The Luxury of a Worry Free Retirement
Don't worry be happy...
[by Jon Coupal] 4/18/06

Governor wannabe Phil Angelides has a plan to boost state infrastructure construction by tapping the California Public Employees' Retirement System (CalPERS) and the California State Teachers' Retirement System (CalSTRS) for a $15 billion "investment."

Analysts have already weighed in on the wisdom of investing retirement money in a program that may not pay maximum returns, pointing out that taxpayers are obligated to make up any shortfalls in pension programs.

However, of special interest is the reaction of public employees who depend on the solvency of these funds. When it comes to the conduct of their pension fund managers, those working for the government seem to have adopted the "What, me worry?" motto of Mad Magazine's famous buck-toothed mascot, Alfred E. Newman. This is because whether or not CalPERS or CalSTRS succeeds or fails is of no consequence as far as they are concerned. Public employees are sitting pretty -- their defined benefit pensions are contractually guaranteed. They will get their pensions no matter what.

This "don't worry, be happy" position of California's public employees contrasts sharply with the millions of Californians who do not have the luxury of a defined benefit plan. For support in their "golden" years, many of these depend on investments they have made in 401k's or in IRAs and, of course, our teetering Social Security system.

And, with respect to their private investments, what does a typical Californian without a pension do when receiving a quarterly or annual report from a financial institution into which they have placed their hard earned retirement savings? That's right, they scour it for information. Is this fund being well managed? Or is that certificate of deposit paying the highest interest rate available? Every investor wants to know. They are spurred on to take an intense interest by the knowledge that the soundness of the investment decisions they make now will determine their comfort level during ten, twenty, thirty or more years of retirement -- or if they will even be able to retire at all.

If, as has been proposed by Governor Schwarzenegger and Assemblyman Keith Richman, the state were to institute a different system for new hires that would provide a defined contribution to each worker's pension plan, these government employees would exhibit a totally different attitude. Like private sector workers, they would take prudent interest in how their retirement money is being managed.

Assuming government workers chose to put their taxpayer supplied retirement money into CalPERS or CalSTRS, these public workers would be demanding accountability from these institutions. Incentivizing public employees to monitor the wisdom of investment decisions by PERS would be a very good thing. It would reconnect them to their own retirement funds in which they have -- literally -- a vested interest. No longer would taxpayer groups and fiscal conservatives be the only eyes on the PERS Board. It would also deter politicians from pushing for "socially acceptable" investments as a means to further their own careers in public office. Public employees would demand that decisions be based on the bottom line.

And it is not just investments that pursue a questionable "social agenda" that would be deterred. Troubling stories of investment decisions based on political connections have arisen with respect to Steve Westly, a candidate for governor, who directed $5 million to a venture capital fund managed by major Democrat contributors.

It is time to clean up PERS and STRS, and nothing would do that more quickly than shifting California's public employee retirement plans from defined benefit to defined contribution. The fact that this would also buy taxpayers absolute certainty in future costs is just icing on the cake. CRO

copyright 2006 Howard Jarvis Taxpayers association

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