(Cross-posted from Working Californians)
The pension system for California’s teachers, firefighters, peace officers and others who serve the public is fundamentally sound, despite what you have been hearing from Arnold. In many ways, this mirrors the battle over Social Security in 2005. You have a Republican politician inventing a “crisis”, in an attempt to privatize a secure working system with a risky and untried plan. In this case, they want to hike up the age of retirement and switch people over to inefficient 401k plans. Arnold put together a commission to look at the problem. They held their first meeting yesterday.
Dave Low, a representative of the California School Employees Association, told Fritz that his 58-year-old sister, a schoolteacher for more than 30 years, is fighting cancer and was recently forced to retire to deal with her illness. The proposal Fritz is backing, Low charged, would leave people like her with a reduced pension and no health benefits.
“This hits close to home,” he said.
Willie Pelote, a representative of the American Federation of State, County and Municipal Employees, his voice rising and falling like a preacher giving a sermon, followed Fritz to the lectern and told the panel not to mess with the status quo.
“You have a safe, secure system for working people,” Pelote said. “There is no crisis.”
(emphasis mine)
The Republicans may be blaming retirement costs on budgetary problems, but the reality is that the PERS and STRS systems are fundamentally strong and near full funding. In January the Wall Street Journal said:
After years of steep under-funding, pension plans are now healthy, thanks to several years of double-digit investment gains and rising interest rates.
Simply put, PERS and STRS are excellent at earning gains for the retirement system and are much more efficient with money than private retirement funds. The assets of the fund have almost doubled over the last decade and are at a record high of almost $230 billion. While market volatility is a concern, CALPERS has instituted a smoothing formula, so that public employees can rely on more uniform pension payments whether stocks go up or down, unlike 401k plans. On a percentage basis, CalPERS is allocated almost the same amount of public dollars that went into the system 25 years ago.
Funding levels are not perfect but we are at 90% of what we need to provide projected retirements necessary in the future. That is higher than they were at before the stock boom of the 1990s. We have a strong system, but there can always be improvements. Public pensions can be made fairer and there is a package of bills, with labor support, that will provide greater predictability for employers, stabilize the system, eliminate abuse and crack down on those who would game an otherwise sound system.
Retiree health care is an issue that must be addressed, but it is the same problem that is facing all Californians. Health care costs are increasing at astronomical levels and it is straining the system. One must not conflate the retirement issue, with health benefits. They are funded in two completely different ways. Secure retirements are pre-funded, using employee, employer and pooled investment dollars. The government has traditionally funded health benefits on a pay-as-you-go basis.
We should start thinking about creating a new fund to put away money for retiree health care costs in the future. This would allow the state to create a pooled, low cost, well-managed fund, like pension investments, to earn the vast majority of the money needed to meet projected expenses for retiree health care. Secondly, but not any less important, we must fix the health care system as a whole, rather than eliminate health care for retired employees.
California already has a severe shortage of peace officers, teachers, and nurses. Good pensions and benefits are key issues that allow us to recruit and retain the best possible public employees. It is part of our social contract with these workers. While they may earn more in the public sector, public employees are promised a secure retirement and benefits package. We must not break that promise to our hard working teachers, nurses, firefighters, peace officers and others.
The governor’s commission has an opportunity to identify reforms that will provide greater stability and predictability for the well-earned and promised retirements of public employees. Any attempts by the government and others in his party to invent a “crisis” will be vigorously opposed.
There is no crisis.
