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George Diehr presents…
Standing
Up for
the CSU &
Against the
Pension
Privatization
Gamble
2/17/2005
1
“There’s an old saying, so goes California, so goes the
rest of the nation. That’s exactly what they’re
worried about. You talk about pensions. What do
you think, it’s just about California? No. If
California’s pension system goes, now it will go like
an avalanche.” Governor Arnold Schwarzenegger, Orange County Register,
Jan. 25, 2005
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Why Gamble?
“You’re putting so much risk of the stock
market onto each individual person,
they become in danger of losing
retirement protections.”
Art Pulaski, executive secretary of the California Labor
Federation, AFL-CIO, Oakland.
2/17/2005
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Why gamble now?
According to some the governor’s defined
contribution proposal piggybacks on
President Bush’s plan to privatize Social
Security. “This is the California version
of Social Security privatization.”
Carroll Wills, a spokesman for the California Professional
Firefighters.
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5
R
Mike Peters, Dayton Daily News
Kings Features Syndicate
2/17/2005
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WHY GAMBLE NOW?
• Others hinted at a backlash against
CalPERS for its activist corporate
governance positions.
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CalPERS Board of
Administration
13 members set policy for…
• Ensuring a secure retirement
• Investing for optimum risk adjusted
return
• Negotiating for quality health care at
reasonable cost
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Traditional Pension System
• Each party contributes to the retirement fund; the
employee contribution is almost always fixed—
i.e., does not vary from one year to the next.
• The retirement benefit is guaranteed, and is
usually based on age, “final” salary, and years of
service: “2% @ 55”
• The money is managed in a pool to reduce
overhead.
• Often benefits and contributions rates are
negotiated.
• Investment risk is the responsibility of the
employer.
• Risks are spread over time.
2/17/2005
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Three Proposals to Privatize our
Retirement
• A budget proposal that shifts more of
the costs onto employees: employees
face greater investment risk.
AND
• Legislation that ends the current defined
benefit system for new employees;
OR
• A ballot initiative that ends the DB plan.
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Budget Proposal
Most common CalPERS Plan: employer
contribution = 17%; the employee contribution
fixed at 5%.
The budget proposal:
– equal sharing of the contribution by the state and
employees means employee contribution would
more than double to 11%—effectively, a 6% pay
cut.
– $469 million in pension contributions would have to
come out of the paychecks of K-14 teachers for the
2005-’06 fiscal year.
– And more: state contribution to health care
premium frozen, …
2/17/2005
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Legislation
Assemblymember Dr. Keith Richman proposes elimination of a definedbenefit plan for ALL PUBLIC employees
• The proposed amendment to the state
constitution known as ACA5, would put all new
employees into a “defined contribution” plan-e.g., 401(k).
• All investment risk would be placed on the
individual.
• Employer contribution would be limited to 6% for
most plans.
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Effects of Richman’s DC Scheme
• Would eliminate disability retirement and
death benefits even for survivors of police and
firefighters hurt or killed in the line of duty.
• Would require use of private money managers
like Charles Schwab—e.g., CalPERS could
not manage the DC plan.
• A DC plan would not protect against inflation.
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Ballot Initiative
The Howard Jarvis Taxpayers Association wants to break the
promise of a defined-benefit pension
• Their purpose is to obstruct the right of
employees to bargain over wages and
benefits by using the ballot to end our
retirement system.
• It is like having voters approve every
contract we negotiate.
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Comparisons
(CalPERS Data)
• Administrative costs of
defined contribution
plans are typically 2% of
assets
• Administrative costs with
CalPERS, the nation’s
largest defined benefit
plan, 0.18% of assets
• Only 50 cents of each
$1 in a defined
contribution plan is
paid out in benefits.
• 80 cents of each $1 in a
defined benefit plan is
paid out in benefits
To achieve the same benefit payments,
contributions to defined contribution plans
would have to increase substantially,
National Conference on Public Employee Retirement
Systems, Washington
2/17/2005
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If it Ain’t Broke…
Q: Will privatizing pensions help fix the
budget crisis?
A: NO.
• Privatizing pensions will NOT balance the
state or local budgets
• Privatizing pensions would cost the state
over $7.6 BILLION
• No savings for over 20 years
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If it Ain’t Broke…
Q: What is the significance of “under-funding” of
CalPERS?
A: Privatizers have taken a snapshot of one year.
• At times the fund has been OVER-funded and at
other times under-funded.
• Recently were over-funded by 123.5% allowing
employers to cut contribution by over $6.05 billion.
• Economic downturn led to increase in employer
contribution
• Fund now bouncing back earning 23% in 2003 and
increasing assets by $30.4 billion.
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If it Ain’t Broke…
Q: How generous are public employee retirement
benefits?
A: Average monthly benefit paid to retirees is $1,669.
• 400,000 school employees, police, firefighters,
garbage workers and health professionals receive
an average of $19,128 per year—hardly “generous.”
• Most municipal workers and teachers DO NOT
receive Social Security.
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If it Ain’t Broke…
Q: Is defined contribution really preferred by the
private sector and other states?
A: NO. Most large private sector companies have a
defined benefit plan like ours
• Among employers with 10,000+ employees use
of DB is increasing
• SBC recently reinstituted its DB plan. Others are:
Chevron, Unocal. Lockheed Martin, Boeing,
Albertson’s, etc.
• Nebraska recently converted back to DB. DC
returns were 6-7%; DB plan returned 11%.
• Kansas rejected DC saying, “conversion from the
current defined benefit plans…would not result in
lower employer contributions….”
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Consider the Source
http://www.sourcewatch.org/wiki.phtml?title=Grover_Norquist
“We is them, and they is us. When I walk through
the White House I recognize as many people as
when I walk through the Heritage Foundation.” From
an appearance on Pat Robertson’s 700 Club Norquist said the following
about the Bush administration,
"Norquist is highly specific about his ultimate
objective.... 'The goal is to reduce the size and
scope of government in half over the next 25
years,'.... Norquist and the White House are so
close that it is sometimes difficult to discern
who is influencing whom. But such Bush
initiatives as privatizing Social Security, …
bear all the marks of Norquist's thinking." Jill
Zuckman, Conservative operative is in the right place at the right time
Orlando Sentinel, June 15, 2003:
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What is CFA Doing to Protect Our Secure
Retirement?
CFA is on the Executive Board of “California Families
Against Privatizing Retirement” that is:
• Doing opposition research, focus groups, polls.
• Working against the Richman legislation
• Working with our members to build base of people
who can speak on the issues (est. 1.5 million
people.)
Diehr will be visiting selected CSU campuses to
explain the threats of budget changes and
legislation.
Part of a group fighting the pension and other
initiatives in the fall.
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What can you do NOW to prepare for
the Fight in November?
• Know the facts behind the myths
• Talk to family and friends
• Bring the issue to your department
meeting
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Be Informed. Get Involved.
Resources & Contacts:
George Diehr: [email protected]
CFA: [email protected]
Web: www.calfac.org
CalPERS: www.calpers.ca.gov
AFL-CIO Center for Working Capital:
www.centerforworkingcapital.org/RetirementSecuri
ty/
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