Press Releases Legislative Alerts Congressional Ratings Heroes and Enemies Maps Email ATR Site Map Search
Home Press National Issues State Issues The Pledge Special Projects Get Active Join Donate
Legislative Alerts
Open Letters
National Projects
Cost of Government Day
Congressional Caucuses
Legislative Advisory Project
Congressional Ratings
K Street Project
National Issue Areas
Speeches and Testimony
Join ATR
Take Action!
Search ATR
Get Acrobat Reader

POLICY BRIEF FROM AMERICANS FOR TAX REFORM

Pension Liberation In California

By Peter J. Ferrara

California State Assemblyman Howard Kaloogian is taking the lead in bringing pension liberation to California. Last year, he proposed legislation that would allow state workers to take their share of pension funds in their own accounts, rather than leave them with the government. The bill passed the State Assembly overwhelmingly. But the final bill enacted the new option only for employees of the state’s universities and colleges. Kaloogian is introducing legislation this year to extend pension liberation to all California state workers.

Under Kaloogian’s proposals, workers will have the security and the freedom of personal control over their own money. They won’t have to worry about politicians taking away their benefits or losing their funds. With control over their own money, they can get the high returns available in the private sector, and ultimately enjoy higher retirement benefits.

Moreover, workers will be assured that they will receive their benefit for the years they work. Up until now, California had a traditional defined benefit pension plan. Under such plans, workers are promised a certain benefit in retirement. The government keeps and invests the funds paid in during working years, to fund the promised benefits. But the plans are usually skewed so that long-term, career employees receive high benefits, while those who work fewer years receive little or nothing, despite the payments made into the plan for them. In effect, the funds of the short-term workers, generally ten years or less, are taken for the benefit of longer term workers, generally 20 years or more. As a result, around 70% of state workers generally get nothing out of the retirement plan, and 10-20 percent get the benefit of their funds.

Kaloogian’s proposed plan is a defined contribution plan. The state employer pays the funds directly into each worker’s privately held account, which receives as well any payments from the worker. The worker then picks an investment manager to help plan and carry out the investments in the account. The worker consequently receives the pension payments as he works, and if he leaves, he takes his pension funds with him, regardless of how long he worked.

Moreover, because of the good returns that can be earned on private market investments, all workers will likely benefit from this reform, even long term workers. The private market returns will build up to huge amounts by retirement, probably even paying these long-term workers more in retirement than the old system.

Thanks to Kaloogian’s efforts, this system is now available for college and university workers in California. They are free to choose whether to stay in the old system or adopt the private option. As a result, those who have worked under the old system for many years and believe it will be better for them can stay in it. But those who want freedom and control over their own money can choose the new option.

California should now adopt Kaloogian’s proposal to extend this personal freedom to all state workers. And other states should follow California’s lead and adopt pension liberation for their workers as well.