Pensions May Be 'Touchable'

February 11, 2011 - By admin

FEB. 11, 2011

By TROY ANDERSON

The prevailing wisdom holds that existing public pensions – once converted into Cadillac plans – can’t be turned back into Oldsmobiles.

For decades, union officials have repeated the mantra that government agencies can’t modify or reduce pension benefits without violating the constitutional prohibition against impairment of contracts.

But a growing number of legal experts say public agencies may have far more latitude to change retirement benefits – especially future benefits earned by current employees – than once commonly believed.

“We’ve looked at the case law very carefully and our view is very different than the so-called talking heads – be they politicians, union leaders or whatever,” says Jeff Chang, an attorney at Chang, Ruthenberg & Long, a Folsom-based firm that is advising government agencies throughout the state about their legal options to reduce pension costs. “The case law is much more ambiguous and refined. It’s not nearly as black and white.”

CalPERS spokesman Ed Fong disagrees.

“Litigation in this area has never supported this view,” Fong says. “Courts have always ruled that vested retirement benefits cannot be taken away or reduced once they are earned.”

As public pension costs consume 25 percent to 50 percent of the payrolls of a growing number of agencies throughout the state and nation – raising concerns about tax increases, reduced public services and a wave of municipal bankruptcies – officials are asking the once-taboo question of whether it may be necessary to seek to reduce promised pension benefits.

“It’s a very hot topic,” says Lisa Hill Fenning, a Los Angeles attorney and former U.S. bankruptcy court judge who will speak about the controversy Feb. 17 in Irvine during a California Foundation for Fiscal Responsibility-sponsored boot camp for elected officials. “Ultimately, the question that is going to be posed in the courts is whether the modification of these pensions is necessary to save everybody.

“If a government agency is otherwise going to run out of money – won’t be able to pay its pension obligations, can’t pay its current employees and can’t provide basic services – then everybody might agree it’s necessary. Most likely it will be debated in the political arena. These types of discussions have already been going on in academia and the bar.”

These discussions come as state lawmakers have bestowed generous pension increases upon public servants in recent decades. As a result, taxpayers are now on the hook for trillions of dollars. In California, the average state retirement packages now valued at more than $1.2 million, according to the CFFR.

Joe Nation, a professor of the practice of public policy at Stanford University, says the estimates of the unfunded pension liabilities in California alone range from $265 billion to $737 billion.

“I think most jurisdictions and pension systems are beginning to understand that unless they have the authority to modify benefits going forward for current employees that there is really no way to dig out of the hole they are in,” Nation says. “I think a lot of cities are going to find they simply can’t afford to continue to pay these pensions unless they get rid of a majority of the services they provide. The question is can jurisdictions ask voters for tax increases. I think that is going to be a tough sell, especially to fix a system that most people think is broken.”

Throughout the nation, experts are warning of the approaching insolvency of state and local retirement plans. Experts at the University of Chicago and Northwestern University’s Kellogg School of Management estimate public pension funds nationwide are unfunded to the tune of more than $3.2 trillion.

Currently, 7 million public retirees are collecting pensions from government retirement plans. An additional 20 million Americans have been promised these benefits. But by 2020, 10 states are expected to exhaust their pension funding. All but eight of the 50 states are expected to run out of pension money by 2030, including California in 2026, according to U.S. Rep. Devin Nunes, R-Tulare, co-author of the Public Employee Pension Transparency Act.

The act provides enhanced transparency for state and local pensions and also establishes a federal prohibition on any future public pension bailouts by the federal government.

“You can’t get around these numbers,” says Nunes’ communications director Andrew House. “The period when you could put your head in the sand and put this off – that period is ending for most of the states.”

In response, officials throughout California are quietly discussing the legal options they might have to address the soaring costs.

Manteca City Manager Steve Pinkerton raised the issue in a recent blog post entitled – “Are Government Pensions Untouchable?”

“I’m beginning to see a groundswell of discussion from legal experts who claim that government pensions aren’t as untouchable as labor would like us to believe,” Pinkerton wrote. “One California law firm in particular has been making some fairly bold statements about the ability to challenge public employee pensions.”

In a position paper on its Web site, the law firm of Chang, Ruthenberg & Long cited one of the leading cases in pension law – Kern v. Long Beach. The case involved a retired firefighter who sued Long Beach in 1945, alleging the city rejected his application for retirement benefits on the grounds the benefits had been eliminated by charter amendment 32 days before he completed 20 years of service. The state Supreme Court heard the case in 1947 to determine if he had a vested right to a pension that the city could not abrogate by repealing the charter provisions without impairing its contractual obligations. The high court found pensions for public employees are more than a “mere gratuity” and a “pension right … cannot be destroyed, once it has vested, without impairing a contractual obligation.” However, the court also found that while an employee “may acquire a vested contractual right to a pension” the government is allowed to make modifications and changes in the system.

“The employee does not have a right to any fixed or definite benefits, but only to a substantial or reasonable pension,” the justices wrote.

Taken as a whole, Chang says the case does not mean that pension benefits can’t be modified or reduced. Although public employees have a right to participate in public pension programs, government agencies have the right to modify or change the system – particularly if the changes are necessary to address a budget crisis, Chang argues.

Under federal anti-cutback rules, Chang says if a government agency is going to reduce a pension benefit it at least has to preserve the amount of the pension the employee has already earned.

“If you believe that is what the case law intended, then the extension of that means you should be able to change things they have not yet earned,” Chang says. “I believe the courts in their wisdom never intended to say anything more than you cannot cut back an already earned and vested benefit, but I don’t think they ever intended to say you can’t change the formula.”

This particular aspect of the case law is drawing attention because one of the most critical pieces of legislation that expanded public pensions was SB400, a bill state lawmakers approved in 1999 that raised benefits as much as 50 percent for some employees. The adoption of SB400 ushered in an era of dramatic pension increases, including the “3 percent at 50” formula that allowed California Highway Patrol officers and other public safety officials with 30 years of service to retire with 90 percent of their final salary as young as 50 years old. The bill sparked a wave of public employee pension increases in cities, counties and other government agencies throughout the state and caused an exodus of public employees into the ranks of retirees.

Amy Monahan, an associate professor of law at the University of Minnesota, says a degree of uncertainty exists in terms of how courts might view prospective pension changes such as altering the “3 percent at 50” and similar formulas with respect to future service in order to reduce pension costs.

But even if the courts ruled state lawmakers couldn’t change pension formulas affecting workers’ future benefit accruals, Monahan says states could ultimately use their “police powers” to reduce pension costs.

“It’s possible that the state’s fiscal situation is bad enough that it would justify a change to an otherwise enforceable contract about future benefit accruals and that it would make changes permissible, essentially because the changes would be considered necessary to protect the welfare of the state and its citizens,” Monahan says.

Already, lawsuits have been filed against three states – Minnesota, Colorado and South Dakota, after state lawmakers rolled back cost-of-living increases for retirees, Monahan says. None of the lawsuits have been resolved yet.

“These are the people who have already performed their service, accrued their pensions and they are changing them post-retirement,” Monahan says. “That is, in my opinion, the legally riskiest thing to do. In terms of what is less risky – new hires are easy. You can do whatever you want with new hires. But with respect to people already in the system, changing benefit accruals going forward should be the least risky option.”

Alexander Rubalcava, president of Rubalcava Capital Management, an investment advisory firm in Los Angeles, says the long-held assumption that existing pensions can’t be modified has served to prevent any challenges until recently.

But he expects government agencies to take bolder steps in the years ahead as many are left with no choice.

Rubalcava, along with former Los Angeles Mayor Richard Riordan, have warned for years that Los Angeles will likely face bankruptcy by 2014 as annual pension and retiree health care costs increase by $2.5 billion, consuming an ever-larger share of the city’s budget.

“It’s a real question as to how this will all play out,” Rubalcava says. “It reminds me of a chess board where two moves have been made in the game. We are two moves into the game now and it’s very hard to know where it all goes from here.”

Comments(41)
  1. Bruce says:

    “[C]hanging benefit accruals going forward should be the least risky option.”

    I can’t for the life of me understand why this sensible position doesn’t get more traction — not least among employees who are taking pay cuts today to pay for gold-plated pensions, but might well be open to the idea of working an extra year or two or three to rack up the same retirement benefit, if it meant preserving their paychecks today.

  2. John Gardner says:

    The law is in fact VERY clear on this subject: vested pensions (i.e., for work already performed) cannot be taken away. Pensions for service yet to be performed (even for current employees) most certainly CAN be reduced. I continue to be amazed this has not been done already; however, commentators such as Dan Walters have repeated the falsehood so many times and for so long that achieving any kind of general understanding of what the law is vs what the Unions say it is appears to be a real up hill battle.

    Not only can the pension formula for current employees’ future service be reduced, it could be reduced to a level which would effectively eliminate the impact the Gray Davis boondoggle improvements.

    How to get at the pensions already being paid is a very different issue and, frankly, I have no idea how this could be done legally. I’m really of the opinion that it would be wrong to try to reduce them (a promise is a promise is a promise, and even though the promise should never have been made …), but would certainly love to hear anybody’s arguments for it.

  3. Dale Dearing says:

    Excellent article Troy! Let us hope that this approach will be taken by government at all levels as the retirement systems are bankrupting this country. If we go broke, no one gets anything. Why can’t the “public servant” sector understand this simple economic fact?

  4. Wayne Martin says:

    A some point, all law is just “words on a piece of paper”. Laws are made by putting questions of interest before qualified lawmakers, and with a show of hands. The proposition becomes law based on a majority (or supermajority) of those voting prevailing. Laws being created by this process, they can be rescinded by this same process, or some variant thereof.

    If the sticking point about reworking the pension system turns on a phrase in the US Constitution, then the US Constitution needs to be amended in a legal fashion so that pension modification will be legal.

    The idea that “contracts are sacred” is called into question all the time. There are millions of cases of contracts being modified by one side or the other, through mutual agreement. And then there is the case where one party defaults on his end of a contract by going bankrupt.

    Another key point underlying this whole issue of contracts is that the law generally can only work if the two parties making the contract are rational, have “skin in the game”, and have some idea that the transaction has value for each party in the transaction. In this case, we have allowed our elected officials to make “contracts” with unionized labor that bind future governments and taxpayers, for generations in the future, without even having the slightest idea what the costs will be, much less how the governmental agencies they represent will be able to pay off the individuals making claims against these “contracts” (in this case, their pensions). None of our elected officials ultimately have any fiscal, moral, or legal, obligations to the taxpayers for agreeing to these “contracts” that are proving financial destabilizing, perhaps even ruinous, to the governments which are obligated to pay off these pensions.

    As a nation, we are looking at $3T-$5T of unfunded pension obligations. As the article suggests, that number here in California is between $400B and $800B (and growing). The idea that “the law” should be so intolerant, or blind, to the situation, that the end result is the bankruptcy of the States, calls into question the value of “the law” itself. If an argument can not be made to allow modifications to these “pension contracts”, then we are faced with the somewhat “revolutionary” decision to overturn the basis of these laws by whatever means is most effective, and start over with some other system that supports the concepts of intelligent crisis resolution.

    This situation is beyond crisis mode. It’s just that most of the people who created the problem are still in office, or people just like them are now in office. This matter needs to be at the top of our political agendas until it is intelligently resolved.

    The stakes are too high to take any other path.

  5. David from Oceanside says:

    Excellent comment Wayne Martin.

  6. John Gardner says:

    Wayne’s arguments work for me for all potentially affected groups except those who are already retired and drawing their pensions. 30, 40, 50 and even 60 year olds who are still working have the opportunity to alter their circumstances in a variety of ways to overcome an adverse change in the “deal” pertaining to the future pension they will draw. 70 and 80 year olds cannot (of course, they could always be offered their jobs back … )

    That was the “philosophy” that guided the oil company where I worked in Human Resources. And the idea that you’d better damn well be careful what you agree to because you’re going to have to live with it …

  7. […] This post was mentioned on Twitter by Alex Rubalcava, Troy Anderson . Troy Anderson said: Pensions May Be Touchable. Here's my new CalWatchdog.com story: http://www.calwatchdog.com/2011/02/11/pensions-may-be-touchable/ […]

  8. […] benefits – especially future benefits earned by current employees – than once commonly believed.http://www.calwatchdog.com/2011/02/11/pensions-may-be-touchable/Tagged as: California, CalPers, Public Employee Pension Transparency Act, unfunded pension […]

  9. Charles says:

    Dear Mr. Wayne Martin.

    So you would change the Constitution? How does that work? If the law of contracts is nullified, it won’t be just for public pensions. It would also have to be for private pensions. It will be your house payment and car payment, your contract with your gardener, your contract with your bank, etc ad nauseum. You can’t single out public pensions. A lot of thought went into the Constitution of the United States. We are not a democracy where the majority can tax Kosher food or have slaves. We are a Republic. You have to realize the majority doesn’t always rule. The Constitution safeguards the rights of all citizens.

    Either contracts can be impaired or they cannot. What you advocate is financial anarchy.

  10. tough love says:

    Quoting Charles …”The Constitution safeguards the rights of all citizens.”

    It certainly hasn’t been doing a good job protecting Private Sector taxpayers from the greedy Unions.

    To bad the Constitution’s drafters didn’t foresee the collusion between greedy Unions and corrupt, self-serving, vote-selling, contribution-soliciting elected officials.

  11. SkippingDog says:

    It’s not clear to me how you re-employ 60, 70 or 80 year old retired police officers and firefighters if you manage to take their pensions away. Does that really seem like a good idea?

    As to Mr. Martin’s other comments, along with those of Charles and Mr. Gardner, it seems that the old law of unintended consequences cuts both ways. If we were to collectively decide that public pension contracts can be freely abrogated, it would indeed suggest that any contract arrangement could be likewise abrogated.

    I’m reasonably sure there would be very little or no support for such a radical departure from our constitutional history and legal customs. It would also make business much more difficult to conduct in our country.

    It does seem likely that current benefit arrangements could be prospectively modified to reduce future accrual rates for those still working. I wonder why Orange County didn’t pursue that course with their law enforcement employees, rather than the far less practical approach taken by Supervisor Moorlach and his colleagues. Is it possible this is more about politics than it is about public finance and policy?

  12. SkippingDog says:

    I believe Mr. Martin’s suggestions would also run up against our constitution prohibition against ex post facto laws and bills of attainder.

  13. tough love says:

    Skippy, Your being a retired officer, do I hear just a bit of “self-interest” here?

  14. john moore says:

    Here in Pacific Grove,we just enacted pension reform for services to be performed after any existing MOUs with unions expire. Pensions earned for past services are explicitly honored. Per the reform,the City can grant up to 10% of salary as a pension for future services and the City may not incur any liability beyond that 10% max. It’s in the courts,but Pacific Grove should prevail because the Calpers 3@50 plan has decimated PGs’ finances irreparably(if it stays with a defined benefit plan.) While most cities are underfunded by 30-35%,PG is underfunded by 51%. It should have about 100 million dollars in its’ pension plan,but is short 51 million dollars. That 51 million compounds at 7.75% per year unless Calpers earns more than 7.75% on the 49 million principal. For example,last year Calpers earned 4.45% more than 7.75% on principal,so our loss on the 51 million was only 3.3%(about 1.6 million). The case is POA v. City of Pacific Grove,in case you want to follow it. It is in Monterey Superior Court. If PG should somehow lose the case,Chap 9 is inevitable. It has already increased taxes(by a vote of the people) and annual pension costs exceed city property taxes.City services other than Safety are sparse.How did PG get in such bad shape: It got into 3@50 after the tech crash,incurring a 19 million liability.It issued 19 million in pension bonds as the property bubble crashed and Calpers lost much of the bond money. And of course it suffered like other cities in the Fannie-Freddie sub-prime mess.And isn’t it amazing how the defined benefit plan pension bubble parallels the sub-prime crash. When interest rates compound against a debtor,there is no way out.

  15. tough love says:

    I posted the following elsewhere, but it’s worth reading to put in perspective the enormous cost of common Civil Servant pensions vs what the typical Private Sector worker gets:
    *****************************************
    The total cost of fully funding (over a 30 year career from age 25 to age 55) a 2% and 3% per year of service pensions with and w/o an annual post-retirement 3% COLA increase are as follows (expressed as a level percentage of the employee’s cash pay):
    (1) 2% without COLA = 29%
    (2) 2% with COLA = 39%
    (3) 3% without COLA = 44%
    (4) 3% with COLA = 58%
    (Yes, I’m competent to do these calculations)

    After subtracting the share paid by the employees themselves (generally from 3% to 8.5% for Policemen) the balance is the responsibility of taxpayers. So Taxpayers need to annually contribute roughly 25% to 50% of cash pay (depending on the richness of the Plan) .

    With cash pay in the Public and Private sectors now very comparable, there is no longer any justification for greater Taxpayer paid-for pensions in the Public sector. So WHY should taxpayers be obligated to pay the above percentages when the typical Private Sector employer’s contribution to THEIR employee’s pension is typically 3%-8% annually ?

    The point I’m trying to make is that the 9% rollback Gov. Christie is calling for, does not even begin to APPROPRIATELY bring down the excesses granted Civil Servants. To do so would (and I agree, it should be done only for FUTURE years of service) require pension accrual reductions of roughly 50%.

    If you think I’m wrong, ask a Pension actuary.

  16. tough love says:

    Quoting Skipping Dog …”It does seem likely that current benefit arrangements could be prospectively modified to reduce future accrual rates for those still working. ”

    Wow … Since YOU are already retired, looks like (possibly to lessen the chance of givebacks from YOUR group, the RETIREES) you’re willing to throw your still-working comrades “under the buss”.

    Nice …..
    Why not go to the local Union hall and propose this ………..

  17. SeeSaw says:

    Seems to me that Skipping Dog mispoke……That’s not usually like him.

  18. tough love says:

    No Seesaw …. maybe he sees the writing on the wall. He clearly didn’t misspeak. He’s running scared !

  19. SkippingDog says:

    No, TL, we’ve always known that people who are already retired have the highest level of legal protection for their pensions. That’s because the courts have long known what people like you would like to do with that big pot of money that’s compounding daily for me and other retirees.

    Having said that, it’s not news that everyone is most interested in their own security and well being.

  20. SkippingDog says:

    SeeSaw is correct. It should have been “It does not seem likely….”

    Even the old Skipperdog gets carried away and misses words sometimes, but he never runs scared or with the pack.

  21. tough love says:

    Skipping Dog …. and now willing to throw their former comrades under the bus, I guess.

    Again, how about bring that option up at the Union hall.

    Think you’d get out w/o being lynched ?

  22. SkippingDog says:

    Not ever known to throw anyone on my side under any bus. Your side might be tempting, but I’m still a dog with a big heart.

    It’s clear that some of these more aggressive and outlandish proposals really aren’t designed to deal with any perceived pension funding problems. You’re a reasonably bright person, TL, and you know that the whole concept of unfunded liabilities isn’t really relevant unless all pension obligations come due for payment at exactly the same time. The people making these proposals know it too.

    I think things like direct assaults on the Orange County deputies and the Wisconsin Governor proposing legislation to completely disenfranchise his state workers – at the point of National Guard rifles if his current posturing is to be believed – are really just efforts to do exactly what you describe: scare existing public employees and see if they can be stampeded into far less favorable working arrangements. Nothing more than our current version of hardball politics.

    Although the pensions of people like SeeSaw, Charles, and the Skipperdog are among the legally and morally safest obligations that exist for us old folks, you can count on me being at union meetings, government hearings, and even marching in the street if that’s what it takes to ensure justice and fair play for my government colleagues.

    As the song went the last time the union busters tried to screw over the little guys, which side are you on?

  23. SkippingDog says:

    One other point, TL. Although I was once an elected officer of not only the local but the state peace officers association, and my heart will always be with my organized labor brothers and sisters, a full third of my career was spent as either a senior manager or exempt executive manager of the agency I served. I’ve seen both sides, and I’m pretty confident that I know how the game is played.

  24. tough love says:

    Skipping Dog, Ok, I’ll concede your no slouch either (and I WAS surprised by your suggestion). No offense with the “under the bus” comment (but given you 180 degree about face, I couldn’t help myself).

    But seriously, I’m not sure even YOU clearly understand what is meant when theu say CalPERS is (call it) $1 Trillion underfunded. What that means is that the PRESENT VALUE of ALREADY ACCRUED pension benefits is $1 Trillion greater than the funds in hand to pay them.

    Because it’s a “PRESENT VALUE” of those payments, the fact that they are payable in the future is ALREADY reflected in the calculation. Stated another way, this is a REAL shortfall, that won’t be simply made up by the payments being payable “in the future”.

    The only way to make up the shortfall is for investment earnings to exceed (substantially) the 7.75% rate CalPERS currently assumes it will earn on its assets, or to substantially increase contributions.

  25. SkippingDog says:

    The fallacy in your argument is with the PV calculation. The present value of an individual pension is no more than the payout for that particular month or, if you prefer, that year. There’s no lump sum, balloon payment, or any other kind of pension windfall that will ever have to be paid all at one time. Pensioners can’t demand a final pay-out calculated at the PV, because pensions are constructed in the same manner as traditional annuities (I recognize that one can buy a capital demand annuity these days, but it comes at the price of a reduced cash flow).

  26. SkippingDog says:

    One more example for you, TL. Whether you agree with the concept of “fractional reserve” banking or not, banks do not have every dollar they owe to you and everyone else in the vault right now waiting for you and everyone else to claim it. That would be called a “bank run,” and it’s precisely the same concept illustrated so well in that dark but sincere Christmas movie, “It’s a Wonderful Life.”

  27. tough love says:

    Skipping Dog, I’m not trying to argue with you, but step back for a moment.

    Sure, I can be a pain, but one REASON for that is that I know these calculations “inside and out”, and therefore I know how costly such pension designs are….. (and why I strongly feel the formulas should be reduced … but that’s for a another time).

    Also, my description is exactly correct. But to be clear, I’m not saying that there isn’t time for things to right themselves, or that the Plan assets will run out any time soon. If I recall, CalPERS is in better shape that most other states in this regard with sufficient money for about 15-16 years. But when I say the the shortfall is REAL you’d be well advised to accept what I’m saying.

    A stalemate with taxpayers (and employees) refusing to pay substantially MORE, combined with investment earning not SUBSTANTIALLY in excess of the 7.75% assumption (VERY unlikely) WILL (mathematically) result in the funds running out well decades before the most retirees pass on.

  28. SeeSaw says:

    TL: The State’s DB Pension Plan originated in the early 30’s before the Great Depression. After that our country has weathered the economic ups and downs,including a few serious recessions. I believe that our country is going to come out of this eventually, and CalPERS will still be standing as it has for 70+ years. If you want to rant against any group it should be the high rollers, on Wall Street who were the perpetrators of the recent global collapse–and they are still at it.

  29. SeeSaw says:

    John: Why doesn’t PG amend its DB pension plans for new hires? In past comments, you led me to believe that most of your work force had left PG.

  30. tough love says:

    SeeSaw, You don’t understand how serious is it. The very significant underfunding in CA, IL, MI, NJ, RI, etc. isn’t going away. W/o extraordinary investment gains (that nobody in the investment community expects), or very significant contribution increases (which neither the employees nor taxpayers are amenably to), these Plans WILL (yes (WILL) run out of money way before their liabilities are paid off. A few, (incl, NJ) BEFORE 2020.

    We’re beyond the point of continued “wait and see”. The Union’s attitude has always been delay, delay, delay change, thinking someone will pock up the bill. They’re now looking to the Federal Gov’t. If you been reading up on this, the Republicans have anticipated this and will prevent any Federal bailout. I can’t imagine taxpayers in more responsible States (e.g., Texas) would put up with a bailout anyway.

    There is going to be a great deal of financial pain one way or the other. If you think that taxpayers (85% of whom are not Civil Servants) are going to pick up the tab, you’re really being naive. The longer the delay in addressing it, the sharper will be the pain.

    You can call this a rant or doomsday prophesy or whatever you wish, and I hope I’m wrong, but preparation in case everything goes south is not a bad idea.

  31. john moore says:

    See-Saw: PG has amended its’ DB plan for new hires. If new or old hires want a DB plan,they can have it,but it is their plan,including losses. Most of PGs’ work force did not “leave”. They were fired to pay for 3@50 and 2@50 losses. For fiscal 2008-9,its’ pension loss was 31 million dollars. 17 million of that was in the 3@50 plan. 14 million was for the 2@55 plan.So a DB for new hires doesn’t work . If its’ total deficit was 5 million,not 51 million,PG would have a difficult time providing municipal services. It is now down to cutting police and fire,but staff wants to torpedo pension reform,so it is not telling anyone the truth about PGs’ financial demise. If ever a city met the “financial distress” element discussed in the above Article,it is Pacific Grove. Like most cities,PG is paying retirees ,partly out of principal,which is what “smoothing” is really about.Like I have said,PG is about 30% worse off than other 3@50 cities. In my view,our three previous city managers who were not trained in finance were worse than incompetent. The new city manager is in sort of stunned disbelief about what he is learning. He is conflicted,because he thought he was walking into a fat,for life pension,and the voters passed pension reform. It is incredibly interesting to observe, from the view of a retired lawyer.The conflicts of interest are so great,it just dominates rational discussion. Much like some of the “comments” about pension reform.

  32. SkippingDog says:

    TL – I appreciate your sane approach to this subject, and fully agree that public employees and public employers will have to pay more to ensure that their pension programs are funded to an actuarially appropriate level. I don’t think that level is 100%, but recognize there needs to be some discussion about what it really should be.

    As to the necessary sacrifices potentially required for current retirees, I will use my own situation as an example. Despite what many who post on these topics seem to think, my retiree healthcare stipend was never more than $400 per month, and it only reached that top limit level after 25 years of service. My individual HMO health insurance costs over $800 per month, with another $50 or so each month for dental coverage. Beginning last year, my health insurance stipend was reduced by $100 per month, and will continue to be reduced over the next two years to zero. That may not sound like much, but it represents about 5% of my overall income and California, unlike some other states, considers every cent of my pension to be ordinary taxable income.

    Other retirees are being required to give up as much or more than me, even though those were the promises made to them after a lifetime of service.

    Pension formulas have already been reduced for new employees at my former agency by a substantial amount, and people who retire now and in the future have absolutely no retirement health insurance assistance. If they were peace officers employed there prior to 1985, they don’t even have Medicare coverage in their future.

    So tell me, TL, even if we agree that there may be changed required in the future, are you really suggesting that people like SeeSaw, Charles, and me should just accept being told “too bad, your SOL” when we’ve fully performed our side of the employment bargain?

  33. tough love says:

    Skipping Dog,

    First, you said …”Despite what many who post on these topics seem to think, my retiree healthcare stipend was never more than $400 per month, and it only reached that top limit level after 25 years of service. ”

    I’m sure you know I’m from NJ, not CA. Interestingly, while CA’s 3@50 for Safety workers is “off-the-wall” excessive, your healthcare subsidy is VERY VERY low compared to NJ. In NJ, the safety worker’s pensions are 65% at age 55 with 25 years of service (still too generous in my view), but with 25 years they get completely FREE lifetime healthcare (except for modest copays) for themselves and their spouse and children. And, since it’s “free” everyone elects the most expensive Plan which costs the State just under $20K/yr (or $1,667/mo, more than 4x your subsidy). So maybe BOTH our States are NUTS, just in different ways.

    You also said …”So tell me, TL, even if we agree that there may be changed required in the future, are you really suggesting that people like SeeSaw, Charles, and me should just accept being told “too bad, your SOL” when we’ve fully performed our side of the employment bargain?

    Personally (even though I believe your primarily taxpayer-funded pensions are way too big …. sorry, I can’t “not” compare them to the little those in the Private Sector get), I do NOT feel benefits accrued for past service (which obviously includes all benefits for those already retired) should be reduced. However, with cash pay in the Public & Private Sector now very similar, I strongly feel pension accruals for FUTURE years of service for current public sector workers need to be no greater than (as a % of pay) those granted comparably paid Private sector workers by their employers.

    It’s not a “pension envy” issue (at least not for me), it’s that those who get “less” (the private sector workers) simply can’t afford to save for their own retirement, let alone pay for more generous pensions for Public sector workers. What few people understand is that current accrual levels are SO MUCH greater in the Public sector a 50% reduction in the accrual rate would only create a public/Private equivalence for the least-rich Public sector Plans.

    Now I’m not suggesting you throw your still-working associates “under the bus”, but the delay in reforming their pensions accruals for future service, eats away at the pot of assets from which all pensions are payable …. including yours, the retiree group. If theirs isn’t “remedied” appropriately, the continued excessive drawdown of assets may at some point bring you down with them.

  34. SkippingDog says:

    TL – There’s no doubt some validity in your concerns. I think we’ll see some changes everyone can live with, even if nobody likes all of them, once the rhetoric surrounding this issues cools down a bit.

    Exchanges like ours give me hope.

  35. SkippingDog says:

    TL – Given your statement above:

    “To bad the Constitution’s drafters didn’t foresee the collusion between greedy Unions and corrupt, self-serving, vote-selling, contribution-soliciting elected officials.”

    Can we conclude that you are in favor of publicly funded elections at all levels of government? Given the Citizen’s United decision stating that campaign contributions are just another form of 1st Amendment speech, why would you want to deprive unions and public employees of the same rights exercised by various other business and financial interests in our country?

  36. tough love says:

    Skipping Dog,

    The country would be VASTLY better off if elections were publicly funded and any politician who accepted one dime (or a job) before, during, (or say for 10 years after) leaving office were immediately executed (just kidding of course, but my point is clear).

    It sickens me that a Congressman’s vote influenced by a measly $1,000 contribution from a lobbyist could cost taxpayers $10 Million in benefits to the company/industry he represents. Or how about the Bridge to Nowhere (Alaska) or all the purported “reasons” why American’s cannot import cheaper Drugs from Canada (all nonsense), the decision clearly due to the money and influence of the Drug companies.

    As to your last paragraph, I can’t think of a worse Supreme court decision than the recent one granting Corporations the right to make unlimited donations to those running for office. What stops Exxon, Google, etc. from buying Congress or the White House ?

    I equally think Union’s (BOTH public and Private) influence to elect those where there is a quid-pro-quo to return the favor (Obama seems to fall in this category) is a great dis-service to the country.

  37. SkippingDog says:

    Perfect – we have a point on which we both fully agree, although I don’t think our current President is in any way unique.

  38. […] PENSIONS MAY BE “TOUCHABLE”: “I’m beginning to see a groundswell of discussion from legal experts who claim that government pensions aren’t as untouchable as labor would like us to believe,” Pinkerton wrote. “One California law firm in particular has been making some fairly bold statements about the ability to challenge public employee pensions.” […]

  39. Fred Thompson says:

    There will be Civil war that is for sure.

  40. Lynold says:

    I am going to make about $30,000 when I retire in 10 years
    from state service with 27 years. Is that too friggin much?
    Boy what a huge retirement! Shoot I can get a really good apartment
    or I can move to Oklahoma and get a 3 bedroom home. Where
    is the golden goose egg retirement everyone is talking about?
    Quit bitching about state workers pensions and go after the real
    criminals that we call our elected officials and the rich.
    Loopholes, inside trading, buying off our politicians
    and pitting the private sector middle class workers
    against the civil service workers.

  41. Chuck Hagenmaier says:

    I am one of those with a generous public agency pension. As a 2010 retiree I am particularly interested in the ability or non-ability of public agencies to change the current retirees pension -Basic, COLA, and Health benefits. Yes, I hope these benifits are not assialable. Not having had a career in labor law, I have no opinion on the ability to change benefits for current retirees, or past service benifits for current employees. But I do have an interest in the many fellow workers that I knew that are still working and a opinion about the effects of pension reform. You all need to be discussing how to implement these reforms if your goal is to improve government services to the public. Winning in court wins a battle, not the war.

    Current empolees will probably need to feel that a fair play approach has been taken if you want those employees to maintain or improve their job performance when pension reform for current future time served is modified to be less than their prior worked time benefit accrual. How that blending of past and future benefits is done to beat serve the public may be key to the long term net social benefit of pension reform. Having Tier 11 employees (Plan C) working next to someone with years of service under a system (Plan A) and a blended new benefit package (Plan B) for the next 20-30 years could wreck havoc on a public agency. I was a mid level manager for my last 7 years. I was okay. I would have a hell of a time managing those same 18 guys with drastic reductions in their future pay and pension benefits.

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