSE.

    “1 percent at roughly 65” is an insult and wont win – again you go for too much and you hate shows through. If you were more reasonable and tried for 2 percent at 65 you might get it.

  14. tOUGH lOVE Says:

    Quoting Jim Reilley …”You will NEVER change the retirement system for current workers. You can write anything you want and call it “nonsense” but it’s the law and YOU LOSE.”

    Don’t bet on that Jim …. the TAXPAYERS are getting MORE educated and MORE annoyed with the excessive pension & benefits you and you ilk get at TAXPAYERS’ expense.

    Time and effort (which we are doing on a daily basis) will erode your (political) support … and eventually your pensions & benefits as well.

    When the politicians see the writing on the wall they will throw YOU to the wolves, just as they have already done to the taxpayers.

  15. Greg Says:

    Seems obvious that we are going to raise taxes in order to pay for these
    pension benefits. Why not raise taxes on the public employees to whatever level is necessary to pay for their pensions?

  16. mike zwergel Says:

    Several points in response to Greg. First, public employees are tax payers. Also, unlike employees in private sector defined benefit plans, public employees typically contribute to their plans. CalPERS miscellaneous (i.e., non-public safety positions) contribute 5% of pay. This was the case even in the late 1990s when the fund was doing well enough so that employers did not have to contribute. However, I believe that many local government employees have negotiated employer “pick ups” whereby the local government agency pays employee contributions. In light of the current fiscal condition of most local governments, it seems reasonable that those deals be reconsidered at the bargaining table. It also might make sense to consider legislation that provides for a “floating” (rather than flat) employee contribution rate that goes up when the funding ratio is low, and down when it is high.

  17. Security Guard Lyndah Says:

    Very helpful article and a great site. Been looking for good websites like mine with relevant info to share with our staff and customers. This is going to be one of them! Thanks!

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