Pension reform: bargaining table or ballot box?

California’s four largest cities all have public pension problems, but their mayors are split on the solution — two negotiating changes in the existing system, and two planning to ask voters to overhaul the system.

San Francisco Mayor Ed Lee last week announced that months of negotiations had produced a “consensus pension reform” supported by business and much of labor that could save $800 million to $1 billion over the next decade.

Los Angeles Mayor Antonio Villaraigosa announced a pension and retiree health care agreement in March negotiated with 14 of 18 bargaining units in a labor coalition expected to save $400 million during the next five years.

The agreements get most of their savings from requiring employees to pay more toward their pensions and retiree health care. Both are being criticized for not cutting enough from rising retirement costs that divert money from basic government services.

In San Diego and San Jose, already hit by painful budget cuts and layoffs, the mayors apparently have given up on negotiations and are talking about going directly to voters with major changes in their retirement systems.

San Jose Mayor Chuck Reed, saying the city cut 800 jobs last year and may cut 600 more this year, is planning to declare a fiscal emergency and ask voters in November to approve a measure cutting pensions for current and future workers.

Most pension cuts are limited to new hires. A series of court decisions are widely believed to mean that once a public employee in California is “vested” in a pension, it’s a contract that can’t be cut without providing an equal benefit.

Savings from cutting pensions for new hires can take decades. Reed contends that San Jose desperately needs immediate savings. His plan would protect pensions already earned by current workers for past service, but cut their pensions for future work.

The watchdog Little Hoover Commission is among those suggesting a court test of whether the unearned pensions of current workers can be cut, similar to corporate pensions. Reed expects an expensive court battle.

San Diego Mayor Jerry Sanders is leading a coalition that plans to put a measure on the ballot next year that would switch all new city hires, except police, to a 401(k)-style individual investment plan.

An early pension crisis erupted in San Diego, triggered by two deals in 1996 and 2002 that raised pensions and lowered city payments into the pension fund. Lawsuits, a moratorium on city bond sales and painful budget cuts followed.

After voters rejected a sales-tax increase linked to pension reforms last fall, Sanders announced that he would seek a long-term pension solution by switching most new hires to a 401(k)-style plan.

Most private-sector companies that offer retirement plans have switched to 401(k) plans. Employers make a single annual payment, avoiding the long-term pension debt said to have helped push once-mighty firms like General Motors into bankruptcy.

Critics say the 401(k) was intended to be a supplement, not the main retirement plan, and is likely to be inadequate. Among the problems: poor investment choices, high management fees and little time to recover if the market drops shortly before retirement.

The four big cities all have their own independent pension systems. Most of the smaller cities are in the giant California Public Employees Retirement System, the nation’s largest public pension fund.

Whatever the outcome of local struggles, there is a possibility that the final version of pension reform may be imposed statewide by a ballot measure.

Gov. Brown needs at least four Republican votes in the Legislature, two in each house, to get a budget-balancing tax extension. He reportedly is talking to Republicans who want pension reform, a spending limit and business-friendly regulatory reform.

In March, five Republican senators who had been talking to Brown issued a letter proposing a federal-style “hybrid” pension plan, a Little Hoover recommendation that combines a smaller pension with a 401(k)-style plan.

A new state budget proposed by Brown earlier this month contains $1.5 million for a CalPERS study of alternatives for a hybrid plan “for all public employee pension systems in the state of California.”

At a news conference this month, the governor was asked if he would put a pension reform on the ballot along with a spending limit as part of a budget deal.

“We are going to propose pension reform,” Brown said. “That’s more contentious, and I’m told there is going to be a lot of pension reform on next year’s ballot, anyway. So, one way or the other, I think we are going to get whatever pension reform we need.”

The sponsor of a pension reform initiative, former Assemblyman Roger Niello, R-Fair Oaks, reportedly is dropping the measure, leaving open the possibility of filing an amended version for the ballot next year.

“Our urgency is gone,” Niello told the Sacramento Bee last week. “The reason for filing this measure was to have something in line for a November election alongside the measure on taxes, but that appears unlikely to happen now.”

Dan Pellissier, president of California Pension Reform, is working on an initiative that would cap normal employer contributions at 6 percent of pay and give new hires a 401(k) plan.

The employer would be responsible for any previous “unfunded liability,” allowing employer contributions to exceed 6 percent until the debt is paid off. Employees could negotiate increases in their contribution to maintain pension levels.

Pellissier has not yet filed an initiative. He said the campaign is “still trying to wrap up fundraising for the first phase” and talking to potential backers with “thick skin,” not intimidated by public employee unions.

A labor coalition, Californians for Retirement Security, said it picketed a Sacramento luxury auto dealership partly owned by Niello. One of the picket signs: “Pensions not Porsches.”

Pellissier said he thinks defeating other initiatives that may be on the ballot next year (a spending limit and “paycheck protection” making it difficult to use union dues for campaigns) could be a greater priority for unions than hot-polling pension reform.

“The unions may find that they can’t wage nuclear war and spend hundreds of millions of dollars on four different initiatives,” he said. “They may have to pick and choose.”

If the governor and Legislature do not put a pension reform measure on the ballot, or agree on a plan that does not yield enough government savings, that might give a spark to a pension reform initiative, which have failed to attract funding in the past.

In San Francisco, the negotiations led by Mayor Lee were prompted in part by an initiative sponsored by Public Defender Jeff Adachi. He began working on a new plan after voters rejected his Measure B retirement reform last fall.

Adachi reportedly thinks that the mayor’s negotiated reform does not save enough money, an estimated $86 million a year compared to $142 million under the Adachi plan. Unless the mayor’s reform is tightened, Adachi plans to go ahead with his “Son of B.”

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Posted 31 May 11

13 Responses to “Pension reform: bargaining table or ballot box?”

  1. laurence parker Says:

    Dan Pellissier is an idiot.

  2. roger Says:

    Safety classifications are the PROBLEM. Cops retire at 50 with 100K?

  3. Rex The Wonder Dog! Says:

    Dan Pellissier, president of California Pension Reform, is working on an initiative that would cap normal employer contributions at 6 percent of pay and give new hires a 401(k) plan.

    Dan is one smart guy@!!

  4. Rex The Wonder Dog! Says:

    Most pension cuts are limited to new hires. A series of court decisions are widely believed to mean that once a public employee in California is “vested” in a pension, it’s a contract that can’t be cut without providing an equal benefit.

    The pensions are only “vested” for the length of the contract in place when the employee is hired, and works. The pensions can be rolled back once the current contract ends.

    There is an interesting legal question about whether public-sector pension promises are truly binding. In private-sector work, you are entitled to retirement benefits that have already been accrued but not to future benefits that you may get if you stay in your job. A series of California court decisions has supported—without specifically protecting—future benefit gains for public employees. There actually is not a body of precedent for locking in future accrual rates. The 1978 California Supreme Court decision Betts v. Board of Administration suggests the opposite view, saying, “An employee’s vested contractual pension rights may be modified prior to retirement for the purpose of keeping a pension system flexible.”

  5. Richard Rider Says:

    The labor union picket sign “Pensions not Porsches” SHOULD read “Love My Porsche Pension.”

  6. SeeSaw Says:

    The Niello initiative is already DOA in the signature gathering process. I don’t drive a Porsche–I drive a ’99’ Maxima, and it will probably last ten more years before I have to replace it. I do not believe in harrassing anyone at their personal home or their place of business, regardless of their political persuasion. Unfortunately, for Mr. Niello, his business is going to suffer, because of his ill-advised adventure, ttrying to control the lives of others.

  7. SeeSaw Says:

    Yes, Rex, Dan is one smart guy. He is among many, who had a cushy job as one of GAS’s Henchmen, was not a union member, and is now poised to collect his own huge DB CalPERS pension–while he continues to work at whittling away the benefits of future workers–our children and grandchildren.

  8. SeeSaw Says:

    Dream on, Rex. No court in CA is going to allow the taking away of retirement benefits, that have already been contracted. I hope you are being paid for all of your free-lance advice. After all, everyone needs to eat.

  9. RW Says:

    Betts is also the same case where you get the equal benefit discussion.

  10. SeeSaw Says:

    The problems should be solved at the Bargaining Tables–not the ballot box. All principals should have a place at the table. Those who ratify the agreements that

  11. Rex The Wonder Dog! Says:

    The problems should be solved at the Bargaining Tables–not the ballot box.
    The problem was created at the legislative level, not in collective bargainng, and that is where it should be addressed.

    It is a RIDICULOUS claim to try to force thousands of muni’s and contracts to negotiate pension roll backs in thousands of “bargaining” sessions, which we know are all rigged seesaw-just like who gets hired as a $200K cop and FF with just a GED is rigged.

  12. spension Says:

    I thought the guarantees of retiree health care payments were less solid than guarantees of pension funding itself. Even the nature of the health care guarantees is hard to enforce… the medical procedures available today weren’t really foreseen 20 or 30 years ago when people qualified for some kind of medical benefit.

    Seems like retiree health care benefits, particularly for early retirees between 50 and 65 (when Medicare kicks in), might be a place where California could legally cut a lot.

  13. C. Lynn Says:

    Cops in san jose didnt want the perks ,,they wanted pay..but the city came up with the pension perks in lieu of no pay raises for 3 yrs..During the silicon valley gold rush cops couldnt even afford to live in the city..housing sky rocketed with the new young wealth internet crowd…I often got comments like, “you couldn’t pay me enough to do your job!’…now they claim i got something i didnt’ work for..

    Many retired cops don’t and won’t get Social Security or 401Ks because we were in a private retirement fund and didnt qualify…so this is all we got…I make about $3,000 a month and drive and old car and don’t eat out…or have nice pay my bills…my “free” medical cost me $700 a month and last jan. costs doubled…

    i fulfilled my end of the contract and now mayor reed doesnt want to fulfill his…in the ballot going before the voters he is asking to reduce CURRENT retirees benefits….Cops who spent their life and health protecting and serving the citizens of san jose will be redused to eating cat food…there are no wealthy retirees many who are physically disabled. The working cops understand that benefits have to be reduced and they have worked in good faith to reduce their pay and benefits…Mayor Reed doesnt want this. He wants to destroy the Police. He has reduced a dept of 1400 to 1100 and it is going down more as other cities actively recruit the highly qualifed San jose officers.

    But what kind of evil man goes after the ill and elderly..those who are on a fixed income and can’t protect themselves…isn’t it time that those who these men and women gave their lives to protect speak up ,,find out the facts and protect them?

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