California Bill Would Allow State Workers to Opt Out of CalPERS

A California state legislator has proposed a bill that would allow state employees to opt out of the California Public Employees Retirement System (CalPERS) and choose a defined contribution plan in which their contributions would be fully matched by the state, at the same level the state now provides to the defined benefit plan.

The bill would create a new optional defined contribution plan for new state employees who are eligible to become members of CalPERS, and who choose not to make contributions into the defined benefit program. It would require state employees to participate in an alternate system to contribute the same percent of compensation as similarly situated employees who contribute to the defined pension program, according the text of the bill.

It would also authorize an employee in the defined contribution program after five years to stay in the program or switch to the defined benefit plan, if the balance in the employee’s defined contribution account equals or exceeds the amount that would have been accrued to the employee under the defined benefit plan.

The bill was introduced by State Sen. Steve Glazer (D-Orinda), who touted the portability of defined contribution plans, saying 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.”

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Under current law, employees who leave state service before retirement can only receive refunds of their own contributions, plus interest.

“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.”

Glazer also said the change could make the state’s pension obligations more predictable because it would no longer be at risk of an unfunded liability for employees who choose the new option. He cited CalPERS’ current unfunded liability of approximately $140 billion, and said the system has only about 68% of the money needed to fulfill all of its obligations.

Glazer modeled his proposal is after a University of California plan that has been offered to new employees since 2016. According to the university, more than one-third of eligible employees hired since 2016 have chosen the new self-directed plan over the traditional pension system.

Tags: California, CalPERS, Pension, Sen. Steve Glazer

After nearly a year of assuring its citizens that a pension reform was imminent, Brazil has pulled the plug on its controversial bill, citing the recent military actions in Rio de Janeiro and a lack of Congressional support.

While the first vote on the reforms was set to take place in the Congressional Lower House this week, a wave of violent crime in Rio de Janeiro linked to drug gangs caused President Michel Temer to call for military intervention. In response, Senate leader Enunicio Oliviera said Monday that the pension reform and any other constitutional amendment-related measures would be blocked while this policy is in effect, as it is part of the constitutional rules.

The intervention will occur until Temer’s last day in office on December 31.

In addition, political affairs minister Carlos Marun agreed Monday that the controversial bill is indeed stuck in its tracks. Marun told reporters that the bill never had enough traction to begin with.

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“We don’t have the votes. I couldn’t guarantee we would have the votes by the end of February,” he said.

Although polls show that he is one of the most unpopular presidents in recent history, Temer pushed his pension reform package as the centerpiece of his agenda. The reform looked to raise the country’s retirement and social security collection ages as a means to cut its budget.

Upon dropping its pursuit of the reforms, Reuters reports that Moody’s Investors Service sent a note to clients Tuesday where it dubbed Temer’s decision a “credit negative” for Brazil.

“While we already expected that a major pension reform was unlikely, ditching off the plans to pursue its approval is a credit-negative development that will severely restrict the authorities’ ability to comply with the government spending ceiling in the coming years,” the note said.

Marun noted that if Congress did not again take up the pension predicament, the reform would become a key topic in this year’s elections.

Tags: Brazil, Carlos Marun, Michel Temer, Military Intervention, Pension