Thursday, January 7, 2010

CalPERS is strangely silent

Lord knows, CalPERS (my pension fund) has had its share of problems over the past two years, losing more principal than ever before. (Like most asset-speculating pension funds, if it doesn’t make enough money in the market, either employees or employers will have to raise contributions to pay for promised pensions).

Still, it is strangely silent on the Obama administration’s controversial plan (embodied in the Senate bill) to surtax 40% of employer-provided healthcare over a certain amount ($1,900/month for a family of four).

While framed as a charge on “Cadillac” plans for executives, in reality most of the revenue will come from large employee groups that have been able to negotiate generous (tax-free) benefits — i.e., unions. On Monday, the AFL-CIO finally noticed and opposed this provision.

But why CalPERS hasn’t said anything is beyond me. It is the largest pension fund in the country. Two years ago, it was the third-largest health insurance buyer in the country, but vaulted into second place last fall (after the Feds) due to the GM bankruptcy and downsizing.

So if anyone had an interest in the taxation of employee benefits — and the economies of scale to analyze such proposals — it would be CalPERS. Its web page even offers a collection of web pages related to national Health Care Reform.

But nothing appears about how the two-month-old taxation proposals would impact CalPERS members. How many state employees or retirees have plans that exceed the taxable threshold? Wouldn’t the CalPERS members want to know before their representatives vote on the final measure?

According to CalPERS statistics, in 2009 it paid $5.7b in healthcare premiums for 1.3m current or former public employees (both state and local). For state employees, it pays about 85% of the total cost (although only 80% for current employees).

Are many or most CalPERS employees under the “Cadillac” threshold? From the aggregate stats I’ve seen, it’s impossible to say. However, as an organization CalPERS strongly favors health care reform, and majority of its trustees are appointed or elected by union members or Democrat elected officials.

So is CalPERS hiding bad news to support a political agenda? Or is it too inept to figure out this is an important and relevant issue? Either way, it’s failing its fiduciary duty to beneficiaries and employers, who somehow between them would have to pay the incremental cost of any surtax.

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