CalPERS: Republican Pension Proposals to Sting Members

CalPERS has released a cost analysis of proposed Republican pension reform, noting that the proposal will lower retirement benefits for new hires and shift risk from employers to employees. 

(March 19, 2012) — Republican pension reform proposals will lower retirement benefits for new hires and shift risk from employers to employees, a cost analysis by the California Public Employees’ Retirement System (CalPERS) has found.

The proposal will also reduce costs for state, school, and local public agency employers, CalPERS said. 

CalPERS’ analysis, requested by the staff of the Senate Republican Caucus, stated: “It focuses on a proposed hybrid retirement plan for new hires…A hybrid plan combines a traditional defined benefit (DB) pension plan with a defined contribution (DC) component similar to a 401(k) retirement savings plan. The hybrid plan is designed to provide workers with a retirement benefit that – combined with Social Security, if applicable – is equivalent to 75% of their highest average pay over three years.”

Read the full analysis here.  

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news.

Earlier this year, CalPERS highlighted the National Association of State Retirement Administrators (NASRA)’s brief on hybrid plans maintained by state retirement systems. “Findings from the brief maintain that diversity in plan designs are critical because a one-size-fits-all solution for public retirement systems may not meet different states’ human resource needs, fiscal conditions and frameworks,” CalPERS wrote on its website in January. Additionally, according to NASRA’s initial brief, critical elements of public pension plan design known to promote retirement security include: mandatory participation, shared financing, pooled investments, benefit adequacy, and lifetime benefit payouts. 

CalPERS said: “These features are a proven means of delivering income security in retirement, retaining qualified workers who perform essential public services, and providing an important source of economic stability to every city, town, and state across the country.”

In November, NASRA issued the brief noting that hybrid plan designs have been receiving increased attention as states find that closing a traditional DB pension plan to new employees could increase—rather than reduce—costs, and that providing only a 401(k)-type plan does not meet retirement security, human resource, or fiscal needs.

«