US - The Californian Legislature is to consider an amendment to the state's Constitution that would disallow any employee hired by a public agency after July 1, 2007, from enrolling in a defined benefit (DB) plan.
Amendment 5, proposed by Assembly Member Keith Richman, new public employees would be put into the same type of 401(k) pension system – defined contribution (DC) plans - offered to most private sector employees.
The measure would permit an active member of a DB plan to switch to the new DC plan offered by their employer during a six month period beginning July 1, 2007.
Government employers would be allowed to establish their own DC plans, and outsource administration of the plans and investment of plan assets to private sector financial companies. In addition, government employers’ contribution to employee retirement accounts could range from zero to a yet to be determined maximum amount of total payroll with voters being allowed to raise the maximum employer contribution by a 2/3 vote.
Richman said the move would “restore some fiscal responsibility to the pension costs that are ravaging government agency budgets throughout California”.
“ACA 5 will stop state government and local public agencies from making expensive promises they can’t keep and will restore accountability to public pensions,” he stated.
“Retirement costs for state employees alone have grown from US$200m in 2000 to US$2.6bn this year, heading to US$3.5bn in 2009. While current employees and retirees will see no change in their retirement plans, new public employees will be offered the same type of plan offered to most private sector employees and currently offered to state workers without an employer match.”
The US$114bn California State Teachers’ Retirement System said the Board would take a position on the amendment in the “near future”.
The fund said the funding status of the CalSTRS DB plan and many other public retirement systems in California had dropped in recent years but its benefit recipients were not affected.
“The Teachers’ Retirement Board is seeking a long-term solution that is sensitive to the state’s budget difficulties,” the fund said.
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