US - California Governor Arnold Schwarzenegger has proposed reforms to the state's pension system that would see defined benefit plans phased out for new state employees.
Speaking to a joint session of the Legislature, Schwarzenegger described the state pension system as “another financial train on another track to disaster”.
“California’s pension obligations have risen from US$160m in 2000 to US$2.6bn this year,” he said.
“Another government program out of control, threatening our state. Accordingly, we must do what business has been doing. For new employees, we must move from a defined benefit to a defined contribution system.
“We need a public pension system that is fair to employees and to taxpayers.”
The move – originally touted by assemblyman Keith Richman – would see all new employees from 2007 offered private DC plans similar to the 401(k) plans in place at many private companies.
Under a DC pension, employees are not guaranteed a fixed benefit upon retirement and rather receive payment based on the performance of their investments.
A statement on Schwarzenegger’s official web site described the current system as “archaic and enormously expensive”.
But the proposal has been criticised by public-employee unions who say the plan would cut benefits for government retirees and make government service less attractive for new workers.
California School Employees Association (CSEA) – the nation’s largest classified school employee union – said under a DC plan, employees must manage their own investment portfolio and then “hope for the best in the stock market”.
“We need to wake up before they take away something that we’ve paid for and that we’ve earned,” said Nan Basmer, CSEA retiree unit chair.
California Public Employees Retirement System (CalPERS) has previously voiced strong opposition to the elimination of its DB pension plan.
The move would affect teachers, firefighters, police officers and all other public employees.
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