CA Pension Decision Not Supportive of Long-term Funding Success

Randy Diamond, CIO Magazine, is reporting that the California Appeals Court has ruled that the use of unused vacation days to enhance retirement benefits is not a “right”, but it would not be “equitable” to take it away. The decision has likely paved the way to a review by the California Supreme Court.

The mission at KCS is to preserve and protect defined benefit plans. However, we are not supportive of provisions, such as the use of unused vacation days, to “spike” benefits that have not been actuarially funded. These practices are destabilizing, and subject the entire plan and all of the plan’s participants to greater risk.

We seek to keep DB plans as the core of one’s retirement portfolio, but not at any cost.  We need to fund these critically important benefits based on one’s salary, and we prefer that it be based on the last 3-5 years, at a minimum.  DB plans function best when benefits are actuarially funded based on anticipated growth in an individuals lifetime earnings, a formula, which cannot possibly factor in the spiking of these benefits through the inclusion of overtime, sick pay, vacation time, and hazard duty pay earned in one’s final year of employment.

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