California has emerged as a key battleground state on the issue of pension overhaul, with Gov. Arnold Schwarzenegger pushing private accounts for state employees and lower government contributions to public pension plans that provide defined benefits.
Supporters of the current system say the governor's proposal would end income guarantees for retirees. They started to organize this week, with 20 labor groups forming a coalition and 15 more expected to join.
Schwarzenegger's proposed pension changes are part of a state budget that would shave half a billion dollars from the state's contribution to pension funds for teachers and other public employees. Backing his efforts are conservative activists who also support Bush administration plans to privatize Social Security.
Bush and Schwarzenegger both see public pensions as too costly. The president says Social Security will go bust and the governor says public pensions will strain his state's troubled finances.
Schwarzenegger's state budget plan banks on savings of $469 million from scrapping state contributions to Calstrs, the state teachers' pension fund, and savings of $296 million from revising contributions to Calpers, the state employees' retirement system. He has proposed allowing state workers to opt out of Calpers, a $177 billion pension fund.
Bush and Schwarzenegger view private accounts as key to pension changes. But some analysts caution that individuals may not manage investment risks as well as professional portfolio managers like those at Calpers, who currently invest public pension funds.
Bush aims to add private accounts to the 70-year-old Social Security program. Schwarzenegger already has unveiled a plan to place new state employees into defined contribution retirement plans similar to private-sector 401(k) plans. California's state employees are currently in defined-benefit systems paying fixed amounts to retirees.
Public employee unions will combat Schwarzenegger because members bank on defined benefits in retirement to make up for modest pay. The powerful California Labor Federation and the 140,000-member California State Employees Association have vowed to defeat Schwarzenegger's proposal.
"They see this as a bread and butter issue," said James Hawley, codirector of the Center for the Study of Fiduciary Capitalism at Saint Mary's College of California.
The average annual income in 1993 for individuals over age 50 from public pensions and annuities was $20,167, versus $11,059 in the private sector, according to the Employee Benefit Research Institute.
Defined benefits make-up for modest pay. If a teacher or other public employee is not given a defined plan on retirement, I think it is possible they will be forced to live their retirement years in poverty. Last year, the average wage increased 2.64%. Over the same period, numerous necessities' prices (transportation, gas, medical care) increased at a faster rate, eating into the middle class' already meager earnings.
There is no way a person in this situation can save for retirement using a 401K styled plan.
I think framing the issue along these lines, something like "Teachers will live in poverty" is a good frame for the issue.
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