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CalPERS Fund Faces Assault in Battle Over Pension Plans

September 22, 1996|TOM PETRUNO

With $100 billion in assets and more than 1 million state and local government workers on its rolls, the California Public Employees' Retirement System is a monolith that makes for an easy political target--easy to see, at least, if not to dent.

But the nation's largest public pension fund now may be facing the most serious threat ever to its power, in the person of Republican Assemblyman Howard Kaloogian of Carlsbad.

He wants to open CalPERS' "defined benefit" retirement system--which guarantees a preset, inexhaustible level of retirement income, though only for employees who stick around long enough--to competition with a "defined contribution" system that would give all California government employees far more control over the money paid into the fund on their behalf, and to how that money grows.

The debate that has ensued has more hot buttons than you can hit even with extra fingers. First off, this isn't just about CalPERS, but eventually about every public pension fund in California, and there are many.

The constituencies--employees, taxpayers and bureaucrats, to name three--are huge and anything but disinterested: Younger govern-ment employees could potentially gain from Kaloogian's idea, whereas older workers fear a drain on "their" assets; the employees' unions fear a massive loss of power; mutual funds and banks see a potential gold mine in dollars that could be siphoned away from CalPERS; and the state and other government employers smell the possibility of significant cost savings--which would be applauded by a large segment of the public that sees government workers' benefits as too rich anyway.

But often lost in the details is the big picture, what this would ultimately mean for government workers and for taxpayers: The former would be given more of an opportunity to succeed with their retirement savings, but also to fail. And if too many fail, unable at retirement to support themselves, taxpayers may be picking up the bill 10, 20 or 30 years from now.

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Of course, the defined-contribution retirement plan concept isn't new. They are best known as 401(k) plans in the corporate world, whereby employees decide how much they're going to put away for retirement and in which investments, and employers then typically match (in full or in part) that contribution.

Corporate America has increasingly emphasized such plans over the last 15 years, usually as a supplement to traditional defined-benefit retirement plans that make companies solely responsible for employees' retirement income. Some public employees, including some in California, also have been given access to 401(k)-style plans.

But for the most part, big public retirement funds such as CalPERS have remained defined-benefit in structure--meaning they are administered by the government entity, with benefits determined by rigid, complicated formulas, and with employees largely relegated to bystander status.

Assemblyman Kaloogian thinks public employees ought to have a choice of pension options, and his bill to force the issue got through the Assembly last spring, only to be stalled in the Democrat-controlled Senate. But he is pushing again this fall. He will hold a round of hearings, culminating in a joint Assembly-Senate hearing Nov. 17.

CalPERS now is roused. The fund held an all-day seminar in Sacramento on Thursday, during which a parade of consultants, along with Kaloogian, spelled out for CalPERS' board the pluses and minuses of changing the system.

Kaloogian argues that CalPERS is "behind the curve," that public funds in Oregon, Florida, Washington have already adopted new retirement plans. He accuses CalPERS of stonewalling his information requests earlier this year. He contends that the public labor unions have organized against him because, he says, they fear that a weakening of CalPERS' authority over workers' benefits also could eventually weaken the unions' authority.

Kaloogian contends that he's fighting for the majority of CalPERS members who, he says, end up forfeiting the benefits paid into the fund by their government employers. They forfeit because most employees--somewhere between 60% and 80%, he says, although CalPERS says the figure may be smaller--don't stay in their jobs long enough to qualify for CalPERS benefits. For state employees hired after July 1, 1991, for example, it takes 10 years to become "vested," or qualified for a pension. Many corporate 401(k) plans vest much faster.

"This is about choice and portability," Kaloogian says. Why, he asks, shouldn't younger government workers have the option of joining a pension plan that would allow them to take their money with them if they leave government, as many in today's mobile society inevitably will?

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