In the past year, we’ve gone from crisis to crisis to crisis. Never really producing a clear picture for the general public of the direction of the state. Truth be told, most of the people who are running the show in Sacramento are being tossed by these swells as well. It’s not really their fault, it’s just a tough situation into which they’ve been elected. Term limits give some really bad incentives to kick the can down the road, and the can is looking pretty beat up these days.
Of course, if you are attempting to shock doctrine a nominally progressive state out of its progressive views, well, hell, this seems like a great pattern. And time after time, it has succeeded. Arnold plays the hesitant soldier, just doing what he has to do. Sure, he says, it’s terrible that we have to destroy the master plan, the social safety net, or whatever it is at the time, but we have to “live within our means.” And he says that platitude, over and over, until the Democrats in the legislature relent, and Arnold and his corporatist friends take one more spoil of what was once a proud state.
And so it is with the pension issue. Until this point, debate has been pretty exclusively along party lines. Arnold says the state employees are costing us too much money for their retirement plans, that the level of spending is unsustainnable. Recent news out of CalPERS seems to confirm that:
CalPERS says that when it purchased $1.3 billion worth of special securities sold only to large investors like pension funds, all that it knew about the complex financial instruments is that they had top ratings from Moody’s, Standard & Poor’s and Fitch.
Now CalPERS, which may have lost $1 billion on the deal, has belatedly learned that there were subprime mortgages and other risky assets in the “structured investment vehicles” (SIVs) purchased in 2006 from three hedge funds, two of them based in London.(CalPensions 11/25/09)
Unfortunately, that is hardly the only story of troubles at CalPERS in the news. You have stories of how they make deals, and of ugly-looking court settlements. And then you have the possibility of rising contribution requirements:
The 1.6 million-member public pension fund, the largest in the country, is expected to require additional money to help it recover from recession-fueled investment losses. But just how much and when have yet to be determined.
The 13-member CalPERS board will make the decision in May for the 2010-11 fiscal year that begins July 1. CalPERS has signaled that the employer contribution likely will not rise for that year. But increases in 2011 are expected. State staffers familiar with the issue believe it could be in the range of $200 million to $300 million by the middle of 2011. CalPERS did not comment on the estimate. (CapWeekly)
Of course the solution is either to privatize (!) or simply slash the defined benefit into a defined contribution or something to that effect. Or so say the right-wing corporatists looking at a big pile of money to plunder.
Look, state employees take up a relatively small portion of the budget, and they do so frequently at a short-term cost. There are no huge salaries (save for a few UC doctors, executives, and some corrections doctors), no big bonuses, but they are promised a consistent pension at retirement. While during the current economy filling jobs isn’t all that hard, that won’t always be true. Shooting for the lowest common denominator nets what you would expect.
If we are going to keep messing with state employee compensation, let’s take a holistic approach, instead of reeling from one mess to another. We can’t keep changing the rules of the road, one paving stone at a time. It’s not a viable budget solution, nor is it fair to our public sevants.
I am no expert on pensions, but I have heard things — I don’t know if they are true or not.
1. Government workers are about the only workers who get defined benefits anymore. Nearly everyone in the private sector get a defined contribution. If this is true, then public employees might get a lower pension, but at least there is no risk involved. Its the old risk/reward thing. If you have lower risk, you will no doubt have lower reward.
2. Government workers sometimes (often? rarely?) get a pension equal to 3% times the number of years served times their last salary. So someone who begins working as a police officer at age 21 ($25,000 salary) and retires as police chief at age 54 ($150,000 salary) will receive $150,000 per year for the rest of his/her life.
This strikes me as quite a generous pension system and the demands on the system push the fund managers into riskier investments.
Does someone know of a good website that defines the various pension plans for government workers?
A secure retirement is one of the main enticements for prospective public employees. The monthly pay is often modest, but you don’t worry about poverty in your old age. It’s reasonable and civilized. The rate is based on your top earning year in the last three, which is only costly for top managers. The majority of PERS recipients that I represent would top out at forty to fifty thousand per year, max. They earned it.
What the initiative would do is create a two tiered system, with new employees getting a 403(b), and employees with five years in keeping the defined benefit plan.
Yet another reason for unions to GOTV this year with a vengeance.
> “There are no huge salaries (save for UC executives)”
Really? Was that necessary?
Did that just add some extra flair to the article or does it actually have much to do with the conversation?
It’s not even true. The highest paid members of the UC system are sports coaches. Then after that there’s a bunch of doctors.
There is one executive in the top 10 of highest paid UC personnel: http://www.sacbee.com/1098/sto…
Sometimes I don’t think people have a true appreciation for how non-trivial the UC system is. UC as a whole, by employee count, is larger than Intel. Larger than Google, Yahoo and Apple combined. 6 times the size of NASA. 80% the size of Proctor and Gamble. Several times over the size of General Mills and is frankly an insanely complex organization that has a diverse range of operations and in addition to everything else, is public and therefore must abide by another completely different set of rules than a corporation.
Our executives are underpaid. Everyone is, of course, and it’s probably reasonable that they’re underpaid given how much everyone else is underpaid. But this is really the thing you want to take a cheap shot at?
CalPERS lobbied the Legislature in ’99 to sweeten pension formulas, arguing that SB 400 would not cost the state any money. CalPERS reps went on to peddle the same message to local governments, arguing that 3% at 50 pensions for cops and firefighters were simply free — wholly paid by pension-fund surpluses.
Let’s be charitable and say they were caught up in bubble thinking. The bottom line, though, is that pensions were widely ratcheted up over the past decade — not for all public employees, but for a lot of them. The pension-fund surpluses that were supposed to pay the bills have evaporated and then some. 8 percent annual returns? Yeah, right.
Many, though not all, public employees enjoy not just generous and 100 percent constitutionally guaranteed pensions, but don’t even have to pay a nickel for their own retirement. Saving to get a 401(k) match? Social Security taxes? Forget it, they’ve got Employer-Paid Member Contributions.
The system has, in many areas, become indefensible and unaffordable.
Oh, and quoting direct state payroll is a misleading way to analyze the numbers. Half the state’s budget goes to schools, whose expenses in turn are nearly all payroll (though CalSTRS has the most modest benefits — nobody can knock teachers on this one). VLF transfers to counties, gas tax pass-through to cities, etc., all end up paying actual people — to a large extent.
That’s what this is really all about. Combine it with the effort to make big cuts to Social Security and Medicare benefits and you see that this attack on pensions is little more than a belief that those who work for the public and retire after a career of doing so don’t deserve anything but cat food.
Especially in a severe recession such as this. Defined-benefit pensions are a good thing, which we ought to not only embrace for public workers, but recreate for private workers, who have seen their 401K go up in smoke. Privatization and financialization of pensions has been a disaster for working people. As this new Depression continues, workers over age 50 are getting hit the hardest. Cutting their retirement benefits is a recipe for widespread economic malaise, whether it’s by forcing younger people to pay for their elders (which they’ll do, but it’s more efficient to do so through government rather than within already-strained family budgets) or by crashing the housing market when boomers are forced to sell their homes at whatever price they can fetch in order to make ends meet.
Motivating this attack on pensions is a belief that public workers aren’t legitimate workers, that they’re somehow leeches and bloodsuckers who deserve the back of our hand rather than a helping hand. Combine that with a fundamentally right-wing economic vision, that a race to the bottom is somehow good for people, and you get this kind of nonsense.
Public pensions ought to be protected, defended, and augmented as an economic recovery measure, and the principles of defined benefits should be returned to the private sector, rather than finishing the middle-class off by making everyone put their retirement into a stock market that still has a long way to fall.
Actually, CalPERS is much broader than state employees, including most local government employees, and has been relatively well managed, with the exception of some disastrous real estate investments at the peak. CalPERS needs to readjust their investment expectations to something more realistic, but with some modest increases in contributions from employers and employees, it will return to actuarial balance over time.
The only really bad hit to CalPERS came when public safety employees pushed through enhancements to their retirement during the boom years that now require local governments to pay in the range of 30% of total compensation for public safety pensions, while the cops and firefighters are paying 3% or less.
I’ve always liked the idea that every public employee pay half of the cost of their PERS contribution, just as every employee pays half the cost of their social security contribution. I’d also like to see pensions tied to base pay rather than paying a pension on things like uniform allowances and overtime. Modest changes like this would not only fix CalPERS but would also give public employees the perfect defense.
Meanwhile, CalPERS is paying defined benefits from a very large, low-overhead, broadly based investment pool, where the contributions from employees and employers are invested to pay for the pensions. It’s been a tremendously successful system, and we should all have access to something this effective.
The average CalPERS retiree receives $25,212 per year, and 78 percent of all retirees receive less than $36,00 per year. Does that sound like an exorbitant retirement to you? It doesn’t to me.
If the problem is the relatively small group of people who receive very large pensions, then focus the proposed solution on them, by limiting the maximum pension amount. But that’s not what the right wing is trying to do here. They are trying to drag down all public employees, including the average people who receive only $25,212 per year in pension, by focusing exclusively on the tiny
elite of top earners.
Instead of attacking public employees for having pensions, people should use the public employee pensions as an example to private industry, and demand that private industry provide similar pensions for private sector workers — instead of squandering hundreds of millions in bonuses and golden parachutes for the executives at the top.
Source of data: CalPERS FAQ on website
http://www.calpers.ca.gov/eip-…