California public pension plans should switch to a hybrid model with elements of a defined benefit plan and an employer-matched defined contribution plan, according to a new report.
The report issued Thursday by California’s Little Hoover Commission, an independent state agency charged with recommending ways to increase the efficiency of state programs, stresses that the defined contribution portion “must be risk-managed to provide retirement security and minimize investment volatility.”
The commission was created in April 2010 to develop recommendations to control state and local government pension costs, holding a series of hearings and public meetings. It found that the 10 largest pension funds, encompassing 90% of the state pension assets, faced a combined unfunded liability of $240 billion in 2010.
The commission recommended that “serious consideration” be given to extending Social Security benefits to the 50% of public workers in the state do not receive Social Security.
“Pensions play an important role in the overall compensation of public employees today and have for nearly 80 years, and any change must honor the promises made to all public servants. … CalPERS has earned a 7.9% return over the last 20 years above our assumed rate of return and we have gained more than $70 billion back since the financial crisis,” according to a statement from the $226.5 billion California Public Employees’ Retirement System, Sacramento, “We look forward to engaging with the decision-makers who must rely on all the facts when confronting these important issues and recommendations.”
In a separate statement, the $147.6 billion California State Teachers' Retirement System, West Sacramento, said: “Any recommendation that weakens the financial security of our members, who are entirely reliant on CalSTRS for their retirement income, will not advance the discussion of constructive solutions. This includes recommendations that suggest breaking long-held legal decisions protecting vested pension rights.”
CalSTRS has supported previous efforts in Congress to allow its members to receive Social Security, according to CalSTRS’ statement.