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Calpers suggests California pension ballot measure might be illegal

LOS ANGELES (Reuters) – America’s biggest public pension fund, Calpers, has broken its silence over a controversial California ballot measure that seeks to cut worker pensions by suggesting the move might be illegal.

Anne Stausboll, the chief executive officer of the California Public Employees’ Retirement System, said in a letter the ballot measure could also create problems with the IRS and could create huge additional costs for Calpers, which has assets of more than $300 billion.

Stausboll’s letter to a state assembly member who asked for Calpers’s views, and a copy of which was seen by Reuters, took aim at the ballot measure filed in June by former Democratic San Jose mayor Chuck Reed.

If the ballot measure succeeds, voters would be required to approve pension benefits for new government employees and any increase in benefits to existing workers.

Reed’s ballot initiative, which is being jointly proposed by former Republican San Diego city councilman Carl DeMaio, is being closely watched by pension reformers in other states.

It is part of a national battle between unions and those who want to cut pensions. Pension reformers argue that public pension costs in many parts of the United States are unsustainable and are devouring budgets.

Pension costs were significant factors in the bankruptcies of Detroit, Michigan, and the cities of Stockton and San Bernardino in California.

Stausball wrote the letter dated July 28 to Rob Bonta, a Democratic California assembly member who chairs the California assembly’s Public Employees, Retirement and Social Security committee.

Although Reed’s ballot initiative seeks to cut pensions for new hires, Stausboll said the initiative might also end up cutting benefits for existing workers. She said that could be illegal because it would breach the so-called “California rule”, which states that workers cannot see benefits cut after they are hired.

Stausboll said the initiative “could create issues with the Internal Revenue Service” and threaten Calpers’s tax exempt status. She also said the initiative, if it succeeds, would effectively end death and disability benefits and the closing of defined benefit plans to new workers would upend Calpers’s accounting assumptions, “requiring new investment strategies and actuarial assumptions.”

Reed said of Stausboll’s comments: “Calpers is largely responsible for the trouble we are in now and they are quite happy with the status quo. They are not exactly an impartial party. I’m not surprised they would find fault with our initiative.” (Reporting by Tim Reid; Editing by Grant McCool)

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