CalPERS Board Votes to Oppose Defined Contribution Legislation

SACRAMENTO, Calif.--(BUSINESS WIRE)--Feb. 16, 2005--The CalPERS Board of Administration voted 9-3 to oppose legislation that calls for a Constitutional Amendment that would shift public pensions from a defined benefit plan to a 401(k)-style defined contribution plan for new employees.

ACA 5 and ACA 1X would amend the California Constitution to prohibit any newly hired public employees from enrolling in a defined benefit public pension plan beginning July 1, 2007. If either bill passed, it would require voter approval during the next Statewide election.

The Board accepted the recommendation of the Benefits and Program Administration Committee which yesterday listened to a staff analysis, heard from the Director of the Department of Finance, and received comments from numerous representatives of employee and retiree groups.

"The abundance of evidence suggests this legislative proposal to move to a defined contribution plan is not well thought out," said Rob Feckner, President of CalPERS. "It is our fiduciary duty to oppose this legislation because it harms the retirement security of future members and because long term it will hurt our ability to invest assets appropriately."

A defined benefit guarantees a specific pension amount to the employee. The benefit is determined according to a calculation based on the employee's salary, years of service and age at retirement. Under such a plan, the employee is entitled to the promised specific benefit. The money used to finance the pension comes from contributions by the employer, employee, and investment returns.

Under the defined contribution proposal, or DC plan, the employer contributes a fixed amount alongside of employee contributions. At retirement, the employee has an account balance based on how much has been put into the fund and how these contributions have grown over time as they have been invested.

Kurato Shimada, Chair of the Benefits Program and Administration Committee, said the System recognizes the plight of employers in meeting their financial obligations to fund pensions, but there is no need to throw the baby out with the bathwater. "We will continue to work with our employer community to find the best way of stabilizing contributions. A Constitutional Amendment is not necessary to solve this problem," he added.

CalPERS is the nation's largest public pension fund with assets of more than $182.9 billion. The System provides retirement and health benefits to 1.4 million State and local public employees and their families. For more information on CalPERS, visit www.calpers.ca.gov.