Unions say initiative allows future pension cuts

A union coalition contends that a proposed initiative is being falsely portrayed as only a potential cut in pensions for new employees, when in fact it could cut or eliminate pensions earned by current employees for work done in the future.

One of the initiative authors, former San Jose Mayor Chuck Reed, disagrees with the union reading of the proposal. But it’s a key pension reform issue that could lead to another disputed initiative title and summary.

Cutting pensions current workers earn in the future, while protecting amounts already earned, would get the immediate savings sought by those who say “unsustainable” rising pension costs are eating up funds needed for other programs.

Notably, finding a way to reduce pension amounts earned by current workers in the future, as allowed in private-sector pensions, was the top recommendation of a report by the watchdog Little Hoover Commission in 2011.

But like Gov. Brown’s reform enacted a year later, pension cuts are usually limited to new hires, which can take decades to yield significant savings. The pensions of current workers in California and 11 other states are protected by the “California rule.”

Under a series of state court decisions, a main one in 1955, the pension promised on the date of hire is widely believed to become a “vested right,” protected by contract law, that can only be cut if offset by a new benefit of comparable value.

An initiative filed last month by a bipartisan coalition led by Reed and former San Diego City Councilman Carl DeMaio is a state constitutional amendment that would give voters more control over pensions.

Reed

Reed


Voter approval would be needed to give new state and local government employees a pension, allow governments to pay more than half the total cost of new-hire retirement benefits, and give current workers a pension increase.

The dispute is over a part of the initiative that gives voters the right to use the initiative or referendum “to determine the amount of and manner in which compensation and retirement benefits are provided to employees of a government employer.”

Lance Olson, an attorney for public employee unions, said the provision overturns the “California rule” on vested rights and allows cities and other government employers to ask voters to reduce or eliminate pensions earned by current workers in the future.

He said the provision is strengthened by an introductory line, “not withstanding any other provision of this Constitution or any other law,” and there is no language limiting the provision to new employees.

“Voters will now have the right to change the benefits for current employees,” said Olson, who has drafted three statewide ballot measures approved by voters. “There is nothing in there about future or new employees.”

Olson

Olson


Reed, a lawyer, said the initiative clearly applies to current workers by requiring voter approval of pension increases. But he does not think the initiative allows voters to reduce the pensions current workers earn in the future.

“It confirms the voters’ right to approve compensation and benefits,” said Reed. “That’s not the same thing as approving a right to reduce benefits.” Then he added: “You can be sure they won’t be arguing that after this passes.”

Opponents of the initiative, concerned that the authors seem to be “defining” the issue on their terms, can get passionate about whether the initiative is being deliberately misrepresented.

“They come from the school you tell the lie early and tell it often enough, it becomes the truth — and we can’t let that happen,” said Dave Low, chairman of Californians for Retirement Security, a coalition of public employee unions.

Reed said one reason the initiative simply gives voters more control of pensions, rather than impose a complicated reform plan, is that it’s an easy-to-understand proposal voters can read for themselves.

“It’s their standard tactic to attack anybody on a personal level,” Reed said. “I’m used to it. I just say: Read the language. It is what it is. It doesn’t matter what I say.”

The vested rights of current worker pensions is not a new issue for Reed. He dropped an initiative last year after Attorney General Kamala Harris gave it what he said was an “inaccurate and misleading” title and summary, making voter approval unlikely.

One of Reed’s complaints was that the summary incorrectly said the initiative “eliminates” the vested rights of current workers, a portrayal found by a labor polling firm to foster a “visceral negative response” among voters.

The Sacramento Bee reported that a Garin-Hart-Yang poll said: “More important than rejecting the language of this ballot proposal, California voters reject the idea of reducing or eliminating retirement benefits for current public employees.”

Another Reed complaint was that Harris’s summary “singles out a few specific public occupations that are held in high regard by voters.” Dan Pellissier of California Pension Reform made a similar complaint when he dropped an initiative in 2012.

The first sentence of the Reed initiative summary said: “Eliminates constitutional protections for vested pension and retiree healthcare benefits for current public employees, including teachers, nurses, and peace officers, for future work performed.”

Reed filed a lawsuit asking for a rewrite of the summary. A superior court judge, finding the initiative was an attempt to overturn the “California rule” on vested rights, ruled the Harris description was not “false or misleading.”

Local pension reforms led by Reed and DeMaio, approved by voters in June 2012, attempted in different ways to reduce the cost of pensions earned by current workers in the future.

The San Diego measure switched all new hires, except police, to a 401(k)-style plan and called for a five-year freeze on the pay used to calculate pensions, while still allowing pay raises.

The San Jose measure gave current workers the option of 1) paying much more for their pension or 2) switching to a lower pension. A superior court judge upheld most of the measure, but ruled that the option violated the vested rights of current workers.

The city appealed the ruling. Reed and others think the “California rule” is an outdated misreading of contract law, quite different from federal interpretations, that is likely to be overturned if given a hard look by a high court.

The title and summary for the new initiative filed by Reed and others on June 5 is expected to be issued by Harris by Aug. 11. Reed said the initiative campaign, not yet accepting contributions, may do some polling on the new title and summary.

Low said the union coalition, after a decade of focus groups and polling on pension cuts, thinks the initiative would be rejected by voters even if it’s rewritten to remove obvious flaws.

“We are confident that just basically taking away pensions for all new employees is bad enough, from our research, that the voters won’t buy it,” he said.

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Calpensions.com. Posted 13 Jul 15

6 Responses to “Unions say initiative allows future pension cuts”

  1. Dr. Mark H. Shapiro Says:

    The 1% has taken away retirement security from nearly all private sector workers, and they want to extend that to public sector workers as well, as they work to continue transferring wealth from the middle class to the super rich!

  2. Sully Says:

    Some of the recent pensions awarded to public “servants” belong on a segment of Lifestyles of the Rich and Famous. How is the 1% transferring wealth from the public sector to their pockets?
    If anything, lowering pensions will give the government more money to spend on infrastructure, schools, parks, libraries, etc. You know, stuff the taxpayers think they are getting from the taxes they now pay.
    This in turn would actually save the middle class as they would not be continually asked to raise or add taxes as they are now.

  3. John Moore Says:

    “Under a series of state court decisions….the pension promised on the date of hire, is widely believed to be a vested right…” IF, and only if a statute or charter provision manifested the legislative intent to create a vested right. The 1955 case and its 1947 predecessor(Allen v City of Long Beach and Kern v. city of long beach involved a charter provision that the Ca. Supreme court upheld as creating a “vest” pension right(in the Kern decision). There is a legal presumption that statutes and contracts do Not create vested rights. I recommend that you contact LeibertCassidyWhitmore, a public law firm that just recently held a legal seminar entitled Understanding “Vested “and other post-employment benefits, by Attorneys Frances Rogers and Michael Youril, members of that firm.

  4. Tough Love Says:

    By FAR, the only truly “effective” solution is to allow material reductions in the pension accrual rate for the FUTURE Service of all CURRENT workers as ….. “was the top recommendation of a report by the watchdog Little Hoover Commission in 2011.”

    Second to THAT (but FAR “less” effective) would be if an initiative passes requiring that the workers pay 50% of the cost of their pension accruals …. but only if the “COST” of those accruals is NOT measured using the phoney “ultra- optimistic” basis currently in place for PUBLIC Sector pension Plan valuations, but using the FAR more conservative methodology REQUIRED by the US Gov’t of PRIVATE Sector pension Plans.

  5. spension Says:

    Well, there is always Sovereign Default, which spreads the haircut more widely and more shallowly.

    And just keeping salary low, if pensions are kept high.

  6. Jerry Says:

    It is insane that public employees are going into retirement with as much or more that their last paycheck. Our city give 2.7% times years of service times high single year for all employees except police which get 3% in the same equation. They will also get SS on top of all this at 62. BTW their retirement age is only 55. It was give away years ago when CalPERS was going greg and was even allowing cities to not even make pension payments for employees. These large pensions are taking away from services for all. Federal employees only get 1% times years of service. They have a matching 401K like supplement, but not as generous as state and local employees in California. I am giving up on California like many that have moved to NV and other states. The LEFT state is far from the middle these days it is not stainable in the long term.

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