NCPERS BATTLES AGAINST PRIVATIZATION OF RETIREMENT:
on Public Employee Retirement Systems is totally involved in the
battle to stop privatization of public pension benefits by eliminating
defined benefit plans and totally replacing them with defined contribution
plans. NCPERS has published the following myths and facts about
privatizing public employee retirement in California:
Myth 1 - Public employee pension costs are devastating government
budgets throughout California.
Facts - Despite the misleading statements, privatizing pensions
will not balance state or local budgets. In fact, forcing new employees
into private stock market retirement accounts will actually create
huge transition costs of over $7.6 Billion for California’s
teacher and public employee pension systems.
Myth 2 - Throughout the state, important services are being cut to
make mandatory pension payments.
Facts - The problem with the state and local budgets is not pensions.
The problem is with the revenue side of the budget, which relies almost
solely on booming personal income and the stock market. So, in times
of economic downturn, government budgets go down too. The state, for
example, made no pension payments for certain employees in 2000, but,
when the stock market performed poorly, had to pay over 14% of payroll
Myth 3 - At the statewide level, California’s
two largest pension funds, CalPERS and CalSTRS, are each underfunded
by more than $20 Billion.
Facts - In reality, unfunded liabilities are normal and acceptable
for the funds, which were recently overfunded at a rate of 123.5%,
resulting in employers cutting their contributions by over $6 Billion.
Over the last ten years, employer contributions to CalPERS averaged
only 11.7%, with employees contributing 11.5% and the market earning
76.8% of the income that goes to the pension fund.
Myth 4 - But increasingly, due to union backed changes in the law
over the last seven years, public employees are retiring on lavish
Facts - Some 400,000 retired California school employees, police,
firefighter, garbage workers and health professionals receive an
benefit of $19,128.00 per year, barely above the national average
of $18,000.00 for public employees. Given California’s high
cost of living, such pensions are hardly lavish. The average age
from public service in California is 60.
Myth 5 - Public employees are double dipping and getting both fat
retirements and Social Security payments.
Facts - Many public employees, including most municipal workers and
teachers, do not enjoy the benefits of Social Security.
Myth 6 - During the last twenty years, most private sector companies
have moved their retirement programs from defined benefit that provide
retirement benefits based upon a formula of years employed and final
service to 401(k)-type plans that match employee contributions to their
Facts - The majority of large private sector companies have a defined
benefit plan similar to public pension plans. Since 1985 the number
of large employers offering a defined benefit plan as the primary retirement
vehicle has increased. The National Association of State Retirement
Administrators reports that only 17% of Fortune 100 companies have
a 401(k) style plan as the primary retirement plan.
Myth 7 - Employees have an opportunity for increased retirement income
based on their investment decisions.
Facts - A 2004 independent study found that CalPERS added more
value to its investments at a lower cost than other large pension
According to the San Francisco Chronicle, the median DC plan return
from 1990 to 2002 was only 6.86%, compared to CalPERS’s return
of 8.9%. When costs are deducted, the story is even clearer: 4.86%
v. 8.53% for CalPERS.
Myth 8 - Portability features provide a potential for more retirement
income for employees who have several changes during their careers.
Facts - According to an independent human resources consulting
study, 57% of employees who leave their companies choose cash payouts
-- including monies contributed by the employer -- rather than rolling
the funds over to their next employer’s retirement plan.
Further, as a result of the Economic Growth and Tax Relief Reconciliation
of 2001, member contributions to a DB plan now offer similar portability
to DC plans.
Myth 9 - This reform proposal will not impact the benefits promised
to any current public employee or retiree.
Facts - Current employees are also at risk, because even though benefits
will not change, the cost to provide those benefits will rise. Current
benefits are partially funded by the revenue stream from newer, younger
employees entering the system. The privatization plan dries up this
revenue stream, creating a huge unfunded liability. Thus, as the system
seeks to absorb lower returns and increased costs, employees could
be affected by increased contributions, decreased cost-of-living benefits
and reduced future raises that must be used for new pension-related
Although we read elsewhere that Governor Schwarzenegger’s plan
is pretty much finished for now, NCPERS wants to make sure that the
plan is dead and buried.
2. THE IMPORTANCE OF OVERSIGHT IN PENSION RISK MANAGEMENT:
pension plans must hurdle a variety of political and cultural obstacles
to implement effective risk management frameworks, but there is light
at the end of the tunnel. Writing in the current issue of “Global
Association of Risk Professionals,” Dr. Susan M. Mangiero dissects
this evolving landscape and offers practical advice on risk controls,
technology and staffing. Although the term “risk management” means
different things to different people, for purposes of this piece, Dr.
Mangiero defines it as the management of multiple risk types -- such
as financial, operational and legal -- and assumes some use of derivatives.
The author suggests a “Five C” Approach to Risk ManagementK:
Commitment - Ensure that adequate resources are made available to
support risk management activities. Promote an organization-wide risk
management culture that results in appropriate compensation and operational
policies and procedures.
Comprehension - Ensure that all relevant staff members sufficiently
understand risk management basics, including the interdependence among
departments, to avoid unnecessary losses. Promote risk management best
Controls - Mitigate the adverse effects of rogue trading. Stem losses
before they get too large.
Computers - Review risk-adjusted performance and possibly revise strategies.
Identify trading limit violations. Improve fund governance.
Communication - Ensure budgetary approval for risk management resources.
Instill confidence in beneficiaries and regulators that the plan is
If a plan has no risk management process in place, now is the time
to move forward. For those organizations with an established process,
a review and possible revision are in order. Regardless of where fund
trustees currently stand with respect to risk control, detailed documentation
and justification are crucial. Incidentally, Dr. Mangiero is also the
author of Risk Management for Pensions, Endowments, and Foundations,
published earlier this year.
3. FLORIDA AGO ANSWERS PUBLIC RECORDS QUESTIONS:
Florida Attorney General has answered the following questions concerning
Florida Statutes, the Public Records Law:
1. A city is authorized to retain a monetary deposit collected in
connection with making copies to comply with the public records request
if the requesting party subsequently advises the city that the copies
are no longer needed.
2. In the circumstances of question 1 above, the city can bill a requester
for any shortfall between the deposit and the actual cost of copying
the public records. (The clerk must also refund any amount originally
collected as a deposit if the final copying fee is less than the amount
collected as a deposit.)
3. A city should determine the length of time copies will be maintained
after a public records request is fulfilled but delivery is not made.
4. The above matter (and others, such as time of payment and deposit
requirements) should be addressed in a public records request policy.
A standardized policy would facilitate the purpose of the Public Records
Law to provide public access and would ensure that all members of the
public are treated equally when a city is responding to public records
requests. AGO 2005-28 (April 28, 2005). We are available to assist
governmental clients in creating and formalizing such policy.