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Pension reform group files initiatives

By Lisa Vorderbrueggen
Friday, November 6th, 2009 at 2:36 pm in pension reform.

The California Foundation for Fiscal Responsibility filed language for two ballot initiatives with the Attorney General’s Office this week that would cap new public employees’ retirement benefits, raise the eligible retirement age and eliminate the use of vacation pay and other perks to spike retirement pay.

The initiatives are identical except for a provision that would allow cities and other local agencies to exceed the benefit levels with a vote of the people. The foundation says it will poll voters on the option before it decides which initiative it will pursue.

The local vote option is clearly intended to deflect union criticism of the bill as a loss of local control. California agencies individually negotiate pension benefits as part of contracts with their labor groups.

Former moderate Republican Assemblyman Keith Richman, of Northridge, started the foundation.

After the Attorney General’s Office writes a title and summary, the foundation will need to obtain signatures in order to place it on the November 2010 ballot.

Read on for the full press release.

California pension reform group
files two new ballot initiatives

(CFFR) filed with the Attorney General’s office two pension and retiree health care initiatives that would save state and local government agencies hundreds of billions of dollars in retiree benefit costs and would end the expensive abuses which have increased costs and run up huge deficits for public defined benefit pension plans. The initiatives are identical except for the voter requirement that allows agencies to increase benefits for new workers. CFFR plans to poll voters to determine which version they prefer.

“With more than $200 billion in retirement debts and skyrocketing costs crowding out the investments we need in education, health care, transportation, public safety and the environment, it is time for a statewide solution to our retirement benefits crisis. By requiring all new non-safety public employees at all levels of government to work until their Social Security retirement age for full benefits and ending the politicians’ raids and abuses of public pension funds, California public agencies can offer secure retirement benefits that are fair for taxpayers and their employees,” said CFFR president and initiative proponent Marcia Fritz.

The Public Employee Benefits Reform Initiative would apply its benefits cap to the defined benefit plans offered to all new state, local government, school district, university and special district employees beginning July 1, 2011.

“California’s huge legacy retirement costs have been aggravated by pension benefit enhancements granted to public employees over the last 10 years combined with average pay increases of 50% to 70% both at the state level and among local agencies,” said Fritz.

“Actuaries did not anticipate wage hikes of this magnitude, nor did they expect the market losses that have seriously reduced the value of pension assets set aside to pay for pension benefits,” she added.
“Workers are retiring earlier because many can receive more in retirement than while working. Defined benefit plans are viable tools if they are not abused, but generous guaranteed retirement benefits plus high wages have overburdened our public pension systems and ultimately our taxpayers.”

“Sound fiscal policy, simple budget planning, and retirement benefits that ensure a dignified and secure retirement after a full career of public service are all possible, and this initiative will help lead the way for all levels of California government,” said Fritz.

Preliminary estimates show the initiative would save more than $1 billion the first year, and $500 billion over 30 years as new workers replace those who retire by raising their full retirement ages and limiting guaranteed benefit formulas to 75% replacement income in retirement for a full career’s work. Agencies may continue to offer supplemental defined contribution plans to their employees.
Significant additional savings would come from requiring new employees to wait until they reach MediCare eligibility age before supplemental retiree health benefits begin.

The “10 Commandments” that form the basis of both versions of the initiative include:

- Honor all pension contracts
- Death and disability benefits shall not be changed
- Pension benefits must be fair and adequate
- Pension benefits must be guaranteed
- Pension spiking abuse must be discouraged
- Future generations should not pay retirement costs for today’s
workers
- Retiree health funds must not be diverted to any other purpose
- Retirement benefit costs must be sustainable
- Local agency voters shall retain the right to change benefits
- Bankruptcies must be avoided

The two versions of the initiative can be found here:
http://ag.ca.gov/cms_attachments/initiatives/pdfs/i872_initiative_09-0075.pdf
http://ag.ca.gov/cms_attachments/initiatives/pdfs/i873_initiative_09-0076.pdf

CFFR is a non-profit political organization committed to educating the public and key decision makers about California public employee retirement benefit issues and developing fiscally responsible solutions that are fair to employees, employers and taxpayers. CFFR believes managing the pension and retiree health care obligations promised to public employees is the most critical public finance issue of this decade.

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  • John W.

    It’s good to see this finally making its way to the voters. However, you know how big the problem is when even what the reformers propose is too generous relative to private sector standards. Waiting to Social Security retirement age to get full benefits for non-safety employees is on target. But the income replacement rates are still too high. And there shouldn’t be cost of living increases. I assume the 75% replacement cap is for safety people and that we’re talking 60% for non-safety. Few in the private sector get any kind of defined-benefit plan anymore. But, for those who do, the replacement rate at full-retirement age (usually 65 or age+years of service = 90) is less than 50%. The idea is that pension plus Social Security replaces about 80%. Plus, there normally are no cost of living adjustments. The starting pension amount stays at that amount for life. If you choose to retire early — say at 60 — the pension benefit would typically be reduced 5 percentage points for each year under 65. To be fair, at least some public employees contribute to their pension plans, whereas private sector people generally don’t. To the extent public employees really do contribute (not the wink-wink deals like BART where the employer pays the employee share), I suppose a somewhat more generous replacement rate can be justified. But we still have the problem of the taxpayers (as the employer) bearing all the pension investment risk, which isn’t working too well of late. For safety, the higher replacement rate should not apply to the upper incomes earned in the chief and deputy chief positions, when the wear and tear and career shelf-life factors are not relevant. If you make it to that level, you can serve until a normal retirement age. Still, the proposed reforms would be a huge improvement over the status quo.

  • David

    Instead of dragging public employees down by destroying their retirement income, why don’t people spend their time trying to improve pensions in the private sector, so that they are as good as public ones? Anyone in the private sector who wishes their retirement plans were better is only cutting off their nose to spite their face by slashing somebody else’s retirement. Better you should use their retirement benefits as an example to your own employers, to enable you to demand parity with public employee pensions. Also, the average pension of California public employees is $25,212, and 78 percent of all retirees receive less than $36,000 per year. Does that sound shockingly exorbitant to you? It doesn’t to me. If the problem is the relatively small number of people who receive extremely large payouts, then go after them directly: there is no need to cut the relatively modest pensions that the vast majority of public employees receive.

  • judy

    IF, that’s IF CA is to survive, this must pass. We don’t need to hear about poor older retirees, The GRAND THEFT has only been happening in the last 10 years. Just like, what was then, isn’t now, and what is proposed will NOT affect anybody NOW, so we don’t need to hear from anybody currently employed. The big changes are about NEW hires. Any employee with any decency will HELP SAVE CA WITH SENSIBLE CHANGES…more IN LINE with the REAL WORLD !!!

  • http://deleted Concordian

    Why not a simpler approach of a cap on retirement benefit? The public servants (including police/fire etc) cannot receive a retirement that is greater than the median income of someone in the state of California. This way you are not gong to have people making more money than 50% of the people in the state.

  • judy

    No, 50% or median of people would be too low. Most people with the ability are moving out of state. Ca is mostly going to be a state of public employees, welfare recipients, and cash under table illegals…going to be hard to fund if we don’t REAL about retirement ages. Retirement age would still be much below the real world.

  • http://www.cocotax.org Kris Hunt

    Immediately following the filing of the pension initiatives, the teachers union filed two initiatives that would create a split roll property tax. Apparently it is going to be hardball.

  • judy

    Yup!Public unions say taxpayers be damned !

  • John W.

    Note to David. With the aging population and the declining ratio of workers to retirees, neither the private nor public sector can afford to fund these plans — for new hires. As for the statistic about the “average” pension, it’s meaningless. The measure of reasonableness is the size of the pension benefit payout over a person’s retirement lifetime (including cost of living adjustments) relative to what the person was paid by the employer during his or her working years. No employer, public or private, can afford full or near full pay for two workforces — one working and another retired. The only way to cover future pension obligations is to raise taxes or cut public services (which means fewer jobs in the agencies that provide those services). In my opinion, those calling attention to the pension issue have made a stragegic mistake by focusing too much on the extreme cases. That makes for good headlines, but gives people the impression that the need for a pension fix is limited to those few examples and hurts the case for broader reform, as evidenced by the frequent use of “average pension” statistics to argue there is not a problem.

  • Robert

    If you get a chance read the Time Magazine article or view the PBS Frontline investigation on retirement. Very enlightening.

    http://www.time.com/time/business/article/0,8599,1929119,00.html

    http://www.pbs.org/wgbh/pages/frontline/retirement/view/?utm_campaign=viewpage&utm_medium=grid&utm_source=grid

  • John W.

    The Time Magazine piece was interesting. I’ve been fairly fortunate with the 401k and, because of the number of times I’ve changed jobs, probably fared better with that than I would have with a defined benefit plan. I don’t have a problem with defined benefit plans, so long as the promised benefits are actuarially sound, which public employee pension plans definitely are not.