Economics

California Bill Gives State Workers A Chance To Opt Out Of CalPERS

EDITOR’S NOTE  on March 1st, 2018 10:55 PM EST: In the final paragraph of this article, we mistakenly wrote that “According to the university, more than two-thirds of their new employees prefer the new alternative….”  The University of California and the California State Senator that is authoring this measure proportion of new employees that are choosing the new alternative is approximately one-third.

The article has been updated to reflect the proper number.

A California state legislator has proposed a bill that would allow state employees to opt out of the California public employees retirement system (CalPERS). They, the employees, would then be permitted to choose a defined contribution plan in which their contributions would go and be matched by the state at the same level as the state’s current defined pension plan.

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The bill would give state employees the opportunity to decide whether or not they would like to participate in CalPERS. It would also authorize an employee to be able to choose to stay with their alternative plan or switch to the current defined pension plan after five years. This will only be the case if the employee’s defined contribution account equals or exceeds the amount that would have accrued tot he employee under the defined benefit plan.

The bill was introduced by State. Sen. Steve Glazer (D-Orinda), who praised the versatility of defined contribution plans stating that the “big difference is that workers who leave state employment would be able to take with them the entire balance in their retirement plan—including both the employee and employer contributions and investment gains.”

Under the current law, employees that leave the state service before their retirement are only entitled to refunds plus interest on their contributions.

“This pension reform idea would be good for employees and provide a more stable fiscal foundation for the state,” said Glazer in a release. “This new retirement plan would be especially attractive to millennials who do not intend to work for the state their entire lives.”

The bill would also have the ability to provide higher predictability according to Glazer. He claims that it would no longer pose the risk of unfunded pension liabilities that have severely crippled the current pension system. CalPERS current underfunded liabilities are approximately $140 billion, leaving the fund with only 68% of the funded needed to meet all of its obligations.

The bill was modeled after the University of California plan that has been offered to new employees since 2016. According to the university, approximately one-third of their new employees prefer the new alternative defined contribution plan over the traditionally defined pension plan still offered at the state level.