A move to cut costs for public-employee pension plans sputtered to a halt in the spring of 2005 when Gov. Arnold Schwarzenegger, under pressure from unionized firefighters, police, nurses and teachers, withdrew a ballot initiative that would have trimmed their retirement benefits.
The League of California Cities, an association of city officials, has apparently taken the governor’s proposal as a shot across the bow. In a recent letter to elected and appointed local government officials statewide, League spokesman Rod Gould, who is also the city manager in Poway in San Diego County, urged his colleagues to consider several changes to their local pension plans.
The governor, or someone with a similar agenda for change, will be back, Mr. Gould predicted. “It is only a matter of time before others take up the mantle of pension and retiree medical benefit reform in California,” he said. “Put simply, if we don’t examine our systems and programs for excesses and abuses, and root them out, others will do so for us, and much more.”
The league’s proposed changes stop well short of the governor’s 2005 initiative, which would have capped state payments into the pension fund and created a 401(k)-like plan in which new employees contribute to individually managed investment accounts.
Such a plan, known as defined-contribution, would have replaced the current system of defined benefits, which bases retirement pay on a fixed percentage of the employee’s highest earning years.
Pension obligations have become a concern statewide. Many local government agencies adopted generous benefit plans during the booming stock market of late 1990s. Since the market collapsed in 2000, the return on investment of the state-run pension fund has suffered but benefit packages have remained generous.
In the letter, the League of Cities makes several recommendations, including raising employee retirement age to 55 from 50; lowering pension benefits if retirees are entitled to Social Security benefits; and having employees share higher contribution rates with employers when market returns fall off.
Local reaction
“My overall comment (on the League’s letter) is that I certainly agree that this is a very, very big issue, like a time bomb that needs to be addressed,” said Councilman Jerry Carlson of Atherton.The first step, he said, is for public agencies to work together to “level the playing field” by reducing the ability of one agency to lure employees from another by offering better benefits packages.
Atherton City Manager Jim Robinson said that such a conversation could start after the November election, with a goal of new legislation. “I think it’s going to be a tremendous task to accomplish it,” he said.
A major hurdle could be the two-tiered retirement plan, with new employees offered a defined-contribution rather than a defined-benefit plan.
“At some point in time, there has to be a switch-over,” Mr. Carlson said, adding that he supports the principles in the governor’s 2005 initiative.
Union comment
No way, said Sascha Eisner, who represents Menlo Park staff for the Service Employees International Union. Such a plan “creates inequalities in the workplace,” he said.Mr. Eisner said he opposes bringing private-sector methods to public jobs. “We here in the labor movement believe that the public sector is a model which all working Americans — and people worldwide, for that matter — ought to enjoy,” he said.
How to pay for those benefits? Finding that money might be easier if local agencies would raise taxes, said Mr. Eisner. Living in California is expensive and reliable public employees are hard to find. As hard as it is to talk about tax increases, it’s a discussion that needs to happen, he said.
Defined-benefit plans definitely attract private-sector employees, said Woodside Town Manager Susan George.
What if they were no longer offered? “I frankly think that if that happens, we would have a much harder time competing for top employees,” she said. “If all I can offer is a 401(k), which is what they’re offered in the private sector, I’m going to lose that edge.”
Fire district
Peter Carpenter, a member of the Board of Directors of the Menlo Park Fire Protection District, is open to higher retirement ages and a two-tiered benefit plan, provided the impact is on new employees only. “It sets the stage for much more fiscal responsibility for the long term,” he said.Finding firefighters is no problem for a fire district with a reputation as an interesting and exciting place to work and that receives “hundreds of applicants” for every job opening, he said.
Mr. Carpenter said he does oppose legislation that would set rules about benefit packages. “Why have local government if you’re going to make all the decisions at the state level,” he asked. “That’s what I was elected to do and that’s what I’m prepared to do.”
[BOX: “Recommendations” replaces “Information” as the reverse head.]
RECOMMENDATIONS
The League of California Cities recommends:• Raising employee retirement age to 55 from 50.
• Lowering pension benefits if retirees are entitled to Social Security benefits.
• Having employees share higher contribution rates with employers when returns from stock and bond markets fall off.
