CalPERS, CalSTRS and all California public plans would be closed to new employees starting July 1, 2007, under a constitutional amendment introduced today by California Assemblyman Dan Richman. Instead, employees would join newly created defined contribution plans.
"We're making commitments to people that we just can't afford to pay," said Dan Pellissier, Mr. Richman's chief of staff. The state's pension contribution has grown to $2.6 billion this year from $200 million in 2000, and the legislative analyst's office predicts it will reach $3.5 billion by 2009. That contribution is crowding out other needs for the state and localities, he said.
The constitutional amendment would require that new employees join a defined contribution plan but would not provide details of plan provisions. Mr. Pellissier said staff is developing a separate bill that would create plans that would have a dollar-for-dollar match on up to 10% of employee pay. If employees did not make their own investment choices, they would default into lifestyle funds.
Robert Walton, assistant vice president for governmental affairs for the $177.8 billion California Public Employees' Retirement System, Sacramento, said that the cost of pension benefits has been overstated. "The cost as a percentage of payroll, even today, is lower than it was '80 through '86, even after you consider all the benefit increases," he said.