this slide show was developed in 2006 and presented at several meetings of constituents. in the face...
TRANSCRIPT
This slide show was developed in 2006 and presented at several meetings of constituents. In the face of renewed attacked on public employee benefits, most of the content remains relevant today.
7/1/2006 1
7/1/2006 2
The California Faculty Association presents…
George Diehr
Stand up
to the
Pension
Privatization
Gamble
7/1/2006 3
A group plan that serves us by managing:
• Our health insurance
• Our secure retirement program
• Investments of our pension money
What is CalPERS?
7/1/2006 4
CalPERS is a
healthy
retirement system.
7/1/2006 5
The CalPERS Board of Administration Sets Policy
13 members:
6 elected by CalPERS members
2 appointed by the governor
1 appointed by the legislature
4 ExOficio by virtue of their state office
7/1/2006 6
Retirement security is part of how we are paid in return for our service to
California.
7/1/2006 7
7/1/2006 8
Three-pronged attack
• 2005/06 budget proposal• Bill in legislature: ACA 5• Ballot initiative
7/1/2006 9
These attacks would…
• End retirement security for new employees
• Increase paycheck deductions for all employees
7/1/2006 10
The claim that pension costs for the state are
exploding and impossible to sustain
is a myth.
7/1/2006 11
CalPERS’ Current Funded Ratio is Not UnusualCurrent ratio is 84% and climbing.
7/1/2006 12
In his State of the State address, Schwarzenegger said the state’s pension system is “another financial train on another track to disaster.” The state’s pension contributions have soared to $2.6 billion from $160 million in just four years, he noted.
State Pension Contributions, Millions $The Critics' Myopic View
160 157
677
1,190
2,213
2,564
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
'99-00 '00-01 '01-02 '02-03 '03-04 '04-05
San Diego Union-Tribune headline:“State’s CalPERS payment surges 18-
fold in 3 years.”
Figure 1
7/1/2006 13
State Contribution Liability and Cumulative Reserve with Fixed Contribution Rate
1,1201,236 1,223
2,213
2,564
157160
766 677
1,190
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
$5,000
'95-96 '96-97 '97-98 '98-99 '99-00 '00-01 '01-02 '02-03 '03-04 '04-05
If the state contribution had continued to grow at a 6% rate and earn 5% interest, the cumulative savings would amount to over $4.4 billion at the end of 2004/05.
State contribution at 6% annual increase.
Figure 3
7/1/2006 14
Current Rates are High, But Not Unprecedented
State Contribution Rates
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
1979
-80
1981
-82
1983
-84
1985
-86
1987
-88
1989
-90
1991
-92
1993
-94
1995
-96
1997
-98
1999
-00
2001
-02
2003
-04
Fiscal Year
Con
trib
utio
n %
of S
alar
y
Tier 1
Schools
7/1/2006 15
Historical Rates with Proposed Stabilization
7/1/2006 16
These attacks on publicretirement systems
could cause a pay cut for employees
of as much as 6%.
7/1/2006 17
The Budget Proposal wouldfreeze the state’s share of
payments for health insurance premiums.
7/1/2006 18
Plus, the bill and ballot initiative would end
death & disability benefits for all employeesand their families.
7/1/2006 19
The essence of all the attacks:Who bears the risk?
Tom Campbell, Gov’s Director of Finance
“The fundamental goal is that employees, not taxpayers, bear
market risk.”
7/1/2006 20
DB versus DC
(Defined Benefit vs. Defined Contribution)
First they come for the new hires…later it will be the rest of us.
7/1/2006 21
Defined Benefits (DB) = Traditional Pension System
• The retirement benefit is guaranteed for life
• Risks are spread out over time
• Risk is shared and underwritten by the employer
7/1/2006 22
More features of Defined Benefits (DB) system…
• Employees make fixed contributions
• Employer contributions vary
• Benefits & contribution rates are usually negotiated
• Employees & employer share management costs
• Money is managed in a pool to reduce overhead
• Some (CalPERS) give death/disability benefits
• Benefit increases protect against inflation CalPERS benefits go up 2% a year
7/1/2006 23
Defined Contributions (DC) = Individual Risk Plan
• Benefits end when the individual’s money runs out
• Benefits depend on success of individual investments both during employment and retirement
• The individual alone bears all risk• Management cost shifts to the individual alone• No death, disability or survivor benefits• No no protection against inflation
7/1/2006 24
“You’re putting so much risk of the stock market onto each individual person, they become in danger of losing retirement protections” — Art Pulaski, California Labor Federation
7/1/2006 25
Administrative costs
DB plan (CalPERS) = 0.18%
DC plan (typical 401k) = 1%+
7/1/2006 26
To get the same benefits with a DC plan that a typical
CalPERS member now gets, you would have to pay in
much more.
7/1/2006 27
Example CalPERS Pension BenefitCommon plan: “State Miscellaneous, 2% at age 55”
Formula: Yrs * Age Factor * (Highest Salary - $133)
• Assume 30 years of service, age 63 at retirement and final salary of $5,000 per month.
• “Unmodified” retirement benefit is almost 75% (=30 years times age factor of 2.5%) of final salary.
• Pension = 75% * ($5,000 - $133) = $3,650.
• + 2% per year increase for inflation.
Handout
7/1/2006 28
“Equivalent” Defined Contribution PlanUnder optimistic assumptions, what percent of salary must
be saved to purchase an annuity equivalent to the DB pension of $3,650/month?
• Assume: starting salary $1,157, increasing 5%/year for 30 years (=$5,000); 8% investment return.
• 22-year life expectancy at age 63 (IRS standard, male).• Need fund of $600,000 at retirement; return of 4.8%. See
http://www.totalreturnannuities.com/ • Requires contribution of over 21% of salary.
AND: no benefit to survivor, no inflation protection, no death or disability benefit.
Handout
7/1/2006 29
The average monthly benefitpaid to a retiree from public
service in California is$1,669.
7/1/2006 30
It isn’t broken. So why fix it?
Privatizing pensions will not help the state with the budget crisis.
No short-term savings.
Likely none in the long term either.
7/1/2006 31
“There’s an old saying, so goes California, so goes the rest of the nation. That’s exactly what they’re worried about. You talk about pensions. What do
you think, it’s just about California? No. If California’s pension system goes, now it will go like
an avalanche.” – Gov. Arnold Schwarzenegger
Orange County Register
7/1/2006 32
7/1/2006 33
Mike Peters, Dayton Daily News Kings Features Syndicate
R
“This is the California version of Social Security privatization.” – Carol Wills, California Professional Firefighters
7/1/2006 34
Consider the Sourcehttp://www.sourcewatch.org/wiki.phtml?title=Grover_Norquist
'The goal is to reduce the size and scope of government in half over the
next 25 years,’
....Norquist and the White House are so close that it is sometimes difficult to discern who is influencing whom.
But such Bush initiatives as privatizing Social Security,…bear all the marks of Norquist's thinking. – Jill
Zuckman, Orlando Sentinel, June 15, 2003, “Conservative operative is in the right place at the right time”
7/1/2006 35
Summary
Arnold’s “retreat” is strategic.
He will be back.
Retirement security is part of total comp.
Eliminating the DB pension will leave many employees with no safety net.
CalPERS is not in trouble.
DB pensions are not bankrupting public agencies.
A DC plan is unlikely to save taxpayers money even in the long-run.
The larger crusade is to dramatically reduce public services.
CalPERS plays a crucial role in corporate governance: it benefits all investors.
7/1/2006 36
Be Informed. Get Involved.Resources & Contacts:
George Diehr: [email protected]
CFA: www.calfac.org
CalPERS: www.calpers.gov
AFL-CIO Center for Working Capital:RetirementSecurity.info