Pension reform - finally?John Diaz, San Francisco Chronicle, Jan. 30, 2011
Until very recently, all but a few lonely politicians had one of three reactions to the topic of pension reform: glazed eyes, denial or lip service. But that was before the revelations that top dogs in tiny working-class Bell were pillaging the town treasury for their personal gain, before 36 University of California executives threatened legal action to prevent the state from calculating their pension on a $245,000 limit instead of their actual stratospheric salaries and before the governor's new budget asked Californians to brace for deeper budget cuts and an extension of temporary taxes.
I get the sense that a long-festering issue has found its moment.
California legislators are practically tripping over themselves to introduce measures to rein in pension costs. Assemblyman Jerry Hill, D-San Mateo, to cite one example, has introduced AB89 to limit state pensions for future workers to the federal cap of $195,000.
He acknowledged that most reform proposals, including his, are "doing things around the edges" of a growing burden on the state treasury.
Sen. Mimi Walters, a Laguna Niguel Republican who ran for state treasurer last year, is preparing a package of bills that would replace a defined-benefit pension with a 401(k) plan for state workers.
…Therein may lie the road map for compromise between Gov. Jerry Brown - who wants voters to approve about $12 billion in tax extensions on income, sales and vehicle licenses - and Senate and Assembly Republicans who would need to deliver at least a few votes to put those taxes on the ballot. Brown gets his tax extensions, avoiding far more draconian cuts to state programs; Republicans get reforms that otherwise would never emerge from a Democratic-controlled Legislature with deep ties to state-employee unions.
…Significant reforms are going to require increasing contributions for future employees and scaling back their retirement benefits. Everyone agrees that the benefits of current retirees cannot be touched, as both a moral and legal matter. But there is an open question about whether a state or local government in dire fiscal circumstances can alter agreements with existing employees. A Sacramento group called California Pension Reform is preparing an initiative that would freeze current employees' retirement calculations - their credits for years of service and salary - when pension funds drop below 80 percent of the level to meet future obligations. Such a measure would certainly draw a lawsuit if it were to pass - but do public employee unions really want to take their chances at the ballot box and in court?
Don't be surprised if a pension reform plan forged in the state Capitol, with bipartisan support after contentious negotiation, appears on the ballot with temporary tax increases in a June special election…
Full article at http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/01/30/IN6C1HE931.DTL
Note: The Hill bill, AB89, reads as follows (and covers all “public retirement systems” – presumably including UC):
INTRODUCED BY Assembly Member Hill
JANUARY 6, 2011
An act to add Section 7503.5 to the Government Code, relating to
retirement.
LEGISLATIVE COUNSEL'S DIGEST
AB 89, as introduced, Hill. Retirement: public employees.
The Public Employees' Retirement Law creates the Public Employees' Retirement System, which provides a defined benefit to its members based on age at retirement, service credit, and final compensation, as defined. The State Teachers' Retirement Law and the retirement laws for county employees and city employees also provide for a defined benefit based on age at retirement, service credit, and final compensation.
This bill would specify that, notwithstanding any other law, for the purposes of determining a retirement benefit paid to a person who first becomes a member of a public retirement system on or after January 1, 2012, the maximum salary, compensation, or payrate upon which retirement benefits shall be based shall not exceed an amount set forth in a specified provision of the Internal Revenue Code.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 7503.5 is added to the Government Code, to read:
7503.5. Notwithstanding any other law, for the purposes of determining a retirement benefit paid to a person who first becomes a member of a public retirement system on or after January 1, 2012, the maximum salary, compensation, or payrate upon which retirement benefits shall be based shall not exceed the amount specified in Section 401(a)(17) of Title 26 of the United States Code, or its successor.
Source: http://www.leginfo.ca.gov/pub/11-12/bill/asm/ab_0051-0100/ab_89_bill_20110106_introduced.html
Until very recently, all but a few lonely politicians had one of three reactions to the topic of pension reform: glazed eyes, denial or lip service. But that was before the revelations that top dogs in tiny working-class Bell were pillaging the town treasury for their personal gain, before 36 University of California executives threatened legal action to prevent the state from calculating their pension on a $245,000 limit instead of their actual stratospheric salaries and before the governor's new budget asked Californians to brace for deeper budget cuts and an extension of temporary taxes.
I get the sense that a long-festering issue has found its moment.
California legislators are practically tripping over themselves to introduce measures to rein in pension costs. Assemblyman Jerry Hill, D-San Mateo, to cite one example, has introduced AB89 to limit state pensions for future workers to the federal cap of $195,000.
He acknowledged that most reform proposals, including his, are "doing things around the edges" of a growing burden on the state treasury.
Sen. Mimi Walters, a Laguna Niguel Republican who ran for state treasurer last year, is preparing a package of bills that would replace a defined-benefit pension with a 401(k) plan for state workers.
…Therein may lie the road map for compromise between Gov. Jerry Brown - who wants voters to approve about $12 billion in tax extensions on income, sales and vehicle licenses - and Senate and Assembly Republicans who would need to deliver at least a few votes to put those taxes on the ballot. Brown gets his tax extensions, avoiding far more draconian cuts to state programs; Republicans get reforms that otherwise would never emerge from a Democratic-controlled Legislature with deep ties to state-employee unions.
…Significant reforms are going to require increasing contributions for future employees and scaling back their retirement benefits. Everyone agrees that the benefits of current retirees cannot be touched, as both a moral and legal matter. But there is an open question about whether a state or local government in dire fiscal circumstances can alter agreements with existing employees. A Sacramento group called California Pension Reform is preparing an initiative that would freeze current employees' retirement calculations - their credits for years of service and salary - when pension funds drop below 80 percent of the level to meet future obligations. Such a measure would certainly draw a lawsuit if it were to pass - but do public employee unions really want to take their chances at the ballot box and in court?
Don't be surprised if a pension reform plan forged in the state Capitol, with bipartisan support after contentious negotiation, appears on the ballot with temporary tax increases in a June special election…
Full article at http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/01/30/IN6C1HE931.DTL
Note: The Hill bill, AB89, reads as follows (and covers all “public retirement systems” – presumably including UC):
INTRODUCED BY Assembly Member Hill
JANUARY 6, 2011
An act to add Section 7503.5 to the Government Code, relating to
retirement.
LEGISLATIVE COUNSEL'S DIGEST
AB 89, as introduced, Hill. Retirement: public employees.
The Public Employees' Retirement Law creates the Public Employees' Retirement System, which provides a defined benefit to its members based on age at retirement, service credit, and final compensation, as defined. The State Teachers' Retirement Law and the retirement laws for county employees and city employees also provide for a defined benefit based on age at retirement, service credit, and final compensation.
This bill would specify that, notwithstanding any other law, for the purposes of determining a retirement benefit paid to a person who first becomes a member of a public retirement system on or after January 1, 2012, the maximum salary, compensation, or payrate upon which retirement benefits shall be based shall not exceed an amount set forth in a specified provision of the Internal Revenue Code.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 7503.5 is added to the Government Code, to read:
7503.5. Notwithstanding any other law, for the purposes of determining a retirement benefit paid to a person who first becomes a member of a public retirement system on or after January 1, 2012, the maximum salary, compensation, or payrate upon which retirement benefits shall be based shall not exceed the amount specified in Section 401(a)(17) of Title 26 of the United States Code, or its successor.
Source: http://www.leginfo.ca.gov/pub/11-12/bill/asm/ab_0051-0100/ab_89_bill_20110106_introduced.html
Further note: Someone finally noticed that if you take new hires out of an existing defined-benefit pension and put them into a new defined-contribution system, the new hires don't pay into the old system. So if the old system is underfunded, the contribution base is limited. Seems obvious, no? Apparently, it is a revelation to some. See http://www.signonsandiego.com/news/2011/jan/29/sanders-401k-plan/#
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