Defined Benefit Plans Are the Cornerstone of Retirement Security
April 1, 2015
In a recent Q and A with Jared Meyer, former San Diego City Council member Carl DeMaio referred to public sector pension systems like CalPERS as "Ponzi schemes." We have a problem with that.
As a brief primer, CalPERS provides retirement and health benefits to 1.7 million members and their beneficiaries, with 575,000 retirees receiving monthly retirement benefits totaling $13 billion annually which help fuel the California economy. The average CalPERS pension is a modest $2,784 per month.
CalPERS is a defined benefit pension plan, with the benefits negotiated by employees and their employers or set by legislation, not by CalPERS. CalPERS' job is to pay what's been negotiated, and we do that with a diversified investment portfolio of nearly $300 billion.
Defined benefit plans have proven time and again to be the cornerstone of retirement security and they are extraordinarily cost-effective, delivering retirement income at 50 percent of the cost of defined contribution accounts like 401(k)s. For employees that means a predictable income and peace of mind in retirement. For employers, they are important for recruiting and retaining their workforces.
Every benefit dollar paid to a CalPERS retiree comes from three sources. Sixty-five cents comes from CalPERS investment earnings. Employers contribute 22 cents. And CalPERS members contribute the remaining 13 cents. The CalPERS Pension Fund earned an 18.4 percent return on investments for the 12 months that ended June 30, 2014, the fourth double-digit return the Fund has earned in the last five years.
The retirement benefits CalPERS pays every month also have a significant impact on the California economy. They help drive new business activity, creating jobs for our residents, and generating tax receipts for our cities and counties.
One brief snapshot for the fiscal year ending June 30, 2012: The total economic revenue generated by the flow of CalPERS pension benefits in California was more than $30.4 billion. Every taxpayer dollar contributed to CalPERS generated $10.85 in economic activity, fueled the creation of 113,664 jobs throughout the state and generated $800 million in sales and property taxes.
In the "scheme" of things Mr. DeMaio should be thanking CalPERS for its focus on long-term sustainability and fiscal prudence. We will continue to do everything we can to ensure the long-term sustainability of the system.