◼ The system's first pensions were modest, though far from miserly. Than came the enhancements. - Steven Malanga/LA Times via Howard Jarvis Taxpayers Association
The pensions were funded by three sources: contributions from employers (that is, state and local governments); contributions from employees (though some governments opted to cover that expense); and money that the pension fund would gain by investing those contributions. With the 1929 stock market crash in mind, California opted for a cautious investment approach.
"An unsound system," the 1929 commission warned, would be "worse than none." The employees' contributions were fixed, so if investment returns weren't sufficient to fund the promised pensions, the employers' contributions would have to increase to make up the difference.
In the decades since, that cautious approach has been virtually abandoned as public employee unions have taken control of the system. The retirement age has been lowered, benefits have been increased and investments have become far riskier.
The major changes began in the late '60s, during a time of rapidly growing public-sector union power. In 1968, the Legislature added one of the most expensive of all retirement perks — annual cost-of-living adjustments — to CalPERS pensions. Other enhancements followed, including, in 1970, a far more generous pension formula that would allow an employee who worked for 40 years to retire at 60 and collect an annual pension equal to 80% of his salary. If he kept working for another five years, his pension fattened to 90%. In 1983, public safety workers got an even better pension formula, and the age at which they could start collecting was dropped to 55.
Not surprisingly, the costs of the enlarged pensions weighed heavily on California's budget.... read the rest, at the link.
