Gov. Davis pension raid - where is ERISA for states?
Regarding the story on page 2 of the Jan. 21 issue, "Cutting corners: Governors look to state funds to relieve shrinking budgets":
The story stated, "California Gov. Gray Davis proposed deferring $2 billion in contributions to CalPERS and CalSTRS..."
As a member of the California Public Employees' Retirement System, I am distressed that this is the third major raid on CalPERS. Under the eight years of Gov. George Dukemejian, the minimum paid on employee contributions was 8.5%; the highest was 10%. Under Gov. Wilson and Gov. Davis, the highest paid was 6%.
Every other major public pension plan in California has increased across-the-board benefits. CalPERS has increased the benefit for a 63-year-old retiree by a paltry 3% in exchange for the CalPERS board, who are mostly political allies of the governor, granting so many givebacks that the fund is now too decimated to grant a fair share of the earnings on employees' own money.
It appears that a federal law requiring state plans to be subject to ERISA is our only hope of protecting our CalPERS plan. No other CalPERS board in history has allowed a governor to raid the fund to this extent.
Terry Sutherland
CPA, State of California
Concord, Calif.
Gov. Davis pension manipulation
Your report that California Gov. Gray Davis asked for $2 billion in funding from actuarially determined obligations does not tell the entire story ("Governors look to state funds to relieve shrinking budgets," Jan. 21).
This request came only 26 months after Gov. Davis signed into law large benefit increases for statewide PERS employees that also created a huge domino effect on California's independent retirement systems and local agencies contracting with the California Public Employees' Retirement System.
Gov. Davis' approach of trying to get funding "relief" while simultaneously offering some added benefits to "neutralize" potential protests from labor groups is not only patently inconsistent but has been tried in the past with long-term financial repercussions to taxpayers.
In the past decade, the CalPERS retirement board has been successful in suing Gov. Wilson for not funding the full actuarial contribution. It will be interesting to see if the board is prepared to take consistent action if Gov. Davis maintains his course.
Defined benefit plans are excellent retirement vehicles for employees. However, long-term financial pitfalls can occur if the financing of such programs is handled without due consideration for current and future generations of taxpayers, as well as future government workers who may be forced to settle for a lesser program, due to future financial crises. In California, the voices for both these groups have been largely silent in recent years.
The short-term mindset of politicians in both parties is in direct conflict with the long-term view necessary for any responsible fiduciary. No doubt the Davis administration will blame the desire to short-fund CalPERS as a byproduct of the state's energy crisis. However, my view of government "crises" is that they tend to be frequent in nature and for a wide variety of causes.
There is great irony in Gov. Davis' current primary campaign, which includes TV spots saying "Education is his first priority." The truth is that California's relatively low per capita education spending (and continued deferral of other pressing infrastructure needs) will continue as long as the political powers are not fully prepared to deal with the long-term financial implications of benefit increases they confer.
Rick A. Roeder
director, Gabriel, Roeder, Smith & Co.
San Diego
Pensions & Investments welcomes Letters to the Editor and submissions of commentaries for the Other Views page. Letters and other submissions may be sent by mail to the attention of Barry B. Burr, Pensions & Investments, 360 N. Michigan Ave., Chicago, IL 60601; by fax, to (312) 649-5228; or by e-mail to [email protected]
