Talks loom on statewide pension reform

The watchdog Little Hoover Commission and others think the key to quickly making major cuts in pension costs, and easing the strain on government budgets, is cutting the pensions current workers earn in the future.

As the Legislature worked on Brown’s pension reform two years ago, the mayors of eight of the state’s 11 largest cities sent legislative leaders a letter urging that cities be given “clear authority to modify future pension accruals,” a plea that was rejected.

Last December the provision in the San Jose measure giving current workers the pension choice, pay more or receive less, was ruled a violation of vested rights and overturned by a superior court judge, despite a city charter specifically allowing pension changes and repeals.

While awaiting an appeal, San Jose also awaits an IRS decision on whether choosing a lower benefit prevents tax-deferred status for plans. Orange County, which negotiated a similar pension option with employees, has been waiting for an IRS decision on the issue since 2009.

The San Diego and Ventura County measures avoid vested-rights challenges by switching new hires, but not current workers, to 401(k)-style plans. The plans are now widely used in the private sector, shifting investment risk from the employer to the employee.

Similar to previous polls, a statewide survey issued by the nonpartisan Public Policy Institute of California last January found that switching new government hires to 401(k)-style plans is supported by 73 percent of likely voters.

Critics say a 401(k)-style plan would harm recruitment and retention of employees (the reason San Diego exempted police) and often is uncertain and inadequate, particularly if investments are hit by a stock market crash shortly before retirement.

But even limiting pension cuts to new hires is not a legal sure thing. The San Diego and San Jose measures are being challenged by the state Public Employment Relations Board because they were not bargained with labor unions.

A cost-cutting Los Angeles pension reform was overturned two weeks ago by a Los Angeles labor board. A hearing officer concluded that at the moment of hire, new employees become members of the bargaining unit and therefore get the same benefits.
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Ed’s Note: Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Calpensions.com.