Posted on the CAPT website
www.psychtechs.net
October 16, 2007

Alternative retirement plan picks state workers' pocketbooks

A condensation of an August 30, 2007, article by Capitol Weekly’s Ken Mandler.

In 2004, the state embarked on an endeavor to take $2.6 billion from its employees over 20 years. The name of the program is the Alternative Retirement Program, and all new state employees must participate during their first two years on the job. Be careful: There are some problems and pitfalls here.

Simply put, the program provides that new state employees, during their first two years of employment, have their employee retirement contributions placed in a holding account. Two years after the end of this two-year period (it can get confusing), in the 48th month of employment, the employee is provided with a three-month window to take the money and place it under their management in their own retirement account (IRA, 457 or 401(k)); or apply the money for two years of CalPERS pension credit.

In essence, the employee has an option on whether their first two years of employment should count toward their state retirement.

For long-term state employees, the Alternative Retirement Program has no practical impact on your lucrative state pension benefits.

However, the plan has a variety of pitfalls, some bureaucratic and some just plain human.

For example, how many people are going to realize the significance of a couple of CalPERS letters two years after they are part of the CalPERS system? How will employees respond to the choice -- money in their hands now or two years of CalPERS credit and no money now? How will the Department of Personnel Administration, the administrators of this program, phrase the question? After all, the Department of Personnel Administration has its own agenda. The department states on its website that “DPA represents the governor and presents the state’s management position in negotiations.” Clearly, the DPA knows it is in the state’s interest to encourage state employees to take the money and thereby forfeit two years of CalPERS retirement credit.

The Administration told the Legislature that the program would save $2.6 billion -- but this occurs only if all employees opt out of the system.

The Alternative Retirement Program provides that no employer payments are made for the new employees during the first two years of their employment. In essence, the “savings” comes from the 17- percent employer payment not required.

The vast majority of participants leave prior to retirement, thereby leaving behind their earned amounts (i.e., employer contributions) for you to partake of -- at no cost to you. That’s the real magic of the state’s pension system. A contribution of $3,268, when left in CalPERS, grows to a value of $103,433 within 20 years. But this magic only happens if you leave your money in CalPERS.

When that letter comes in your 48th month, you want to do the right thing. You want to check that box that buys you two years of service credit for the amount already saved -- no cash is required. Let the state take the other fellow’s money -- not yours.