2/17/2005 1

George Diehr presents…Standing Up forthe CSU &Against thePensionPrivatization

Gamble

2/17/2005 2

“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

2/17/2005 3

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 4

2/17/2005 5

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.

2/17/2005 6

Mike Peters, Dayton Daily NewsKings Features Syndicate

R

2/17/2005 7

WHY GAMBLE NOW?

• Others hinted at a backlash against CalPERS for its activist corporate governance positions.

2/17/2005 8

CalPERS Board ofAdministration

13 members set policy for…• Ensuring a secure retirement• Investing for optimum risk adjusted

return• Negotiating for quality health care at

reasonable cost

2/17/2005 9

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 10

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.

2/17/2005 11

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 12

LegislationAssemblymember Dr. Keith Richman proposes elimination of a defined-

benefit 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.

2/17/2005 13

• 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.

Effects of Richman’s DC Scheme

2/17/2005 14

Ballot InitiativeThe 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.

2/17/2005 15

Comparisons(CalPERS Data)

• Administrative costs of defined contribution plans are typically 2% of assets

• Only 50 cents of each $1 in a defined contribution plan is paid out in benefits.

• Administrative costs with CalPERS, the nation’s largest defined benefit plan, 0.18% of assets

• 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 16

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

2/17/2005 17

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.

2/17/2005 18

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.

2/17/2005 19

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….”

2/17/2005 20

Consider the Sourcehttp://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:

2/17/2005 21

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.

2/17/2005 22

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

2/17/2005 23

Be Informed. Get Involved.Resources & Contacts:

George Diehr: gdiehr@csusm.edu

CFA: secureretire@calfac.org

Web: www.calfac.org

CalPERS: www.calpers.ca.gov

AFL-CIO Center for Working Capital:www.centerforworkingcapital.org/

RetirementSecurity/