Pushing for Pension Portability

Public employee ‘401(k)’ proposal

California’s 1.2 million public employees may get a new pension option if San Diego Assemblyman Howard Kaloogian has his way.

The Republican lawmaker’s bill, AB-3252, would create a 401(k)-style defined-contribution plan for public employees. The bill has passed in the Assembly and is now slated for joint Senate-Assembly hearings that are expected to start later this year.

What the bill proposes is to legalize a “portable retirement option” whereby public employees and their government division--be that a city police force, a state agency or a municipal government--can both contribute to the employee’s retirement. The employee’s contributions would be vested--or owned--by the worker from day one, but the employer’s contributions would vest over a period to be decided by the employer.

Allowable employer-employee contribution amounts would also be left to the employer’s discretion, as would the number and type of investment options employees could choose from, says Mike D’Arelli, chief consultant to the Assembly Public Employee Retirement System committee.

How does the “PRO” compare with the 401(k) plans offered in the private sector? Whether to match contributions, the amount of the match and the types of investment options available are all up to the company offering the 401(k), much like the government-employee plan. However, vesting schedules and maximum contribution amounts are set by federal law.

The PRO would also differ from private-sector plans in that public employees would have to choose between it and the state’s existing defined-benefit plan, managed by the California Public Employees’ Retirement System. In the private sector, employees get a defined-benefit plan--meaning the plan pays set monthly benefits at retirement based on years of service and wages--or a defined-contribution plan, where what they get at retirement depends on how much they saved and how well they invested those savings. In a few big companies, workers get both. But rarely are they offered a choice between the two.

Notably, Kaloogian’s bill has been widely opposed by organized labor, which argued that public employees could lose out if they chose the PRO over the existing, more generous defined-benefit plan.

However, D’Arelli counters that 75% of public employees never receive monthly benefits from CalPERS because they leave their jobs and have their contributions refunded to them before retirement. These “refunds of contributions” do not give workers credit for the contributions paid by the employing state agencies, which currently average more than 13% of payroll, D’Arelli says.

In effect, what the new plan would do is let workers determine whether they think they’ll stay in California government service until retirement, and thus possibly be better off with the existing defined-benefit plan. But if they think they’ll switch jobs too soon to cash in on that plan, the defined-contribution plan’s portability would make it the more attractive option.

If you’re among the more than 1 million government workers in Californi, and you’d like to weigh in--expressing either support or disapproval--before the joint committee hearings, you can call the Assembly Public Employees Retirement Committee at (916) 322-4320.

* Financial seminars scheduled for August.

Consumer Credit Counseling Service of Los Angeles is launching its summer schedule of free financial workshops for people who need basic information about buying a home or setting up a family budget.

The group’s half-day “Pre-Purchase Workshop” discusses credit ratings, different types of mortgages, and real estate terms, agents and contracts. It will be held at the CCCS office in Commerce at 9 a.m. Aug. 17. Call (213) 890-9512 to register.

The nonprofit credit counseling service will also hold five budgeting seminars at different Southland locations this month, including Torrance (Aug. 21), Pasadena (Aug. 20), Cerritos (Aug. 21), Commerce (Aug. 24) and Burbank (Aug. 24). To register for one of the free budget seminars, call (213) 724-7300 or (800) 750-CCCS.

Consumer Checklist is a weekly feature that covers a range of pocketbook issues of interest to Californians. To contribute information about new legislation, products, services or surveys, write to Kathy M. Kristof, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053, or e-mail kathy.kristof@latimes.com