Legislator Wants CalPERS Remake

October 18, 2004 (PLANSPONSOR.com) - A California state legislator plans to propose the end of the California Public Employees Retirement System (CalPERS) as the state knows it, replacing it instead with a defined contribution 401(k) for new state employees.

Assembly man Keith Richman (R-Granada Hills) will certainly face stiff resistance in his effort to cut the giant retirement fund down to size, according to the L.A. Times. He plans to introduce a constitutional amendment when the state legislature convenes in December that would offer a 401(k) to new employees, and the opportunity to switch to such a plan for ones who have been working under the CalPERS regime. He claims that the move would give government agencies greater predictability in their long-term budgeting process due to more stable contribution rates, as well as save the government money.

In recent years, the $168 billion CalPERS fund has been something of drain on the state treasury, which has had to dip into general funds to make up for investment shortfalls in the bear market. This year the liability of CalPERS was $2 billion, partly financed by a bond issue to lessen the immediate impact on the general fund. CalPERS’ officials say the liability should decrease in coming years as markets grow stronger.

CalPERS generally pays out higher retirement benefits than other states, and thus Richman will face fierce resistance from public employees who want to protect their post-employment cushion. Because the pension benefits are relatively good, and because 401(k) plans do not generally produce equivalent returns, Richman will face an uphill battle, the Times report asserts.

Governor Arnold Schwarzenegger has yet to evaluate the plan, according to a spokesman. The Governor is currently implementing his own version of pension reform, with expected savings to the state pegged at almost $3 billion over 20 years.