In 1996, then Assemblyman Howard Kaloogian introduced a bill that would give public employees the option of moving from the current "defined benefit" pension system to a "defined contribution" system. The major difference between the two system is that under a defined benefit system, the contributions are made to a fund, managed by someone else (in Californias case, a union elected board, with a couple of Governor appointees and appointees by the Controller and Treasurer, both union controlled Democrats), and the payment that is made to the retiree is defined by the state. A defined contribution system is a 401(k) system. It allows the investments to be controlled by the employee, and the benefit the employee receives depends on how smart the employee was in making the investment.
Kaloogians bill passed the Republican controlled Assembly at the time, and ended up in the Democrat controlled Public Employee Retirement Committee, of which I was the Vice Chair. A whole host of government employee union lobbyists (a group I used to refer to as the "Red Brigade") showed up in the committee to oppose the bill. What was most interesting about the discussion is that several of the lobbyists contended that CalPers would do a better job of "managing" the retirement money than the employee would.
Then we get todays news. CalPers and CalSTRS (the teacher retirement system) have lost a combined $100 billion (yes that is billion with a B) in the last year. Thanks guys for doing such a good job for your members. Of course they don’t have to worry about it, the taxpayers, under the defined benefit program, eat the losses. And, of course, in a related story, one of the members of the CalPers board received over $50 million in fees for directing CalPers investments to certain projects (the story called it fees, it is really a criminal bribe). So, the taxpayers are forced to pick up the tab, while the board picks up the fees for themselves.
What is worse is that the unions have figured out that this huge chunk of money they control is a great way to control politics. CalPers invests in a number of Fortune 500 companies, and its influence in the market can drive the stock price of a publicly held company down very fast, if that company doesn’t play political ball with the union bosses that control the CalPers fund. Rumors in the Capitol were rampant that these bosses threatened any company that donated to the initiative in 2005 that would have eliminated forced union dues at the state level with a massive sell off of their stock. It was intended to tell those who ran the companies that if they didn’t toe the union line, they would lose millions of dollars of equity value. In other words, these union bosses were willing to sacrifice their investments to ensure that their political power stayed intact.
That is only the least of their problems. CalPers and CalSTRS have invested in the programs of individuals who were politically favored over the years. Where do you think Phil Angelides made his money, and got the financing for his real estate projects, projects which, by the way, cost the taxpayers millions? Having $200 billion at their disposal, these union bosses have played fast and loose with the money, advancing their political agenda, because they know the taxpayers will pay the bill for any losses caused by their decision.
One of the most important things the state can do to reform the pension system is to move from defined benefit to defined contribution. It will break the power of the unions, and protect taxpayers. State employees will benefit as well. They will have the freedom to pursue investments that will maximize their income in retirement and create wealth for their heirs, since the money will belong to the employee, and not to the union bosses. It is a win for the taxpayer, a win for the employee, and a win for state government. The only ones who will lose are the union bosses, which is why the change won’t happen as long as the Democrats are in charge in Sacramento. Sacramento Democrats are the lapdogs for the union bosses, and don’t care a wit about state employees or the taxpayers. We will be stuck with the corruption and abuse of employee money by union bosses as long as the system remains in its current state. It is time to change it, by changing the Legislature.