Public pension reform key issue in California race

LOS ANGELES Wed Oct 27, 2010 3:54am EDT

California state worker Curtis Walker looks over retirement plan brochures at the Calpers regional office in Sacramento, California October 21, 2009. REUTERS/Max Whittaker

California state worker Curtis Walker looks over retirement plan brochures at the Calpers regional office in Sacramento, California October 21, 2009.

Credit: Reuters/Max Whittaker

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LOS ANGELES (Reuters) - With decades of public service under his belt, 72-year-old California gubernatorial candidate Jerry Brown joked last month that he is the best pension investment California has ever seen.

"If everybody in state service worked as long as I have, the pension system would be overfunded by 50 percent," Brown quipped in a debate.

But at an estimated half a trillion dollars, California's public pension shortfall is no laughing matter, and Brown quickly moved on to lay out serious solutions.

Long consigned to the periphery of public debate, pension reform is suddenly on center stage in the race between Democrat Brown and Republican Meg Whitman thanks to California's gaping budget hole and public pay scandals.

Reform measures will appear on November 2 ballots in cities including San Francisco and San Jose, while Los Angeles Mayor Antonio Villaraigosa announced a reform plan last week.

"We've seen it building over time," Dave Low, chair of Californians for Health Care and Retirement Security, a group that represents more than 1.5 million public employees, said of the growing political buzz around pension reform. "There has been a somewhat coordinated and relentless sort of drumbeat."

California's pension woes mirror those of dozens of other U.S. states, and its issues pale in comparison to those of Illinois, for instance. But as the nation's largest state, its top pension funds, including the California Public Employees' Retirement System (CalPERS) and California State Teachers' Retirement System (CalSTRS), rank among the world's largest. Those two cover one-tenth of all adults in the state.

A 1999 law that gave state workers generous pensions and pay raises is widely blamed for igniting the pension crisis.


Both Brown and Whitman have pledged to plug the massive funding gaps through higher retirement ages and increased worker contributions, but it could be decades before the benefits of any of the reforms are realized because the proposals would only apply to new hires.

"You are definitely not getting at the crux of the liability, which is the unfunded liability for current employees," said Vladimir Kogan, a doctoral student at the University of California San Diego.

Rejigging the benefits for current employees and retirees is simply not on the table and probably never will be.

"The case law is clear. If someone is hired as a city clerk, or a police officer or a legislative analyst, you name it, and as part of that employment contract they are promised a retirement ... they are guaranteed it," said Joe Nation, a Stanford University professor of public policy. "You can't get to a point in the future and say 'Well gee, we're really sorry, the state is out of money.'"

California's powerful public employee unions have already agreed to some changes. As part of the state budget deal brokered by Governor Arnold Schwarzenegger this month they agreed to higher retirement ages and a rollback of retirement benefits to pre-1999 levels.

That deal, however, covered only about 16 percent of the active membership of CalPERS.

"What Schwarzenegger did was stop the forward movement, but we are still in bad territory," said Marcia Fritz, president of the California Foundation for Fiscal Responsibility, a group that advocates for pension reform.


To reduce the state's pension costs further, Whitman favors adopting a 401k-style retirement plan, known as a defined contribution plan, for new public employees and raising the retirement age to 65 from 55 for workers other than frontline safety workers like police officers and firefighters.

Unions are sure to "fight tooth and nail" against any shift toward a 401k-style plan, according to Kogan, making it highly unlikely to pass through the legislature.

And, according to Nation, keeping separate benefits for public safety employees means ignoring much of the problem.

"If you add up the shortfalls that exist in CalPERS for safety employees versus non-safety employees, safety accounts for about two-thirds of the shortfall," he said. "There is no realistic way to solve the pension problem in California unless everyone has a seat at the table."

Brown, who leads in the polls, favors maintaining the current system but increasing employee contributions, raising retirement ages and putting a cap on benefits.

Some, however, worry that Brown's strong union ties will make widespread reform difficult for him.

"My concern is that Brown would get in the way, which would be very bad for California," Fritz said.

Pension reformers might find their best ally not among elected officials, but rather among the voting public in the form of a ballot initiative.

"I think it would pass," said California Institute of Technology professor Rod Kiewiet. "Most people in the private sector would think 'Well, it's good enough for us.'"

Barring that, however, Kiewiet doesn't see California crashing and burning in the near future. Rather, taxpayers will just get used to seeing fewer and fewer state services.

"Things are real crappy, but people are used to crappy government," Kiewiet said. "What's that Pink Floyd song? 'Hanging on in quiet desperation is the English way.' It's not. It's the California way."

(Reporting by Nichola Groom; Editing by Mary Milliken and Jim Marshall)

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Comments (8)
pjgatorjg wrote:
sounds like a good idea ,but fire /police depts need to raise theirs also because many of them leave and get jobs somewhere else and collect a check fron the city ???? if they can work somewhere else they need to keep working for a little while longer

Oct 27, 2010 9:15am EDT  --  Report as abuse
tmc wrote:
I just can’t believe the gall of this Baby Boomer generation. They have consumed everything left to them by the greatest generation, and have promised themselves the future earnings of the next two generations after them. Things will change soon as these ponzi schemes collapse.

“said Joe Nation, a Stanford University professor of public policy”, Hmmm, got a pension dude?

Oct 27, 2010 9:41am EDT  --  Report as abuse
Publius1791 wrote:
Suddenly, since the collapse of the profit driven U.S. market economy, attention has been turned to the retirement benefits of one segment of the American public. One needs to ask the question, why?

An unfettered Wall Street, using mathematical formula developed to greatly enhance investment opportunity an profit, drove the U.S. and world economies for more than a decade.

During that era, business and investments grew at unprecedented levels – as did profit. Much of this prosperity was connected to the mortgage banking industry, which helped spread this unfathomable wealth among many in business and the private sector.

Derivitives, credit default swaps, mortgage backed securities and other chic forms of money manipulation sent waves of adrenalin throughout the economy. Many were seemingly making more than they ever had before.

While this was occuring, public servants didn’t get profit sharing, matching 401K contributions from thier bosses, quarterly bonuses, team vacations or large yearLy pay boosts. Public employee benefits were slow and steady, as had always been the case.

Now that the high risk – high profit world has stopped providing those who chose to enter it with disproportionate benefits, they target the slow and steady benefits accumulated by public employees, who, by choice, didn’t benifit in a similar fashion, from the market’s psuedo-performance.

Let’s be more realistic – and fair – when we start assessing the source of our budget problems. The fix can’t be one that rewards those who made a consious choice to take their benefits up front at the expense of those who did not.

Oct 27, 2010 1:28pm EDT  --  Report as abuse
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