It’s the usual partisan warfare as a deeply polarized Legislature deals with public pensions, an issue inflamed by rising costs and alarming forecasts during a time of deep government budget cuts and eroding private-sector retirement benefits.
Democrats and their public employee union allies have big legislative majorities and the governorship. Republicans have the leverage of two GOP votes needed in each house for a budget-balancing tax extension and the threat of an initiative.
Unions say the pension problem can be solved by the recovery of pension fund investments from an unusually deep recession and by labor contract negotiations, which often raise worker payments toward their pensions and lower benefits for new hires.
Republicans and other critics say investment gains and bargaining givebacks do not close the funding gap and are easily reversible. An overhaul is needed, they say, or retirement costs will cut deeply into police, fire, education and other government services.
Among the proposals: switching new hires to a 401(k)-style investment plan, a “hybrid” combining smaller pensions and a 401(k), pension caps, employer contribution caps, later retirement ages and no longer allowing unions to bargain for pension benefits.
Other proposals would cut pension inflation adjustments, extend Social Security to police and teachers, who only receive pensions, and restructure labor-dominated pension boards to give taxpayers more representation and provide financial expertise.
And there are proposals to begin dealing with a less-publicized problem: a huge unfunded debt for retiree health care promised current workers, estimated three years ago to be at least $118 billion for state and local government over the next 30 years.
One of the problems facing cost-cutting reformers is a series of California court decisions widely believed to mean that once a government employee is “vested” in a pension, the benefits cannot be cut without providing an equal benefit.
So, for example, an employee vested at age 30 continues to earn the same pension for the rest of the career with the employer, even if future labor contracts cut pensions for new hires to ease budget strains.
An employee nearing retirement can receive a retroactive pension increase dating back decades to the hiring date, even though no employer-employee contributions paid for the bigger pension, the state Supreme Court apparently ruled last month.
The watchdog Little Hoover Commission, warning in February that pension costs could “crush” government, recommended reducing pensions earned by current workers for future service, while protecting pension benefits already earned.
The remaining private-sector pensions (most companies have switched to 401(k) plans) have the flexibility to cut pensions not yet earned. The Hoover Commission acknowledged that a similar cut in public pensions likely would trigger a court test.
The three large state retirement systems, which all cut employer contributions and increased pensions a decade ago when a booming stock market gave them a surplus, face forecasts of rising pension costs in the future.
The slowly evolving situations of the California Public Employees Retirement System, the California State Teachers Retirement System and the University of California Retirement Plan vary.
Most of the urgency and proposals for drastic reform are in local government, where personnel costs are a large part of the total budget.
The city of Vallejo declared bankruptcy three years ago, citing soaring labor costs with pensions and retiree health at the top of the debt list. San Diego Mayor Jerry Sanders is pushing a local initiative to switch all new hires except police to 401(k) plans.
San Jose Mayor Chuck Reed, declaring a fiscal emergency last week, proposed a ballot measure to extend retirement ages, cap city pension contributions for new hires and, as Little Hoover recommended, cut pensions not yet earned by current workers.
In the Legislature, Democrats have several bills defending the current system.
One requires mediation (AB 506) and other conditions before a city can declare bankruptcy. Another (AB 646) requires mediation and fact-finding before an employer can impose a final offer in stalled contract talks.
In times of surplus, excess employer contributions could not be cut (AB 1320) as happened a decade ago but would go into a reserve. Before pension plans are eliminated, as under the San Diego proposal, workers (AB 1248) would have to be in Social Security.
Other Democratic bills respond to scandals that have tarnished the reputation of public pensions.
Bills aimed at making it more difficult to boost or “spike” pensions by manipulating final pay (AB 340 and SB 27) were sparked by a report in the Contra Costa Times of two fire chiefs retiring at ages 50 and 51 with pensions far above their final pay.
A ban on pension hikes for individuals not in a group (AB 344) and a ban on billing previous employers for pensions based on big salaries at later employers (AB 1184) react to Los Angeles Times reports on corruption in the city of Bell.
A $50 gift limit for CalPERS and CalSTRS board members and staff (SB 439) and a lengthy cooling-off period after leaving before they can lobby the pension funds (AB 873) come from a pay-to-play investment scandal at CalPERS.
A Republican senator, Mimi Walters of Laguna Niguel, received national media attention earlier this year for a bill (SB 526) intending to switch new state hires to a 401(k)-style plan. The bill was later amended into an anti-spiking measure.
Walters has a 10-bill pension reform package that includes (SB 520) a hybrid combining a less generous pension and a 401(k) plan. The bills were not heard in committee.
A spokeswoman said Walters asked for a delay and is seeking two committee hearings, one for pensions and another for retiree health care, to “dedicate more time to finding a comprehensive solution.” No hearings have been set.
After a sometimes heated discussion earlier this month, an Assembly committee rejected another Republican bill that received national media attention, AB 961 by Assemblyman Allan Mansoor prohibiting collective bargaining for pension benefits.
The president of a pension reform group, Marcia Fritz of the California Foundation for Fiscal Responsibility, said negotiating pension benefits behind closed doors that pass debt to future generations is “tantamount to fiscal child abuse.”
One of the union representatives who complained about the remark, Terry Brennand of the SEIU state council, said, “I’m a little astounded by the hyperbole and vitriol in this presentation. Union bosses and child abusers?”
A Republican anti-spiking bill opposed by unions (AB 875) failed to pass the committee. Action on a Republican bill prohibiting pensions for elected officials (AB 738), opposed by unions and others, was delayed until next year.
Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at http://calpensions.com/ Posted 16 May 11