Now that ballot initiatives targeting public employees’ pensions have passed in San Diego and San Jose, state legislators and politicians in other cities may be contemplating similar efforts. But new data released this month should give them pause.
It turns out that so-called pension “reforms” will disproportionately affect Hispanic and non-white Californians, as well as women. In the long run, pension changes may cause these future retirees to be disadvantaged to such a degree that they require more government assistance in their old age, draining far more dollars from public coffers than can be saved today.
The data comes from the Federal Reserve, which this month released its annual Survey of Consumer Finances, for the 2010 calendar year. It shows that the current recession has hit various ethnicities far harder than whites. For example, while white families saw their wealth fall by 10 percent between 2007 and 2010, Hispanic families experienced a 26.8 percent plunge. That is something policymakers ought to consider, and answer for, when they contemplate additional reductions and changes to public employee retirement accounts.
Nearly 40 percent of Californians identify themselves as Hispanic. And already, they are far less likely to have access to employer-sponsored pension plans. There are about 3 million Latino Californians stuck in low-wage jobs that do not offer retirement benefits, according to UC Berkeley’s Center for Labor Research and Education. These are Californians who, in their retirement, will be forced to rely on government services for everything from health care to food assistance.
The same is true with government-sponsored pension plans. If the police officers, teachers, social workers and road maintenance crews who make up the government workforce in California are required to migrate from defined-benefit pensions into accounts that look more like stock-market based 401(k)s, it means the state will be asking average working families to also serve as their own actuaries. Instead of protecting their retirement accounts in the CalPERS’ system that has yielded 8.4 percent annual interest over the past two decades, they will be pushed into the kinds of risky accounts that suffered $2.8 trillion in losses nationwide between 2007 and 2008.
It’s important to remember that teachers do not earn Social Security benefits, so they rely almost entirely on pensions through the California State Teachers’ Retirement System (CalSTRS) when they retire. And because California’s teachers are mostly female, it means that women have more to lose if CalSTRS is pushed toward 401(k) style investments. Also, because women, on average, earn less than men and also outlive them, they are further disadvantaged by pension reforms that reduce the size of retirement accounts.
In the end, these workers will not have adequate retirement funds and in their older age will turn to the state for assistance.
The crux of the pension “reform” issue comes down to the economy and its ability to generate revenues to support government services. And here’s the problem: in 2010 alone, retirement checks paid out by the California Public Employees Retirement System (CalPERS) were responsible for generating $26 billion in economic activity in our state and more than 90,000 jobs, according to research by CalPERS and the California State University.
That means, therefore, any structural changes to public employee pensions at the state level threaten a significant economic engine in our state, threaten jobs, and threaten to further reduce the revenues that flow into the state. For a state General Fund that is perpetually in deficit, reductions in pension payouts will only exacerbate the chronic imbalance.
Government pensions did not create the budget problems municipalities and states are currently experiencing. That’s why the pension reform debate is not actually about budgets, rather it is about the working families who earn modest wages and retire on limited retirements. It is about the law enforcement officers, school employees, and municipal workers who not only keep our communities safe and our roads running smoothly, but whose wages stimulate our economy.
Lawmakers considering pension system “reforms” must think critically about the Latinos, the women, and the other average working Californians who will be disproportionately affected by changes to government retirement systems. When and if they do propose changes, they must also be prepared to answer to those constituencies.
Ed’s Note: Mary Rose Ortega is a third-grade teacher at First Street Elementary in the Los Angeles Unified School District, and a member of the board of directors of the California Teachers Association.