January 24, 2005

Bringing State Pensions Into the 21st Century

BRINGING STATE PENSIONS INTO THE 21ST CENTURY

"No single act or piece of legislation by itself created the pension crisis that threatens to overwhelm the state and many local governments in California. The pension mess stems from a series of bad decisions, of fiscally reckless votes (many of them self-serving) in the Legislature, in city councils and county boards of supervisors."

Sacramento Bee Editorial, December 28th, 2004

California taxpayers cannot afford to continue paying for the archaic and enormously expensive state pension plan.

Both the private sector and the federal government moved away from this out-dated pension system years ago.

It is unfair to California’s taxpayers to expect them to pay for pension plans better than the ones most of them have.

CALIFORNIA’S PUBLIC EMPLOYEE PENSION SYSTEM:

1. AN EXPLODING FINANCIAL LIABILITY THE STATE CANNOT AFFORD.

• In 2000, our pension obligation was $160 million. Today, it has ballooned to $2.6 billion of the people’s money.
• California is struggling towards economic recovery and making progress. We can no longer afford a pension system that is more expensive than those provided by the private sector and federal government.

2. OUT-DATED.

• The vast majority of businesses and employers in the U.S. no longer offer the Defined Benefit Plan still being used for California’s state employees. Even the federal government has changed to a modern pension plan.

3. UNFAIR TO TAXPAYERS.

• Californians are paying billions for state workers to have pension plans that are better and more expensive than their own.
• If the current trend continues, they will face ever-growing liabilities in the billions that will erode our economic recovery and could cause a reduction in their state services.

Governor Schwarzenegger has proposed offering new state employees a Defined Contribution plan instead of the current out-dated Defined Benefit plan still in use for state workers.

The Governor’s proposal will move state pensions into the 21st century and bring about a system that is fair to all, efficient and affordable.

Background: SB 400 – The Poison Pill

Cozy State Pension Deal Costs Taxpayers Billions

"...The legislation began a wave of public employee pension increases at a time when private sector employees were seeing their own retirement benefits shrink or disappear entirely. And the bill relied on a fundamentally flawed assumption – that state employees, not the taxpayers, were entitled to the fruits of the long-running boom in the stock market."

Sacramento Bee Columnist Dan Weintraub, August 10th, 2003

• In 1999, the legislature approved SB 400 which guaranteed state employees predetermined benefits and rewarded them for gains in retirement fund investments.
• At the time, CalPERS stated that additional costs would be funded by a large surplus earning interest in the state retirement fund and legislators voted for the bill based on that information.
• Since the surplus vanished during the stock market deflation and costs began to soar, taxpayers have had to foot the bill.

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