Pension reform issue in race for governor

Republican candidate for governor Meg Whitman has a proposal on her campaign website to cut state worker pension costs, but her Republican primary opponent, Steve Poizner, and Democrat Jerry Brown do not.

Whether public pensions will become a significant campaign issue is not clear. But on the campaign trail the candidates are getting questions about the pensions, which critics say are “unsustainable” and threaten funding for basic government programs.

Whitman and Poizner both advocate switching most new state hires, except for police and firefighters, to a 401(k)-style individual investment plan, which have replaced monthly pension checks in much of the private sector.

Brown, on the other hand, has said that pensions need to be properly funded, even in times of budget deficits, and that “privatizing” the pensions leaves retirees vulnerable to investment losses when the stock market plunges.

As if pension reform as a polarizing partisan issue needed emphasis, Whitman and Poizner have both pointed out while talking about pensions that they also support “paycheck protection.”

The requirement that public employee unions get written consent from individual members before spending their dues money on political campaigns is opposed by unions, who regard it as an attempt to undermine their power and influence.

Brown, a former governor, signed bills in the late 1970s that allowed state and local government employees to form unions and bargain for labor contracts. Now he needs their campaign funding as he faces Whitman or Poizner, both very wealthy.

Whitman, a former top eBay executive, reportedly has contributed $59 million to her campaign so far. Recent polls show her with a slight lead over Brown and a blowout lead over her primary opponent, Poizner.

The Whitman “plan for rebuilding California” gives a full page to pension reforms. In addition to the 401(k), the retirement age goes from 55 to 65, qualifying for a pension takes more than five years, and “spiking” final pay to boost pensions is curbed.

In later remarks, Whitman exempted police and firefighters, who keep “us safe every day,” from the switch to a 401(k)-style plan. Most worker pension contributions would be increased from 5 to 10 percent of pay. The state contributes about 17 percent.

“California currently has between $60 billion and $100 billion of unfunded state employee retirement liabilities that are owed by the taxpayers,” Whitman said in the plan posted on her website. “This crisis has to be addressed to protect the retirement security of state workers and to make it possible to fix the budget mess in Sacramento.”

Getting immediate budget relief from pension reform could be difficult. Pensions promised current workers are protected under contract law by a series of court decisions and cannot be cut.

So many pension reforms are limited to new hires, often with the creation of a “two-tier” benefit system as proposed by Whitman and Poizner with the switch to a 401(k)-style plan.

The pension changes proposed by Whitman would have to be negotiated with unions. A drive to put a pension reform initiative on the November ballot halted, citing among other things a failure to get signature-gathering funding from Whitman.

The initiative would have given new hires lower monthly pensions and extended the retirement age. A Public Policy Institute of California poll in January found two-thirds of Californians favor switching new hires to 401(k)-style plans.

Although the proposal in Whitman’s plan has the headline “Solve California’s Pension Crisis,” others may not see an urgent need for action.

Most of the money for public pension funds in California comes not from employer-employee contributions but investment earnings — about 75 percent in the case of the giant California Public Employees Retirement System.

Critics have contended that increases in retirement benefits a decade ago, notably the CalPERS-sponsored SB 400 in 1999, are overly generous and have helped drive up state and local government pension costs.

Big investment losses in the stock market crash two years ago will push costs much higher. But not immediately for CalPERS, which adopted a three-year phase in to avoid hitting state and local governments with a rate shock.

The tentative state contribution to CalPERS in the new fiscal year beginning in July is $3.5 billion, up $200 million. The final rate may be slightly higher to increase the funding level, now about 60 percent of the assets needed for future obligations.

That’s well below the 80 percent regarded by many experts as the acceptable minimum and roughly half of the CalPERS surplus a decade ago, when state contributions were cut to $150 million while benefits were increased, some retroactively.

Last year Gov. Schwarzenegger proposed that pensions for new state hires be rolled back to the level before the SB 400 increase a decade ago. But public employee unions did not support the plan.

This week Schwarzenegger announced that a study by graduate students at the Stanford Institute for Economic Policy Research concluded that the state’s three biggest public pension systems have a funding shortfall of more than $500 billion.

“The study reinforces the immediate need to address our staggering pension debt,” the governor said in a news release. CalPERS disagreed with the study, put a response on its website, and invited the authors to discussions about the earnings rate later this year.

Giving the Stanford report requested by Schwarzenegger a bipartisan aura is the faculty advisor for the project, Joe Nation, a former Democratic assemblyman who represented Marin County.

“What is so alarming is there is no way that the state will be able to meet these obligations,” Nation told the Huffington Post. “The odds are so heavily stacked against the state on this one. The question is how we dig out of this.”

Another sign of possible movement in the partisan gridlock came in February when the chief executive of the California Highway Patrol union told a CalPERS forum he is thinking about negotiating lower pension benefits for new hires.

“I have come to the conclusion it’s a very strong likelihood I would be looking out for future employees by negotiating a second-tier retirement system,” said Jon Hamm, the union executive. “The last thing we want to do is leave it to the initiative process.”

There was speculation last month about movement comparable to former President Nixon, whose opposition to communism helped launch his political career, becoming the one who opened U.S. relations with communist China.

It’s just one line about what Jerry Brown might do as governor in a column by Joel Kotkin, author of a new book, “The Next Hundred Million: American in 2050,” on how the nation may evolve.

“But given his history, Brown could still surprise us,” Kotkin wrote. “Stuck with responsibility for a decaying economy and fiscally burdened by voracious public unions, Brown could do a ‘Nixon in China,’ imposing controls on pensions and salaries.”

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 7 Apr 10

3 Responses to “Pension reform issue in race for governor”

  1. Matt Says:

    The Stanford study is complete garbage. It lowers the assumed rate of return by all funds by nearly half to 4.14%—and then, shocking I know—finds that liablitiies have skyrocketed. Even the brains behind the study, David Crane who is the Gov’s point man on attacking pensions, has never gone that low. He advocated that funds lower their assumed rates to 6%.

    An excellent takedown of this bogus study can be found in the “CALPERS responds” section of their website. In addition, commentary on the study’s fatal flaws are pointed out by economist Dean Baker at his blog at the American Prospect.

  2. Disgusted Says:

    CA is sinking fast under the unsustainable burdens placed on it by unrestrained Progressivism. Progressivism is smoke and mirrors, and is meeting its predictable demise. Go ahead – feed, clothe, educate, heal and house the illegals. Unionize everything in sight. Negotiate above market salaries and luxurious benefits packages. It’s your albatross. Bye bye, CA. It was nice knowing you.

  3. thomas o. berge Says:

    If Jerry Brown plans to revise the California pension system, he needs to look no further than his own situation. It seems to me that he is getting multiple pensions; jr. college board, governor, mayor, attorney general (soon) and probably a couple of others. My guess is that if he is elected governor, he will be receiving the most in California pension funds of anyone in California and then go on for another after a term as governor.
    Why can’t all public service in California be under one pension so that double, triple and quadruple dipping is out?
    Tom

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