Schwarzenegger Supports CalPERS Overhaul Efforts

January 6, 2005 ( - California Governor Arnold Schwarzenegger has thrown his support behind proposals to phase in a defined contribution plan for the state's public employees.

In both a statement on his Web site and in his second annual address to state Legislators, Schwarzenegger stated that he supports proposals that would overhaul the state’s massive defined benefits system under the California Public Employees’ Retirement System (CalPERS) and introduce defined contribution plans – such as 401(k)s – over time.

“In 2000, our pension obligation was $160 million,” according to a statement on Schwarzenegger’s Web site. “Today, it has ballooned to $2.6 billion of the people’s money. 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 taxpayers to expect them to pay for pension plans better than the ones most of them have.”

In similar remarks to Legislators, the Governor made clear that he would support moves that would decrease the state’s role in providing retirement benefits.

Not surprisingly, the Governor’s proposal, as well as that of a Republican Assemblyman who proposed such a measure earlier this week, has been met with criticism from both CalPERS’ members and unions (See Assemblyman Floats DC Plan for Golden State Employees ). Any such proposal will also likely meet stiff resistance in Sacramento, which is controlled by the Democrats.

State Controller Steve Westly, a member of the CalPERS board, said he was taken aback by Schwarzenegger’s proposal, according to Reuters. “To suddenly change that is something that’s very concerning to me,” Westly told the news agency. Others accuse Schwarzenegger of cuddling up with big business, since CalPERS has a history of using its weight to create corporate governance reforms in companies in which it invests.

Unions also object to such a move, as it would likely decrease the amounts of benefits that the state pays. “Unfortunately, Gov. Schwarzenegger’s proposal to turn public employee pensions into stock market crapshoots should come as no surprise,” said J.J. Jelinic, president of the California State Employees Association, a union representing 140,000 state workers, to Reuters.