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June 2012 Edition

The Case for Statewide Reform of County Pension Funds

The Time to Act is NOW!

I. Government Pension Organizations in California

California has 9 statewide systems, 21 county systems, 36 city systems, and 65 other systems most of which are for special districts. The big statewide defined benefit pension systems are CalPERS for state and most local government employees in the state other than teachers (often referred to as the largest pension fund in the world), CalSTRS for teachers, the University of California system, the Legislators system, and the Judges system.

From the State Controller Office's Public Retirement Systems Annual Report for 6/30/10:

There are 85 systems classified as "defined benefit". In a defined benefit system, benefits are predetermined by a formula, based in part on an employee's salary and/or length of service. The employer's contributions are determined on the basis of benefits to be paid.

The other 46 systems are classified as "defined contribution". In a defined contribution system, the rate of contribution by the employer, and sometimes by the employee, is fixed. Therefore, the employee's pension benefit will be whatever amount the accumulated contributions plus investment earnings will provide at retirement.

Proportion of Total Pension Liabilities by Type of Government Pension Fund in California

Counties have no defined contribution systems at this time. Three of the statewide systems and 4 city systems are defined contribution.

This shows the Total Pension Liability of defined benefit government Pension Funds as reported in Actuarial Valuations. This is how much money was supposed to be in these Pension Funds as of the end of fiscal year 2010. The total for all defined benefit public Pension Funds in the state was $725 Billion.

About three-fourths of state and local government Total Pension Liability is held by the big statewide systems and not quite a quarter is the responsibility of local government systems.

The 21 County systems are responsible for 17% of all public defined benefit pensions owed in California about $125 billion, a considerable amount.

Close Simpler Local Organizations v. Distant Very Complex Statewide Organizations

Retirement Systems sponsored by local governments are much easier for citizens to understand and affect than the big statewide systems.

CalPERS, CalSTRS - the big systems are huge - they entail almost unimaginable amounts of money far beyond the experience of just about everyone. They meet far away, their governing bodies and officials are unknown locally, local governments are put into pools with dozens of other local governments so that its much harder to connect the actions of local government officials to the condition of their Pension Fund. It's very difficult to organize effective citizen reform organizations related to such large geographically diverse entities.

In contrast the members of County and City Retirement Boards live in the local community - many more locals know them. Their meetings are close as are their offices. There is a much more direct relationship between the actions of local government officials and the financial condition of their Pension Funds. It's much easier to organize citizen reform groups that focus on County or City Pension Funds.

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