Thank you for reading! We received a lot of great questions and feedback from our Retirement Debt explainer, an ongoing resource to highlight the fiscal challenges associated with the growing long-term debt of pensions and retiree health care for public employee workers throughout the state.
We understand it’s a politically sensitive topic, and we aim to be a useful resource for the public. Below we answer a handful of the questions you submitted. At the bottom of this Q&A you’ll find three more of your queries. Please vote for the question you would most like us to answer next, and ask others to vote as well.
Where is the salary and retirement compensation package of the state Legislature and associated employees represented in the data?’
Currently, members of Legislature receive $107,242 a year, while the leaders, such as Assembly speaker and Senate president pro tem, receive $123,326 a year.
Californians banned state lawmakers from accruing pension benefits back in 1990 under Proposition 140, a measure that imposed term limits. There is just one current lawmaker, Republican Sen. Jim Nielsen of Gerber, who served prior to that change and thus is grandfathered into the Legislators’ Retirement System.
Lawmakers’ staff, however, do receive health and retirement benefits similar to those of most other state workers. The vesting period for retirement is five years and the retirement age for full benefits varies between 55 and 62, depending on their job classification and when they started working in the Legislature. There are also retiree health benefits.
How does the UC pension plan unfunded liability compare to CalPERS? Ditto for return on investments.
You could say the University of California Retirement Plan is doing better (it’s 85 percent funded) than the state’s main pension system, California Public Employees’ Retirement System (68 percent funded.) The UC retirement system also has a much smaller membership pool of around 248,000, compared to nearly 2 million state and local government workers, beneficiaries and retirees at CalPERS.
As for the return on investments, yes, the UC retirement system is just as volatile as CalPERS. Take a look here at the UC’s rate of return on investments over the last 20 years.
Looks strikingly similar to the zig-zagging returns at CalPERS, doesn’t it?
Like the state, UC has made some retirement benefit changes—but only for new hires.
As part of a budget deal with the state for more money, the UC Board of Regents approved capping pensionable earnings for employees hired after July 1, 2016. The cap ($121,388 for 2018) mirrors a limit on pensionable pay for new state employees under the California Public Employees’ Pension Reform Act. Any pay above that would be placed into a 401(k)-style retirement program, up to an IRS limit. The cap is adjusted each year to track the Consumer Price Index.
Where on earth can a private sector employee retire at 50 with a guaranteed six-figure income for the rest of their lives?
This question strikes at the heart of what’s been described as pension envy.
Under pension enhancements approved back in 1999, California Highway Patrol officers were granted retirement as early as 50 with 90 percent of their peak pay. The formula, known as “3 percent at 50,” which meant collecting 3 percent of the highest salary for each year worked, was expanded to prison guards, police and firefighters across the state. Within the California Public Employees’ Retirement System, 3.5 percent of pension recipients receive $100,000 or more.
Labor representatives say pensions preserve retirement security for middle-class workers. But as fewer private-sector workers have access to pensions, more Americans have fallen into retirement insecurity.
It’s difficult to say how many private companies provide six-figure pensions—and to how many of their workers. But by and large, older Americans are falling short of their retirement income goals.
Alicia Munnell, former economic advisor to President Bill Clinton and now director of the Center for Retirement Research at Boston College, says about half of today’s working-age households are at risk of maintaining their pre-retirement standard of living.
As we noted, there’s been a growing divide between public and private sector workers. A scarce number of private employers now offer traditional pensions that pay a “defined benefit” for life as most shift to defined contribution plans such as 401(k)s.
Just 5 percent of Fortune 500 companies offered a traditional defined benefit plan to new employees in 2015, down from roughly half in 1998, according to professional services company Willis Towers Watson.
The firm cited a variety of reasons for the shift:
“The move away from traditional pensions has been fueled by several factors, including a desire to better manage retirement costs (both level and volatility)—perhaps due to higher compensation and benefit costs elsewhere, especially health care—a more mobile workforce, the simplicity of account-based designs, government and accounting regulations, market trends and global competition.”
Quartz also found a handful of top companies with the biggest pension plans that are still taking new employees.
California is trying to address the retirement gap for private-sector working-class residents by experimenting with the Secure Choice Retirement Savings Program, also called CalSavers. The state-run savings program is aimed at private-sector workers whose employers don’t offer a retirement plan. Once running, California employers with five or more employees will be required to facilitate a payroll deduction into an employee’s retirement account, defaulting to 5 percent of salary, with the option for the worker to opt out or change contributions at any time. State officials say the money will be professionally invested and not create a liability for taxpayers.
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