The pension debate: real problem or red herring?

A year after Gov. Arnold Schwarzenegger aborted his attempt at changing the state’s public employee pension system, the governor and legislative leaders got together to appoint a commission to look at what is often called the state’s pension crisis. But depending on who you talk to, it is a crisis that may or may not exist.

So while the Post-Employment Benefits Commission continues to hold monthly meetings around the state and prepares to make a series of policy recommendations to the governor and the Legislature, some labor and public-employee advocates say the entire concept of a crisis is overblown. Meanwhile, a coalition of free marketers, led by former Assemblyman Keith Richman, is preparing to gather signatures for a ballot measure that would drastically reduce pension and retiree-health-care benefits for new state employees.

The commission chairman, former UC Board of Regents chairman Gerald Parsky, said the commission grew out of the governor’s 2005 pension-reform efforts–an effort which Parsky, as Regents chairman, opposed.

“The approach by the ballot initiative was not to build consensus. It was to move from a defined benefit to defined contribution,” he said. “I indicated that I thought it was important that the issue be addressed, but the approach taken was not appropriate.”

Parsky said the 2005 effort, which was also backed by Richman, was “too inflexible. It treated all state and local pension plans the same. I indicated on behalf of the university that we could not support it.”

The advocates for change, like Richman and Orange County Supervisor John Moorlach, say benefit reductions are crucial to meet the state’s increasing obligation to retired workers. But others, like Dave Low, assistant director of governmental relations for the California School Employees Association and also a member of the commission, says that the Richman initiative would decimate pensions for teachers, police officers and other public employees.

“If you’re a new teacher, under this plan you’re retiring at a pension that is half, or less than half, of what current teachers make. The cuts are so severe, most people are not going to be able to retire with any security,” he said.
Low said that since many public-employee benefits vary from bargaining unit to bargaining unit and are negotiated with various local governments, there is no easy way to make sweeping, statewide changes. “Some of the things that we’ve learned, from all sides, is there is no one-size-fits-all approach to this issue,” he said. “Different jurisdictions are in totally different situations. Some don’t have any retiree health care at all. Some are funded more than 100 percent, some are in the 80s.”

But both Pasrky and Low say that the commission can help present some guidelines to state and local governments when negotiating employee benefits.

“I don’t think you’ll find this commission in any way trying to upset collective bargaining, but we will be looking at ways localities have approached these benefits,” said Parsky. “I think we will be serving a public good if we can identify and grasp the problems, and suggest some approaches to address them.”
Lobbyist Aaron Read, who represents a number of public-safety associations, says Richman and his allies are making it harder to recruit public employees. He says that in the public-safety world there are “15,000 vacancies. Recruitment has been painstaking,” and talks of reducing the benefits is only making recruiters’ jobs more difficult.

He called Richman’s new initiative proposal, “morally and intellectually dishonest,” adding that state pensions are “as strong now as we’ve been in the last 25 years.”

Richman’s proposal is very different than the initiative he backed in 2005. That measure would have moved the state away from its current system, which guarantees state employees a certain percentage of their highest state salary every month, toward a system that more closely resembles private sector individual retirement, or 401 (K) accounts.

Richman’s new initiative would raise the age at which public employees could receive pension benefits. Many start receiving benefits as young as the age of 50 now. If Richman’s plan passes, the age would spike to 67. Retirees would also not receive health-care benefits until the age of 67.

The initiative also would limit increases to current retirees, pegging cost of living increases to the state consumer price index.

Dan Pellessier, Richman’s former chief of staff and now a spokesman for the initiative campaign, says, “We don’t want to run this initiative campaign if we can get substantial pension and retiree health care reform. We’re not looking for a fight.”

Pellessier rejected Read’s argument that cuts in pension and retiree-health-care benefits impact employment-recruiting efforts. “Do people actually consider these benefits when they take a public job? The answer is no. I think folks who believe that we need these generous retirement benefits to attract and retain the best employees have it backward. Our benefits are so good, people can leave work early. It doesn’t really achieve the objective of retaining your best employees. When you vest with that in short a period of time, doesn’t encourage people to stay.”

But Parsky said at UC, the benefits package does help make up what the state cannot pay in salaries. “We have to be able to adequately compensate public employees,” said Parsky. “We want good people to continue to think of public employment as a positive. That requires understanding the way in which retirement benefits are part of the overall compensation package. You have to see it that way. In the context of the University of California, the benefits that we have provided has, to some extent, made up for the lack of competitive salaries that exist for the institution.”

For now, many members of the commission seem to be taking a skeptical view of the initiative process, and vice-versa. Both groups have vowed to continue their work, while watching what the other is doing.

“We are participating in the commission process,” said Pellessier. “We’re watching closely what they’re doing. But we’re not at all confident that the Legislature will take sufficient steps to control this crisis. We don’t believe the Legislature will reduce the cost of benefits to new employees.”