State Government Must Enact Meaningful Pension Reform

California State Assemblyman representing the 75th Assembly District

UPDATE: AB 1247 unanimously passed the Assembly and heads to the Governor’s Desk for signature 

Just like local governments throughout California, it is clear that state government must enact meaningful pension reform, and it must happen soon. In many ways, the current system is unsustainable. It’s costing taxpayers billions of dollars, and it threatens stable, secure retirement for workers over the long term. The required employer contribution rate for the State Miscellaneous Tier 1 plans has gone from 0% in 2000-2001 to 19.92% in 2010-2011.

While the debate continues over how best to reform our state pension system, I have proposed a first step to reform the existing system by providing greater transparency and pave the way for broader reforms moving forward.

Regardless of our positions on pension reform, we should all agree on the need for greater transparency. Opening up the books is a valuable first step that will enable lawmakers and policy makers to better understand how the pension system is performing, and how it might impact the contributions of governments and their employees in the future.

In recent years, the unfunded liability of the state’s pension systems has increased and the long-term ability to meet future obligations has been questioned. The state general fund contribution to CalPERS is $2.4 billion dollars for the 2011-2012 fiscal year; but the system’s unfunded liability and the state’s required contribution have varied greatly in the last few years. In 2004 it was $24,710,000,000 and in 2009 it was $49,078,000,000.

These projections affect how much employees must contribute, and impact how much school districts, municipal governments and other CALPERS members must pay. It is critical that stakeholders have transparent, reliable information so they can plan for future obligations.

That is why I authored a measure that improves the ability of decision-makers and the public to evaluate how the plan is doing. This bill will provide more insight into how the state’s contributions will change if the rate of return is better or worse than expected. According to the Little Hoover Commission In the 2000-01 fiscal year CALPERS costs were less than 2% of general fund expenditures, in 2011-12 it is more than 4%.

This measure also requires that estimates of future employer contributions based on 3 possible rates of return (the assumed rate ± 2%) be included in the pension system’s annual report. Taxpayers will be able to see how better-than-expected or worse-than-expected returns will affect the plan. This is important, because CalPERS has, I believe, assumed unrealistic rates of return, effectively masking the full impact of underfunding on employer contributions.

You don’t have to be an expert to know that there has been a great degree of volatility in the markets recently. The economic downturn, global uncertainty and political unrest have all contributed to a lack of clarity. But at the very least, CALPERS should be basing their decisions on realistic assumptions, and the public deserves the information necessary to evaluate the impact of the system’s decisions on taxpayers.

This measure will help employers and employees plan and make prudent decisions. It will also prevent pension plan dollars from being wasted on unnecessary bureaucracy by requiring CALPERS to disclose this information each year by streamlining the reporting process. It will make projections more transparent , and make it easier for the public to evaluate the prudence of these projections.

Millions of people depend on CALPERS for their retirement. State government and hundreds of local governments are affected by changes in its performance. We must have a pension system that is transparent and honest with taxpayers, employers and workers. This measure is a strong first step to improving the public’s access to information and to giving officials the information they need to make prudent decisions.

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