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In a significant echo of President Bush’s plan to privatize part of Social Security, Gov. Arnold Schwarzenegger called Wednesday for privatizing two of the nation’s largest public pension systems. The change, if passed during a possible special election later this year, could eventually unravel much of the influence of California’s two massive public pension funds that manage more than $300 billion in assets. With holdings that rival the gross domestic product of many nations, the funds are major proponents for reforms on Wall Street and inside corporate suites, a role that has earned them high-profile opponents in U.S. business circles. “Like the budget itself, our state pension system is another financial train on another track to disaster,” Schwarzenegger said during his State of the State address, without specifically defining his long-term plan. The governor made the declaration hours after an influential Republican legislator and a taxpayers group filed a proposed ballot initiative asking voters to force new state hires into 401(k) plans after 2007. That would be a major change in the nation’s public pension landscape, where an estimated 90 percent of state and local government employees receive traditional benefits. Though several states, including Florida, Ohio and Michigan, have moved toward 401(k) plans for public employees, participation is voluntary and has been lagging since a major stock market correction in 2000. Under the California plan, millions of current public employees could also transfer their retirement benefits into a 401(k) plan. Assemblyman Keith Richman, a Republican, said his proposal is not about curbing the political power of California’s retirement systems in the corporate governance movement, but preventing California’s governments from being overwhelmed by pension costs. “The state government and local governments throughout the state are faced with billions of dollars in unfunded pension liabilities,” Richman said. “This is money not going to health care, education, public safety or infrastructure investment.” California’s major public employee unions charged Wednesday that Richman’s proposal is part of a powerful campaign to privatize the nation’s retirement systems. “It shifts the burden of responsibility from the employer to the employee, and the same arguments being made on behalf of this proposal are being made on behalf of privatizing Social Security at the national level,” said Carroll Wills, a spokesman for the California Professional Firefighters. The Howard Jarvis Taxpayers Association filed petitions Wednesday with the state attorney general’s office, starting a process requiring them to gather more than 600,000 voter signatures to put their case to the public. If there is no special election in November, voters would decide the issue in June 2006. Richman introduced a similar measure in the state Legislature last month, but it risked almost certain defeat by majority Democrats. He said cities and counties in California have issued nearly $12 billion in pension bonds across the past decade to pay their retirement obligations. Officials at the 1.4 million-member California Public Employees Retirement System and 715,000-member California State Teachers Retirement System say it’s a “myth” that pension costs are exploding and blame stock market losses caused by an economic downturn and corporate collapses and scandals during 2001 and 2002. A rising stock market in 2004 has significantly boosted their assets. Lobbying groups for California’s 477 cities and 58 counties said they have taken no formal position on the idea. Copyright 2005 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.

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