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California Group Pushes for Pension Reforms

DEC 3, 2009 7:38pm ET
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SAN FRANCISCO — A group of California taxpayer advocates is aiming to turn a bad run of news for public retirement plans into a pension reform movement in the nation’s biggest state.

They’re pushing a ballot measure that would scale back defined-benefit pension plans for new public workers at both the state and local level. They say their plan would save California governments $500 billion over 30 years.

“You’ve got public safety workers retiring with 24 years of service, retired in six-figure pensions for 35 to 40 years. We can’t sustain it,” said Marcia Fritz, president of the California Foundation for Fiscal Responsibility, a group that’s writing the pension reform ballot measure. “It’s not affordable.”

The group, which was founded by former California Assemblyman Keith Richman, has the support of taxpayer groups and has taken the first steps to put the measure before voters in November 2010. It has requested a title and summary from the California attorney general, which are needed before it could petition to put the measure on the ballot.

The group’s leaders met with Republican Gov. Arnold Schwarzenegger last month in hopes of garnering his endorsement. He hasn’t endorsed the effort yet, though he’s been pushing for pension reform for a while. He unsuccessfully tried to force a less far-reaching set of reforms through the Legislature with a budget package in June.

There’s no denying the run of bad news over the past year. Pension fund investment portfolios have withered even faster than the public budgets that would replenish them. Major local governments like Los Angeles, San Diego and San Francisco are facing sharp increases in their pension contributions to make up for investment losses, just as they are cutting public services to taxpayers.

Fitch Ratings cited Los Angeles’ rising pension obligations as it downgraded the state’s biggest city last month.

The California Public Employees’ Retirement System, the state and the nation’s biggest fund with 1.6 million members, lost $56 billion in the fiscal year that ended June 30. Its assets fell 23% to $181 billion from $237 billion. Fund values have rebounded to $197.6 billion at the end of September.

The fund’s chief actuary, Ron Seeling, made waves in August when he called current benefits “unsustainable.”

Even Democrats like Treasurer Bill Lockyer are warning that the state can’t afford to keep offering pensions and retiree health care benefits that increase endlessly.

“It’s impossible for this Legislature to reform the pension system, and if we don’t, we bankrupt the state,” Lockyer told Democratic state lawmakers on Oct. 22. “And I don’t think we can do it here because of who elected you. You’re just captive of the current environment.”

For the record, Lockyer doesn’t think the state is going to go bankrupt and constantly reminds the municipal bond market that the state’s general obligation bonds get paid first, before other obligations. Spokesman Joe DeAnda says the treasurer was trying to make it clear to lawmakers that current benefits, particularly for retiree health care, are not sustainable.

While Lockyer hasn’t endorsed the pension reform referendum, his spokesman said he’s looking at the measure.

Public employees’ groups say they’re willing to talk about cutting back pension abuses, such as pension spiking, whereby public workers compensation is boosted in the final year of work to make pensions larger. But they have pledged to stop the ballot measure at all costs.

“We’re very, very strongly opposed to it,” said David Low, chairman of Californians for Healthcare and Retirement Security, a labor coalition formed to oppose the measure. “It’s draconian. If you look at the numbers in the initiative, it doesn’t just reform pensions. It dramatically cuts pensions for every new public employee.”

Low said the measure would cut police and firefighter pensions by 35%, teachers by 45% and other employees by 50% or more. Fritz said the measure would offer a uniform, “modest, adequate, fair” defined-benefit pension for all state and local government workers in California.

She said the measure’s main benefit would be forcing pension decisions into the open. Fritz said current benefits are negotiated in closed-door collective bargaining sessions, with unions playing local governments off of each other to secure ever-higher pension benefits.

Her group would reduce benefit levels, increase retirement ages, limit pension benefit calculations to base pay alone, and require that any pension sweeteners be put to a public vote. Under the plan, a police officer or firefighter would get retirement benefits equal to 2.3% of pay for every year of service at age 58. That’s down from 3% at age 50.

Fritz admits her group faces an uphill battle, but she says voters are more likely to scale back benefits than elected officials who are beholden to public workers’ unions.

“In some ways, believe it or not, it’s just easier to go to the voters,” she said. “When we show them what people get and the little amount of work they have to do to get it, as far as the number of years, people tend to be very shocked.”

Low said that the $100,000 pensions publicized on conservative Web sites are rare, going to less than 1% of workers, primarily managers. He said the school bus drivers and cafeteria workers he represents are more likely to get pensions of $10,000 to $20,000 a year.

A Field Poll published in October showed some public support for pension reform. Some 60% of California voters supported capping the amount of pension benefits, while 56% favored replacing pensions with 401(k)-like defined contribution plans that have become common in the private sector.

Low said his group’s polling and focus groups show voters won’t go for the sort of deep pension cuts Fritz is proposing.

“It’s a nonstarter,” he said. “If this thing receives any support at all, we will oppose it with everything in our arsenal.”

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