The New York Times is reporting: “Schwarzenegger Aims at State Pension System.” According to the article, the Governor contends that California can no longer afford a generous traditional pension plan for state employees and teachers and should instead adopt a 401(k)-style plan of individual accounts. The article states that Californians could be asked to vote on the proposed changes as early as this summer. Pension experts and political analysts are predicting that the outcome of the vote will not only have an impact on the state pension system, but also could provide impetus for proposed changes to Social Security. Excerpt:
Mr. Schwarzenegger, in his State of the State address earlier this month, described California’s pension system as “another government program out of control,” careering toward fiscal ruin. He cited the state’s obligation to inject $2.6 billion into the system this year to keep it actuarially sound, compared with $160 million four years ago.. . . Although Mr. Schwarzenegger described the plans as a looming train wreck, even advocates of privatization in his own administration say the system is currently sound. The plans, taken together, are nearly 90 percent funded, a level that most experts consider quite healthy.
“We’re not warning of imminent collapse,” said Tom Campbell, an economist and former member of Congress who is the state’s new budget director. “There is a potential danger for the state to have a defined benefit system, and to the extent we can move away from it, as many private employers in America have done, we should do that.”
The article reports that opponents of the plan include “almost all Democrats in the Legislature, state employee unions and the trustees of the pension plans themselves” who say that the plans have been well managed and provide a “critical source of income security to workers who sacrifice pay in their working years to toil in the public sector.”
While such action by California to oust its traditional defined benefit public pension sytem in favor of a 401(k)-style plan could impact the national debate over Social Security, the development might have an even great ripple effect on other states which might decide to follow suit.
UPDATE: CALPERS has set up a special website called “The Pension Debate Information Center” and states that the website’s purpose is as follows:
We have created this Information Center in the interest of educating our members, employers, and stakeholders, and correcting misinformation that has permeated public discussions on this issue. This Information Center is also intended to add to the marketplace of ideas the pros and cons of defined benefit and defined contribution plans.
There is a lot of good information on the website which includes this page with links to “research and analysis of defined benefit and defined contribution plans – their effectiveness, employee preferences, and more.”
(Thanks to Benefitslink.com for the pointer.)