Archive for September, 2011

California among few states bargaining pensions

September 26, 2011

In pension-troubled Rhode Island the state auditor general is recommending the end of something that makes California unusual among states: allowing labor unions to bargain for pension and retiree health benefits.

Bargaining is blamed by critics for a “bidding war” that drove local government pensions in California to unaffordable levels. New benchmarks were set when CalPERS sponsored legislation, SB 400 in 1999, giving state workers a major pension increase.

A nonpartisan watchdog, the Little Hoover Commission, said SB 400 started “a chain reaction of retroactive pension increases granted to public employees up and down the state” and is regarded as “pivotal” in the pension crisis.

Last week the auditor general of Rhode Island, where the receiver in bankrupt Central Falls is said to be cutting the pensions of some retirees by 50 percent, proposed a series of changes to prevent more city bankruptcies in the nation’s smallest state.

The fourth of 12 recommendations by auditor Dennis Hoyle is that cities “seek to remove pensions and retiree health benefit provisions from collective bargaining” and instead set them through “local ordinances or charter provisions.”

State worker pensions and retiree health in Rhode Island are set by law, not bargained. Benefits are more uniform and visible, said the auditor, and there is less tendency to negotiate current savings by offering more retiree benefits in the future.

An end to bargaining is not among the pension reforms recommended by Little Hoover in February or by the final report of a governor’s commission on public employee retirement in January 2008.

Collective bargaining by public employee unions for wages and working conditions, not just pensions, moved into the national spotlight earlier this year in Wisconsin.

A new Republican governor, Scott Walker, obtained legislation limiting bargaining and union dues collection, despite demonstrations, a quorum-busting walkout by Democratic legislators, lawsuits and recall elections.

About 30 states allow collective bargaining by public employees. But only a few allow bargaining for retirement benefits — notably California, Vermont and New Jersey in a survey by the National Association of State Retirement Administrators in 1998.

Pension bargaining is rare enough that a paper taking a broad national look at the impact of unions on public pension benefits assumes that the pension benefits are legislated, not bargained.

“The generosity of the pension formula does not appear to differ between states with high levels of unionization and those with low levels,” said a paper issued by the Center for Retirement Research at Boston College in July. “This result is most likely explained by the fact that pensions are legislated, not bargained …”

The best-known provision of the landmark SB 400 sponsored by the California Public Employees Retirement System gave the Highway Patrol a 50 percent pension increase.

A pension based on 2 percent of final pay for each year served at age 50 was increased to 3 percent at 50. The increase was bargained by the Highway Patrol union before being enacted by the legislation.

Critics say “3 at 50” spread as local governments were asked during contract bargaining to match competing employers. The pension formula in SB 400 became the standard for many urban police and firefighters.

Now after a recession and stock market crash took a big bite out of pension fund investments, government pension costs are going up to cover the losses — particularly in local government, where most of the budget is spent on personnel.

One of the issues is whether unions will agree to enough “give backs” in bargaining to reduce pension costs, which are growing while funding for other programs and services is being cut.

The Highway Patrol led the way among state worker unions with higher employee payments and lower pensions for new hires. Other unions made similar agreements, trimming the state CalPERS payment by $400 million to $3.5 million this year.

A spokesman for a union coalition said “dozens and dozens of concessionary packages” are being negotiated in local government. But he estimated that 80 percent of the local pension plans are adequately funded.

“Despite the fact that we are going through the greatest economic downturn since the Great Depression most of the pension funds are still actuarially sound,” said Dave Low, chairman of Californians for Retirement Security.

He pointed to a report last February by a major credit rating firm, Fitch, that said a funded ratio of 70 percent or above is considered to be adequate and a funded ratio of less than 60 percent is weak.

Low said the view that SB 400 touched off a bidding war in local government contract negotiations seems to be “anecdotal” rather than based on before-and-after statistics.

“I have a difficult time swallowing the argument until someone actually shows me some facts,” he said.

Some local government officials are bypassing bargaining and going to voters with ballot measures. Last November voters in six cities and one county approved a wide range of pension proposals.

Late last month more than 70 percent of voters in San Luis Obispo approved two pension measures. One eliminated a city charter requirement for a public vote on terminating a CalPERS contract or reducing pension benefits through bargaining.

The other measure eliminated binding arbitration for police and firefighters, approved by voters a decade ago. Voters in San Jose and Vallejo approved eliminating or restricting binding arbitration last year.

Only about 20 California cities are said to have binding arbitration. When bargaining deadlocks, a neutral arbitrator picks either the management or labor proposal with no modifications.

Opponents say arbitrators tend to pick the proposal of labor, which uses arbitration as a threat in bargaining. Backers say the selection process ensures that arbitrators are neutral and that binding arbitration is favored by private-sector employers.

In November San Francisco voters will choose between a cost-cutting pension measure backed by Mayor Ed Lee and labor and one backed by Public Defender Jeff Adachi, whose previous pension proposal was rejected by voters last fall.

The Modesto City Council placed three pension advisory measures on the November ballot: Should new hires be switched to a 401(k) plan? Should pensions be based on one year’s pay rather than a three-year average to prevent “spiking” or boosting? Should retirement age be increased to mirror the private sector?

Proposals for a statewide pension reform initiative next year are fading, apparently still lacking funding. San Diego Councilman Carl DeMaio is scrambling to get the signatures needed to place a 401(k) plan for new city hires on the June ballot.

San Jose Mayor Chuck Reed has talked about placing a pension reform measure on the local ballot next year. He thinks reducing the pensions current workers will earn in the future is necessary, which could trigger an important court test if approved by voters.

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 26 Sep 11


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