CSUN University News Clippings

Two-tier California pension proposal on hold

(July 15, 2009)

By Jim Sanders

California will not impose a two-tier pension system promising lower benefits to future state workers as part of any wide-ranging deal to solve its $26.3 billion budget shortfall, The Bee has learned.

The controversial proposal by Gov. Arnold Schwarzenegger has been shelved in budget talks, but options for cutting pension costs are expected to be discussed again in coming months.

Democratic leaders, emerging briefly from the Governor’s Office on Tuesday evening after five hours of negotiations, said they planned to stay in the Capitol “all night” if necessary to strike an overall deal.

“Everyone is highly motivated to get this done, and get this done tonight,” said Senate President Pro Tem Darrell Steinberg, D-Sacramento.

Schwarzenegger’s pension plan never was intended to affect existing employees, whose pay already has been cut nearly 15 percent through imposition of three unpaid furlough days per month.

Carroll Wills, of California Professional Firefighters, applauded the decision to move more slowly on pension reform, saying it made no sense to jam a proposal through the Legislature with “a fiscal gun pointed to its head.”

“The pension discussion, to the extent it needs to take place, (should) be a deliberative process of the Legislature,” said Wills, who contends that a two-tier system of benefits pays employees unequally for equal work.

The economic slowdown has hit the pension system hard, sending investment income plummeting and sparking pressure to alter defined benefits that are more lucrative than typically offered within private industry.

Creation of a two-tier system was not expected to save money immediately, but it was hailed by Schwarzenegger as a long-term way of freeing about $95 billion in state funds over 30 years.

“Everyone knows the sooner we reform pensions, the sooner we can save resources for other programs,” said Aaron McLear, the governor’s spokesman.

“The governor is not demanding that pension reform be part of negotiations, but the longer we wait, the worse it will be for the programs that Democrats are trying to protect,” McLear said.

Schwarzenegger unveiled his proposal for a two-tier pension system in budget negotiations June 27, but it was opposed by Democratic leaders and ultimately tabled, according to multiple sources familiar with the negotiations.

When the issue arose last month, Steinberg said pension reform “deserves real consideration in the Legislature, but it’s not right to jam it into a budget agreement in (the final) hours.”

Schwarzenegger officials said then that the issue was relevant to budget negotiations because it could ease fiscal pressures potentially created in coming years by Democrats’ failure to cut operational costs deeply enough now.

Specifically, Schwarzenegger’s retiree proposal for future state workers would:

• Alter the pension formula to ensure lower benefits or longer public service. For example, most state workers who are not public safety employees now may retire at age 55 with a pension totaling 2 percent of their salary multiplied by the number of years worked. The new formula would pay that benefit at age 60.

• Compute pensions for peace officers, firefighters and Highway Patrol officers based on the highest three years of compensation earned, rather than the highest single year.

• Remove the current “floor” above which state employees must contribute to their pensions. For example, most state workers must contribute 5 percent of their salary to the pension system – but their first $513 of monthly earnings is not assessed.

• Provide lifetime health care benefits only for retirees who have worked 25 years. Currently, the state pays 50 percent of retiree health insurance costs for employees with 10 years of service. The percentage rises annually, to 100 percent for 20-year employees.

Schwarzenegger’s plan also would lower the state’s contribution for retiree health care benefits from 100 percent of the average HMO premium to an amount that matches the contribution for active state employees – generally 85 percent of the insurance premium.

David Crane, a special adviser to Schwarzenegger on jobs and economic growth, has said that, without changes, the pension system’s unfunded liability could total several hundred billion dollars, depending upon future earnings.

Jim Zamora, spokesman for Service Employees International Union Local 1000, said the union has “never thought a two-tiered pension system was the solution to California’s budget problems.”

“We’re gratified that this (proposal) seems to be on hold for now, but we’re cautious because this budget process is unpredictable,” said Zamora, whose local represents 95,000 state workers ranging from nurses to custodians.

Publication: Sacramento Bee