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Is CalPERS shifting position on retirement-benefit legislation?

CalPERS board has played a part in retirement benefit legislation in the past, sponsoring a landmark increase and even a kind of cut that cracked down on pension-boosting maneuvers.

But the policy of the giant system, which faces questions about whether current benefits are affordable in the long run, is apparently changing.

A case in point: A union lobbyist, not taking “no” for an answer the first time, made a second pitch to the labor-friendly CalPERS board last month to support legislation increasing the “death benefit” for non-teaching school employees.

The bill, AB 1477, would triple the $2,000 death benefit for non-teaching school employees, giving them the same $6,163 for burial and funeral costs that teachers get through the California State Teachers Retirement System.

Dolores Sanchez, a lobbyist for the California Federation of Teachers, said the failure of the CalPERS board to support the bill, even though school districts would pay the increased costs, “sends the wrong message.”

She said neutrality means the board has no opinion about whether non-teaching school employees should have benefits comparable to other workers, full payment for current burial costs and aid for their survivors at the “time of greatest need.”

“We ask that you remain consistent with prior legislation,” Sanchez told the CalPERS board. “Five pieces of legislation have been introduced since 2000, when the death benefit was raised to $2,000. In each of those cases, you have been in full support.”

The non-teaching or “classified” school employees are a big part of the California Public Employees Retirement System, roughly a third of the members. The other members, each about a third, are state workers and local government employees.

The only CalPERS board member who gave Sanchez a response, Steve Coony, representing state Treasurer Bill Lockyer, said it‘s “impossible” not to be sympathetic with her plea.

But, he said, the legislation was not being “singled out.” He said the CalPERS board has been neutral on benefit increases in recent years, particularly if the funding is not clear.

“Obviously, you know what kind of headwind you are encountering with the Legislature, and I can’t speak for that,” Coony told Sanchez. “But I can speak for the consistency of our position — that is, that we are not in the business of advocating benefit increases. We are in the business of providing the best possible information on which the policymakers that do make those decisions can make the judgment.”

Over the years, the CalPERS board has played varying roles in legislation that has resulted in some of the most generous public pension benefits in the nation.

A survey reported by the nonpartisan Legislative Analyst in 2004 compared pensions in California and four other states. An employee who began work at age 34 and earned $60,000 in the last year before retiring at 65 would annually receive: California $46,500, Texas $40,775, Oregon $29,606, Illinois $28,913, and Illinois $28,410.

A general state worker retiring in California, and presumably in most of the other states, receives Social Security in addition to the monthly checks from the state retirement systems.

The landmark benefit increase came in 1999, when the CalPERS board sponsored legislation, SB 400, that created new retirement formulas that could be bargained for by state and some local public employees.

Analyses of the bill reported estimates that benefits would be increased 25 to 50 percent. A formula that is now widespread allowed the Highway Patrol, and later firefighters, to retire at age 50 with 3 percent of final pay for each year served.

A retroactive provision in SB 400 increased pension payments to retirees, ranging from 1 percent for those who retired in 1997 to 6 percent for those who retired in 1974 or earlier.
The bill also undermined a cut in state worker pension benefits enacted under former Republican Gov. Pete Wilson in 1991, making the lower “tier two” benefit formula optional at the request of new workers in their first 180 days on the job.

CalPERS had a surplus from investment earnings in a booming stock market. Legislators were told that investment earnings would pay for the benefit increases, requiring little increase in state pension costs for a decade.

But the annual state contribution to CalPERS, which dropped to about $160 million in 2000, soared to $2.5 billion five years later. Most of the increase was attributed to a decline in the stock market.

Meanwhile, the benefit increases had continued. CalPERS offered in 2001 to inflate the value of the pension fund assets of local governments that increased pension benefits, making it easier to cover the costs.

A bill, SB 183, approved in 2002 made about 3,200 state workers, including milk testers and billboard inspectors, eligible for retirement benefits similar to those for police and firefighters, an estimated 25 percent increase.

Legislative analyses of SB 183 did not list CalPERS as a supporter. News stories said the measure was backed by a public employee union that gave campaign contributions to former Gov. Gray Davis.

In 1993, CalPERS sponsored legislation, SB 53, to crack down on the boosting of pension payments, reportedly widespread, by manipulating the final salary used to calculate benefits, a practice called “spiking.”

Now CalPERS screens retirement pay, sometimes issuing denials for apparent manipulation. Similar anti-spiking legislation for the 20 county retirement systems that operate under a 1937 act failed.

Two Contra Costa County fire chiefs, who retired at ages 50 and 51 with pensions far larger than their base salaries, have attracted national media attention. They are in a 1937 act retirement system.

In 2004, a Sacramento Bee investigation reported that a big spiking opportunity remained. California was the only state where the pension is based on the highest salary in a single year, rather than an average of salaries in three or more years.

The Bee story told how a state worker in suburban Sacramento took a higher-paying job in the San Francisco Bay Area during her final year, adding $18,000 a year to her lifetime pension before retiring and returning to the Sacramento area.

The one-year rule was a last-minute addition to a state budget agreement in 1990, the Bee said, the price of approval from public employee unions concerned that accounting changes might shrink retirement benefits.

State worker retirements increased 77 percent the following year, the Bee said. Pensions based on the one-year rule were found to be 5 percent higher than under a three-year rule, costing an additional $100 million a year.

Now the Schwarzenegger administration has negotiated labor contracts that put most new state hires since July 2006 or January 2007 under the three-year rule. The Highway Patrol and firefighters are among those who still have a one-year rule.

“It was one of the areas where where we achieved some actual pension reform,” said Lynelle Jolley, spokeswoman for the Department of Personnel Administration.

In the current economy, benefit increases are difficult. After public outcry, the Metropolitan Water District of Southern California withdrew a proposed pension increase in October linked to an innovative plan to begin funding retiree health.

A benefit decrease may be even more difficult. The CalPERS chief actuary, Ron Seeling, is among those who question whether the current level of benefits is “sustainable,” unless there is a long-term stock market recovery.

Gov. Arnold Schwa
rzenegger has proposed returning to the lower retirement benefits undermined by SB 400. But he is in a far weaker position than Wilson, the last governor to wield power over the Legislature.

An underfunded reform group is trying to put an initiative on the November ballot next year that would cut retirement benefits for new state and local hires and push back retirement ages. But the measure would trigger all-out war with deep-pocket labor unions.

Some CalPERS officials have talked about raising the “sustainability” issue with stakeholder groups. But a union official doubts that benefit cuts will be discussed during CalPERS forums scheduled Jan. 29 in Sacramento and Feb. 12 in Los Angeles.

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at http://calpensions.com


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