LOS ANGELES — Democratic San Jose Mayor Chuck Reed, and four other California city mayors, filed papers Tuesday with the California Attorney General’s office in the first step toward qualifying a statewide public pension reform measure for the November 2014 ballot.

The Pension Reform Act of 2014 proposes an amendment to the state constitution that would allow state and local government employers to cut pension benefits for current employees, while protecting benefits already earned.

“Skyrocketing retirement costs are crowding out funding for essential public services and pushing cities, counties and other government agencies closer to insolvency,” Reed said.

The measure’s other sponsors include Democratic mayors Pat Morris of bankrupt San Bernardino, Miguel Pulido of Santa Ana and Bill Kampe of Pacific Grove as well as Republican Mayor Tom Tait of Anaheim.

Reed contends that the section of the state constitution that deals with retirement benefits is so vague that it sets the stage for union leaders to interpret it to mean that employee benefits are vested at the levels agreed to in employees’ contracts signed the first day of hiring.

“Unions have taken the interpretation of the vested benefits doctrine to the extreme,” Reed said.

Some constitutional law authorities say that the current doctrine allows for negotiations with unions, but none of the unions are willing to negotiate on pensions, Reed said.

According to Reed, worker’s unions are interpreting the doctrine so that benefits agreed to on the first day of the employee’s contract, including how much they are contributing to their pension and retirement health care, can be increased, but the amounts can never be lowered. It means a 70-year or 80-year contract that can never be changed, he said.

“That is not what I think the vested rights doctrine says, but that is what the unions say,” Reed said. “Theoretically we can negotiate with the unions, but they always say that retirement benefits are a vested right.”

Unwillingness of unions to bend on this issue has resulted in litigation all over the state between cities and employee unions, he said. The biggest lawsuits brought by unions have been over pension reforms adopted in San Jose and San Diego, both of which adopted changes in April 2012 that attempted to increase contributions by current employees and cut benefits for future employees.

San Jose’s ballot measure would have given employees the option of receiving a lower benefit package or contribute another 16% toward their retirement benefits.

“That is still a defined benefit and a generous retirement package, but it is a lot less expensive for us,” he said, adding it would save the city billions of dollars over a long period of time.

San Jose followed the state in implementing an increase to employee pension benefits for public safety workers that ratcheted benefits up to 90 cents of every dollar paid in wages. In San Jose, public safety workers receive 97 cents on the dollar while other city employees receive more than 50 cents for each dollar in salary, he said.

The initiative would interpret vested benefits to be those that have already been earned and accrued. Those would remain untouchable, according to the San Jose mayor. The legislation would not impact retired workers.

Even in bankruptcies, as we have seen in San Bernardino, Stockton and Vallejo, he said, there has been no willingness to negotiate on benefits for current employees.

Union leaders see the proposed initiative as an attack on the security of state employees’ pension benefits.

Dave Low, chairman of the union coalition Californians for Retirement Security, which represents 1.6 million government employees, said the proposed measure “breaks the promise of a secure retirement made to millions of Californians.”

Low contends “it will allow public employers to unilaterally cut the retirement benefits promised to current teachers, firefighters, police officers and school bus drivers -- a promise upheld by the Supreme Court.”

According to the union coalition, the financial backers of the measure are the same people who proposed the defeated Proposition 32, which would have made it harder for unions to collect members’ dues. The union claimed that a right-wing Texas political foundation provided the funding for the campaign behind that ballot measure.

The California Public Employees’ Retirement System has also come out against the initiative.

“The courts have clearly established that California public employees have a vested right to the level of benefits promised to them when they are first employed,” according to Calpers officials. “This prevents not only a reduction in the benefits that have already been earned, but it also prevents a reduction in the benefits that an employee has been promised for their future service.”

Calpers officials said the pension fund is bound by its fiduciary duty to deliver the promised pension benefits according to the United States and California constitutions, statutory law and case law.

The initiative’s proponents will have 150 days after the AG’s office approves language for the measure to get 807,650 signers, or 8% of the registered voters who cast a ballot in the governor’s election for a constitutional amendment.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.