Arnold: cut retirement benefits for new hires

Gov. Arnold Schwarzenegger, calling current benefits “unsustainable,” proposed a sweeping reduction in pension and retiree health benefits for new state workers.

His plan would give new employees the same pensions received by state workers before a major benefit increase a decade ago, saving the state an estimated $74 billion over the next three decades.
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The new state workers would have to work 25 years, instead of 20, before receiving maximum retiree health coverage that would pay 85 percent of the average HMO premium, instead of the current 100 percent, saving the state $19 billion.

The proposal by the Republican governor over the weekend is one of a series of “structural reforms” he is seeking as he negotiates with the Democratic-controlled Legislature to close a $24 billion state budget gap.

“Retirement promises made to state employees amounting to hundreds of billions of dollars of unfunded debt threaten to consume growing portions of the state general fund and squeeze out funding for higher education, welfare, environmental protection and more programs,” said a two-page outline of the governor’s proposal.

The plan would not help close the current budget gap. But the “give back” in employee benefits seems almost certain to draw strong opposition from public employee unions allied with Democratic legislators.

“State employees have already given up more than a month’s pay per year to help solve the state’s budget crisis,” said Doug Crooks, a spokesman for SEIU Local 1000, the largest state worker union representing 95,000 employees.

“To rob them of their pensions that they have worked so hard to achieve is excessive and unfairly singles them out,” he said.

Crooks said the governor is requiring state workers to take two “furlough” days off without pay each month and is threatening to order a third. Over a year, he said, 24 furlough days is the equivalent of all the work days in a typical month.

The governor’s proposal would give new state hires the pension formula that was in effect before SB 400 in 1999 increased benefits. It would be a return to a lower “tier” of benefits pushed through earlier in that decade by former Republican Gov. Pete Wilson.

SB 400 was sponsored by the labor-friendly California Public Employees Retirement System as Wilson was replaced by Gray Davis, who became the first Democratic governor in 16 years.

The Schwarzenegger administration, and other critics, point out that CalPERS told the Legislature that the SB 400 benefit increase would not require an increase in state pension contributions.

“Everyone was assured that returns from the investment would more than cover the costs of the increased benefits, which were applied retroactively,” Dave Gilb, Personnel Administration director, said in a letter to CalPERS earlier this month.

“Look what happened instead,” Gilb wrote. “Our costs have increased over five times since then, from $464 million in 1999 to $3.3 billion in 2009-10.”

Much of the increase is due to big swings in investment earnings as the stock market rises and falls. State contributions to CalPERS, $1.2 billion in 1997-98, fell to $157 million in 2000-01 as the market boomed. (See chart, page 7)

In the wake of a stock market crash last fall that devastated pension funds, CalPERS has approved a “smoothing” plan to ease rate increases for its 2,000 local government pension systems.

Schwarzenegger opposes a similar plan for the state, saying it shifts costs to future generations. (See Calpensions 18 Jun 09: “CalPERS softens hit on local governments”)

The governor cited the big increase in state contributions to CalPERS, from $157 million to $2.5 billion, when he briefly backed a proposal in 2005 to shift new state and local government hires to a 401(k)-style individual investment retirement plan.

Pensions were not included in Schwarzenegger’s four “Year of Reform” initiatives rejected by voters in November 2005: state spending, redistricting, teacher tenure and union dues.

Now the governor thinks he has another chance to push for changes in pensions and a number of other areas as he moves toward the end of his final term in office next year

“At the same time we cannot make this budget just about cuts,” Schwarzenegger is quoted as saying in the outline of his pension proposal. “There are also great opportunities for structural reform … So let’s use this crisis as an opportunity.”

Pensions. The Schwarzenegger proposal would return most state workers (the “miscellaneous” category) back to the “2 percent at 60” formula. The pension is 2 percent of final compensation for each year served. So, for example, a worker retiring after 30 years at age 60 would receive 60 percent of final pay.

The current SB 400 formula for miscellaneous workers is “2 percent at 55,” giving a worker retiring at age 55 after 30 years a pension of 60 percent of final pay.

The governor’s proposal would change the formula for state firefighters and the Highway Patrol from 3 percent at age 50 to 3 percent at 55. He would repeal a bill, SB 183 in 2002, that expanded the higher-benefit safety category to include milk inspectors and billboard inspectors and others.

In addition, employee contributions to their pensions would be increased by removing a “floor” that exempts the first part of the salary, $513 for miscellaneous workers, from the employee contribution.

In the miscellaneous category, workers contribute 5 percent of their salary and the state contribution is 16.9 percent of salary. Firefighters and the Highway Patrol contribute 8 percent with a state contribution, respectively, of 25.8 percent and 28.4 percent.

The governor’s proposal to remove the “floor” is expected to save the state $65 million a year and a total of $2 billion through 2040.

Retiree health care. The changes proposed by the governor are said to be a response to recommendations made last year by the governor’s Public Employee Post Employment Benefits Commission chaired by Gerald Parsky.

The state is expected to pay about $1.36 billion for retiree health care this fiscal year. But no money has been set aside to pay for care promised current workers when they retire.

The “unfunded liability” is estimated to be $48 billion over the next 30 years. The governor’s proposal would cut spending on retiree health care to reduce the unfunded liability in several ways.

Currently, state retirees can choose a basic health plan that covers all costs except co-payments when they use services, usually $15 for an office visit or $5 for generic prescription drugs. Most active workers pay more for health coverage.

The outline of the governor’s proposal says the state’s contribution to health care for a retiree would be changed “from 100 percent of the average HMO premium to match the contribution required from the state in the case of active employees (generally 85 percent of premium).”

The change is expected to trim $19 billion from the 30-year unfunded liability. The outline says that requiring an additional five years of work to be eligible for maximum retiree health care would trim a whopping $49 billion.

Workers currently become eligible for 50 percent of retiree health coverage after 10 years and, in 5 percent annual increments, 100 percent after 20 years. The proposal would require 25 years to receive the new maximum benefit.

A proposal to save money through competitive bids would give the state “the authority to purchase health care from a provider other than CalPERS, giving the state instead of CalPERS the ability to determine plan design and levels of premiums.”

The savings are expected to be $180 million in the new fiscal year that begins this week, increasing next year to $323 million with an annual growth rate of 3 percent.

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 30 Jun 09

28 Responses to “Arnold: cut retirement benefits for new hires”

  1. Jeff Says:

    Pay government worker money in the present for retirement costs rather than promises/obligations from taxpayers in the future. That makes possible known and transparent employee costs where the politicians that make the decisions have to get the money from taxpayers in the present on a pay as you go basis. Any other system is rife with moral hazard.

  2. Linda Sutton Says:

    FIRST let’s CUT the pension that this governor is scheduled to get. How much is it? When does it kick in? Does it include any other benefits like healthcare? Expenses? And what about all of his highly paid staffers (many more than Gray Davis, I understand)? Are they in line for bonuses and high pensions for their short “service?”

    It would be great if there were more transparency about what the pensions ARE for ALL of our electeds and how much time they are in office to be vested.

    And what about all of these out-of-office politicians that Arnold has appointed to the mega-pay commissions and boards? We need to go through those with a fine tooth comb and discard ALL except the most essential…if the commission or board is really needed in the first place (and some are).

    For those DEMOCRATS who supported the recall, please note what you have wrought!! For those DEMOCRATS who sat on your hands or endorsed Arnold over Phil, I hope you’ve learned a lesson that will not be forgotten. We have SO MANY ISSUES that have been in gridlock as a result of your actions (or inactions). ////

  3. Sage Says:

    Bet it is no accident thid SEIU guy’s name is Crooks.

  4. Drew Says:

    Interesting, isn’t it, that the decisive ‘reforms’ are always aimed at working middle class people instead of large business groups. Big Oil and Big Tobacco are getting off scott-free in this budget scenario, but the Gov and his Republican troops are taking dead-aim at people who work for a living (their own people, no less) This entire political environment is a complete travesty. An enlightened 21st century society would be looking at ways of providing secure benefit programs to ALL of it’s citizens; not taking them away. Europe has been right for the last 60+ years; the USA is for the birds.

  5. Kathy Says:

    Why doesn’t CalPERS offer a single level of pension benefits for Misc and Public Safety, making this benefit a level playing field for all agencies as it related to the ability to recruit and retain qualified staff. Eliminating having to enhance your what you offer as a pension benefit just because your comparable agencies have done so.

    Then, if an individual wants a higher level of pension benefit above that offered by CalPERS basic plans, then the individual can pay for the additional benefit.

  6. Wendy Says:

    Why is it that people think as gov. workers they should be entitled to so many things that workers in the private sector do not receive? Plus, it is the private sector workers who also pay taxes to pay for these bloated pensions and salaries of gov. workers, many of whom make far far more doing the same type of work as a private sector employee.

  7. beebs Says:

    My company vested everyone in their old retirement plan, and froze the pensions with no more contributions. Retiree healthcare was ended also.

    Can’t California do this? End pensions. End retirement healthcare. Let state employees fund it themselves.

  8. A Worker Bee Says:

    “The Schwarzenegger administration, and other critics, point out that CalPERS told the Legislature that the SB 400 benefit increase would not require an increase in state pension contributions.”

    It is true that that is what they say. It is also true that it is a flat-out lie. You do a dis-service by repeating it without correction.

    I invite everyone to look at the SB 400 bill analysis. CalPERS clearly stated the additional cost was about $600 million a year going forward.

  9. ER Doctor Says:

    The pensions for fireman are ridiculous. If the public ever new what they spent their taxes on there would be an uproar. Ninety percent of the day is spent watching DVDs on leather lounge sofas, cooking, working out, or cleaning the truck. The reason it’s so difficult to become a fireman is that’s it’s a fraternity that pays over $100K/ yr and than gives you a $100K/yr pension after 20 years. Not to mention you can go and get another job after you retire (many before age 50) and earn double income –are you kidding me? Am I jealous- hell yes, and even more envious. It is probably one of the best jobs you can have. If I knew this before I went medical school I would definitely have been a fireman. Most ER doctors, outside of Kaiser, pay for their own pensions and for their own health insurance. No early retirement for us. Not to mention we’re forced to take care of patients regardless of whether they have insurance, that means we don’t get paid for about half the patients we see, which will definitely get worse once Arnold cuts medi-cal benefits to thousands of people. Sorry, just needed to vent.

  10. Dedicated Firefighter Says:

    Hey ER DOC,
    Maybe you could send your rant and rave to these families. These are the Firefighter Deaths for 2008 alone. I will forward your message to the LODD (line of duty deaths) in my department, over a dozen in my short career of only 8 years, death by trauma, cancer etc….. Widows and orphans all across the USA. Careful what you say, you may need one of us someday. I hope you feel better since you had a chance to vent.

    http://www.usfa.dhs.gov/applications/ffmem/ffmem_results.jsp?p_mn_status=1&p_last_name=&p_first_name=&p_fd_city=&p_fd_state_code=&p_death_year=2008

  11. I appreciate firemen but...... Says:

    In defense of ER Doc, Firefightters are overpaid. Please dont confuse that with unappreciated. How can you justify paying people $100k a year for a job that doesnt require much education? I know quite a few firefighters and they always make comments like “I became a fireman because I didnt want to work that hard”. They never will admit it publicly but in private they admit the job isnt that dangerous. I think it is fair to understand that other occupations have hazards as well. Yet, for some reason firefighters are able to justify exorbitant salaries and benefits because of their exposure to hazards. Even though these hazards are infrequent. The proof that they are overpaid is simple. It is the competition to get the job. What private industry job has a 1000 to 1 ratio of applicants to job openings? People want the job because it pays well, it is prestigious and it is not that difficult.

    Firefighters are not the only overpaid government employees. They are just the most clearly overpaid due to my stated argument over competitiveness of the job.

    Just to reiterate……I appreciate firefighters but I think their pay is out of hand.

  12. Concerned Firefighter Mike Says:

    For those of you who don’t know there is education needed. What about your Paramedic License do you think they just hand those out?? The minimium qualifications are low but the odds of that uneducated applicant getting hired are slim to none. The low standards are due to our affirmative action laws. We have to make the applicant pool equal to all races and genders. Also there is alot of Training that goes on in our day. Not to mention the physical aspects of the job. How about getting up all hours of the night and still having to think on your feet.
    As far as our retirement. Yes we have 3% at 50 but I pay 25% of my salary to retirement. How would u like to pay that?? As far as the Line of Duty Deaths just google it. Then see if you still feel the same.
    Not everybody can do the job, the blood, children hurt not to mention the smell of burned flesh. Then to come home and not bring it into your house. Not to mention all the exposure to Hepatitus, TB, HIV, H1N1, or just a plain old cold/flu. Lastly did You know the life expectancy is 10 years less of the average person… There is so much more that I do not have time nor am willing to waste more time on.
    Don’t hate Fireman just because physically and mentally you can’t do the job!!!
    Maybe the ER Doc should have become a Firefighter.. But he was probably not man enough and liked the fact that he could work in a controlled enviroment versus an uncontrolled, chaotic enviroment.
    Hope u like,
    Mike

  13. Concerned Firefighter Mike Says:

    Sorry I also wanted to add..
    Fireman are an insurance plan, Hopefully you will never need us but when and if you do how could you put a price on what it is we do. You
    B?$ch and moan about our wages and benefits until that one day that you use us and we save your house, your pet or even bring your mother or father back to life. But those of you who have not had to use us just hate us!! Go visit your local Fire Station and go on a ride along. Maybe it will change your mind. If not I’m sorry that you feel the way you do. I hope I did not offend anybody with my comments. It’s just how I feel that’s all.
    Thanks for your time,
    Mike

  14. Concerned Firefighter Mike Says:

    The Doctor says
    $100K/yr pension after 20 years. Not to mention you can go and get another job after you retire (many before age 50) and earn double income .”
    Not too sure where he’s getting his information you need to be 50 to get the whole 3%. I think the Doc is making the story a little more than it really is!!
    The Doc says
    “Not to mention we’re forced to take care of patients regardless of whether they have insurance, that means we don’t get paid for about half the patients we see, which will definitely get worse once Arnold cuts medi-cal benefits to thousands of people.”
    Join the club bud!! That’s about 80% of all our calls especially the homeless that are cold at 0300AM in the morning.
    It’s not our fault you did not do your homework on the carreer you chose. Guess your not that smart after all huh??
    Sorry just needed to vent!
    Mike again

  15. ed ray Says:

    It is about time the public became aware of the biggest folly in government; Fire Service. Firefighter pay and benefits are the biggest waste of taxpayer dollars. As noted above 890% of their time is spent watching the Tv and other duties (cleanning uo, cooking , etc.) If you question the effectivness of their efforts just see how useless they are next time a big brush fire breaks out. The fire end swhen th eweather changes or it runs out of fuel. The type of work they do could be done by common labors with minimal training. Paramedic service are best done by private services at half the cost. They always resort to the “burning baby” card to tug on our emotions. The truth is the service levels can be delivered at half the cost. Unfortunatley until the elected officials grow the body parts necessary to admit this waste of tax dollars this sham will continue.

  16. BASH75 Says:

    LINDA SUTTON IS AN IDIOT.
    ARNOLD WORKS FOR FREE. HE COLLECTS NO SALARY AND NEEDS NO PENSION.
    UNIONS ARE KILLING AMERICA.
    ARNOLD IS RIGHT, WE CAN’T SUSTAIN THE CURRENT PENSIONS. WE ARE LIVING LONGER, THUS WE WILL NEED TO WORK LONGER TO PAY FOR OUR EXTENDED EXISTENCE. I’LL TAKE THAT TRADE OFF EVERY TIME.

  17. BASH75 Says:

    CALIFORNIA IS THE ONLY STATE I KNOW OF THAT FIREFIGHTERS MAKE THE OBSURD AMOUNT OF MONEY. MAINLY BECAUSE OF OVERTIME AND DOUBLE TIME. IN TEXAS THE FIRE FIGHTER WHO MAKES 115K A YEAR HERE, MAKES 55K. FOR THE SAME DAMN JOB. I AM AN ER NURSE, AND IT IS NOT ALWAYS A CONTROLLED ENVIRONMENT. HERE’S A FACT FOR THE FIREFIGHTER, THE MOST DANGEROUS JOB IN AMERICA IS THE GUY WHO FIXES CELL PHONE TOWERS.

  18. Joe Mama Says:

    Ed Ray I’m sorry that u feel that way. I hope you never need to use the Fire/EMS service. All it is is an insurance policy. Hopefully you will never nedd it. I guess knowledge is power and obviousely you don’t have much knowledge in this arena. We should be builing each other up not trying to break each other down.
    What is it that you do Ed. I’m sure we could pick your profession apart too!! You probly can’t do the job that’s why you are critizing it so much.

  19. firebird Says:

    Firefighting is not as hazardous as jobs in construction, forestry, mining, farming, transportation, and even outdoor landscaping according to the Bureau of Labor Statistics on death rates per 1,000 workers. And many firefighters are able to work 2 jobs because they only work 10 days per month. Many work under the table on construction jobs. And when they get hurt in these 2nd jobs they file workers comp claims with their fire department! We should have laws to prevent firefighters from working any jobs in their off hours at occupations the Bureau of Labor Statistics deems hazardous. Heck, firefighters should get advance permission to work ANY jobs other than firefighting.

  20. I appreciate firemen but...... Says:

    First of all, to Mike…..dont compare being a firefighter to an ER Doc. That is a joke. I know firefighters and they are the farthest thing from Emergency Room Doctors.

    Contra Costa Times just published a review of the 400+ people collecting $100k/year in retirement. I believe 7 of the top 8 are making over $200k/year in retirement and are from the fire service.

    This is absurd. Giving people with some education (paramedic) a retirement that exceeds most people’s incomes. The fire service has done a good job selling the public as a necessity. I am not so sure that are as necessary as the police. Personally, I would like to see the fire/ems service privatized. AMR is a private company and they do a great job.

    To “Joe Mama”: I really hope you are not a firefighter. Your grammar, spelling and sentence structure is horrendous. If you are a fireman, than your post is proof that intellect is not a necessity for the position.

  21. Why R U people so Jealous Says:

    It’s too bad that you all feel that way about firefighters. You should just be greatful you have not needed their services yet. I can speak from experience.. My experiences with the Fire Service and Emergency Services have been nothing short of spectactular. Firefighters do have a shorter life after retirement and do contribute a great deal of their salary to their retirement. Why is it we all have to criticize and make people look bad so we can make ourselves look better. It is a shame

  22. joe Says:

    I agree that firefighters are way over paid for what they do, (which is almost nothing) how much does that gallon of ice cream that takes a fire engine and four guys to get at the grocery end up costing the tax payers? (i see this all the time). Why can’t fire men pick up trash on the roadways while they are waiting to go be a hero. They could fill every one of these positions for $18.00 per hour (except the top ones). I work construction (do you know how many people die every year) in my business. Get over yourselves golden boys, and be thankful every day that you have the deal that you have.

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  24. EMK Says:

    It’s too bad that you all feel that way about firefighters. You should just be greatful you have not needed their services yet. I can speak from experience.. My experiences with the Fire Service and Emergency Services have been nothing short of spectactular.

  25. Joe Pensioner Says:

    Joe, your full a crap and a clear example of some of the mentality that some people have out there. Thank God there are Police, Firefighters, Caltrans & Prison Guards to do these dangerous jobs that most people won’t or can not do. About 99.9% of the people are glad they’re there and ready to go and don’t mind paying taxes for this protection. Let’s see what kind of shape your in, Joe. You probably can’t run to the end of the block. Just be thankful there are Public Servants out there protecting your dumb ass. They deserve a lot more for putting their lives on the line for 30+ years for us.

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