Most state workers are paying more toward their pensions this year, cutting the annual state payment to CalPERS by about $400 million. But there is a major exception — the 44,000 state workers at the 23 campuses of California State University.
The non-safety CSU employees continue to contribute 5 percent of their pay toward pensions, even though they are in a large CalPERS “miscellaneous” plan where the pension bite from other workers increased from 5 to 8 percent under a new contract.
Another part of the new labor contract negotiated by non-CSU employees, which gives new hires a lower pension expected to yield long-term state savings, was imposed on CSU earlier this year through legislation, without bargaining.
What’s going on here?
The sprawling CSU system, while lacking the independence given to the University of California, does not operate under the same civil service rules as most state government agencies.
Some of the customary labor practices also are different. Administration and labor representatives both said that pensions have never been an issue in CSU labor contract negotiations.
“We don’t bargain that,” said Mike Uhlenkamp, a CSU spokesman. He said CSU follows the appropriate government code sections enacted by the Legislature.
“It’s never been an issue,” said Pat Gantt, president of the CSU Employees Union. “The first impact on retirement we every saw was the ‘two-tier’ for new employees in January.”
The contract negotiated last fall for other workers in the CalPERS miscellaneous plan by the 95,000-member SEIU Local 1000 puts new hires in a separate “tier” of pension benefits.
The formula for the new hires is 2 percent of final pay for each year served at age 60, down from the more generous “2 at 55” formula for workers hired before the new contract took effect.
Once a worker is vested in a pension, the general view of court rulings is that the pension cannot be cut unless replaced by an equal benefit. So pension cuts are usually limited to new hires not yet working under a contract.
Apparently, when legislation enacting the agreement bargained by SEIU Local 1000 went into effect for new hires going into the CalPERS miscellaneous plan, the lower pension formula extended to new hires at CSU.
Current CSU workers are in 13 bargaining units represented by a half dozen unions. An attempt to take more of their paycheck to pay for pensions would be a change in their original contract.
“It would have to be negotiated,” said Gantt, whose CSU Employees Union is SEIU Local 2579.
This week as the California Public Employees Retirement System set a state payment of $3.5 billion for the new fiscal year beginning July 1, the board was told the rate would have been $3.9 billion without increased worker contributions.
Some of the new contracts negotiated last year allowed CalPERS in December to cut the state payment in the current fiscal year by $200 million, dropping to $3.7 billion. More contracts cut the rate for the new fiscal year $169.8 million, down to $3.5 billion.
The 21 bargaining units that agreed to raise worker pension contributions cut a wide range of deals, taking an additional 2 to 5 percent from paychecks, in new contracts negotiated in a wide range of ways.
The Highway Patrol union, which negotiated a widely adopted “3 at 50” formula a dozen years ago said by critics to be “unsustainable,” set a new trend last year with an early agreement to increase worker contributions and cut benefits for new hires.
The largest state worker union, SEIU Local 1000, was prodded into a new contract by former Gov. Arnold Schwarzenegger in a state budget deadlock that went a record 100 days into the new fiscal year.
A half dozen bargaining units, including the large prison guard union, refused to settle with the Schwarzenegger administration, holding out until able to work out a more favorable contract with the new administration of Gov. Jerry Brown.
Along with CSU employees, other state workers continuing to make an unchanged pension contribution of 5 percent of pay work for the Legislature and the courts.
When bargaining units raise worker pension contributions, the contribution from the employer can be lowered, producing the savings for the state.
In a quirk, CSU also gets a lower employer contribution because it’s in the large miscellaneous plan where others increased worker contributions. The state Department of Finance asked CalPERS last November to set a separate CSU rate.
A CalPERS committee chaired by George Diehr, a CSU San Marcos professor, this week decided to wait until directed to set a separate CSU rate by legislation, which is said to be in a budget companion bill.
Diehr said he thinks CSU retirement costs may be a state budget “pass through” that do not affect funding for other CSU programs
“I don’t think we have all the facts to know that if we were to set a separate rate it would in fact be equitable,” he said. “It might be inequitable.”
The CalPERS chief actuary, Alan Milligan, said using the miscellaneous employer rate gives CSU “a bit of a break.”
His report showed that a separate CSU employer rate would be 20.2 percent of pay, well above the 17.4 percent miscellaneous rate. Increasing the CSU miscellaneous worker rate to 8 percent would yield about $64 million.
Under the revised state budget proposed by Brown this week, spending on state worker retirement is about 6 percent of the $88.8 billion deficit-ridden general fund. Here’s the breakdown from the state Department of Finance:
CalPERS $3.6 billion (general fund $2.1 billion), California State Teachers Retirement System $1.3 billion (all gf), retiree health $1.6 billion (gf $1.5 billion), Social Security $632 million (gf $297 million) and Medicare $218 million (gf $102 million).
When critics talk about the need for cost-cutting pension reforms, they often point to the “unfunded liability,” the projected cost of retirement benefits promised current workers in the future for which no money has been set aside.
The revised budget lists $181 billion in “unfunded liabilities” for the state retirement system: retiree health $59.9 billion, state workers $48.6 billion, teachers $56 billion, UC employees $12.9 billion and judges $3.6 billion.
What the governor calls the “wall of debt,” nearly $35 billion still owed for borrowing in past state budgets, includes $500 million for “deferred payments to CalPERS.”
This is one debt that seems clearly manageable.
It’s a $524 million quarterly state payment to CalPERS that is delayed a day from June 30 to July 1, a “gimmick” that pushes spending into the next fiscal year to help balance the current budget.
Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at https://calpensions.com/ Posted 20 May 11