Hollingsworth's sensible pension reform

Sen. Dennis Hollingsworth, R-Murrieta, is introducing tomorrow important pension reform legislation, SB919. I’ve given it a quick perusal and this looks like a solid, serious plan — the sort of thing the state must embrace if it hopes to tackle the half-trillion-dollar pension liability caused by excessive pension benefits for government employees. Public employees would still have fabulous benefits if SB919 passes, but the legislation would reign in the excesses. The Hollingsworth plan also reduces health-care benefit costs. The unions will go bonkers, but it’s time to put these types of ideas on the table. CalWatchdog will cover this tomorrow, but here is the senator’s fact sheet:

THE PROBLEMFor far too long, taxpayers have footed the bill for overly generous retirement benefits for state workers.  In the last ten years, the cost to the taxpayers for public employee retirement benefits has increased by 2000% from $150 million per year to over $3 billion.  These escalating costs have been the result of both increases in pension benefits lobbied by labor unions, as well as a down-turn in the stock market.  Now, faced with an unprecedented fiscal crisis and record-high unemployment, the state needs to take bold action to bring state employee retirement pension and health care costs under control.

The state significantly expanded benefit levels in 1999 and again in 2002, enhancing average monthly compensation formulas, providing cost of living retirement allowance increases for state and school retirees who retired prior to 1998, and expanding the definition of the State Safety  retirement category to include many non-safety classifications (such as billboard inspectors and milk inspectors). 

THIS BILLSB 919 seeks to realign public employee benefits so they are closer to their private sector counterparts.  This comprehensive reform package would apply to new employees hired following enactment of the bill and is estimated to save $110 billion in reduced pension payouts over 30 years 1.  SB 919 includes the following major reforms:

—   Reduces the retirement formula for non-public safety employees by requiring them to work 10 years longer before being eligible for full retirement benefits at age 65.

 —  Requires public safety employees, including CHP, firefighters, correctional officers, and other peace officers to work 7 years longer in order to qualify for full retirement benefits at age 57. 

 —   Changes the final compensation calculation to take into account the highest 3 years of wages instead of the highest 1 year.

 —   Ends state safety retirement benefits for milk inspectors, billboard inspectors, etc. and returns them to Pre-SB 183 Miscellaneous/Industrial classification.

 —   Increases the amounts that employees must contribute toward their retirement by eliminating the exemption threshold.  Currently, the first $200 to $800 of an employee’s wages is exempted from the employee’s calculation for retirement contribution.  This bill eliminates that exemption amount increasing contributions to CalPERS, resulting in an estimated $2 billion in cost savings through 2040. 

 Below is a chart that shows the current and proposed formulas for various retirement categories. 

Retirement Category

Current Retirement Formulas

Proposed Retirement Formulas

Miscellaneous – First Tier

2% at Age 55

2% at Age 65

Miscellaneous – Second Tier

1.25% at Age 65

.5% at Age 65

Industrial

 2% at Age 55

 2% at Age 65

State Safety (Pre-SB183)

2.5% at age 55

2% at Age 62

Peace Officer

3% at Age 50

2.7% at Age 57

Firefighter

3% at Age 50

2.7% at Age 57

Highway Patrol

3% at Age 50

2.7% at Age 57

Peace Officer/Firefighter CSU, Legislature, Judicial

3% at Age 50

2.5% at Age 57

CSU Police

3% at Age 50

2.5% at Age 57

 SB 919 also proposes to make the following changes to the state’s health benefit program:

 —     Provides the state with the authority to purchase health care from a provider other than CalPERS, thereby allowing the state the flexibility to determine health plans and premium levels that are more cost effective.  This would save approximately $300 million annually with a growth rate of three percent.

 —    Requires state employees to work for 25 years (5 years longer than current law) in order to be fully vested for retirement health care benefits.  This would result in an estimated $49 billion reduction to the state’s accrued actuarial liability through 2040.

 —    Reduces the state’s contribution toward a retiree’s health care costs from 100 percent of the average HMO cost, to about 85 percent to match contributions made for currently active employees. This would result in an estimated $19 billion reduction to the state’s accrued actuarial liability through 2040.

 —     Allows governmental agencies that contract with CalPERS for health benefits to negotiate a lower level of employer health care contribution for new hires.

———————————–

–Steven Greenhut

No comments

Write a comment
  1. John Seiler
    John Seiler 20 April, 2010, 19:29

    Sounds sensible to me — as far as it goes. It’s a must.

    But as you wrote about on April 9, that Stanford study now puts the state pension debt at $500 billion. Much more will need to be cut.

    How about this, for starters: Eliminate any pension payments above $100,000. If these retired functionaries can’t live on that amount, then let them apply for food stamps.

    — John Seiler

    Reply this comment
  2. EastBayLarry
    EastBayLarry 21 April, 2010, 07:19

    John:
    I agree with your limited support for these changes and I for one would be delighted at a retirement income of *only* $99,999 per year. But I don’t think an arbitrary limit is the answer. Perhaps some (small) multiple of the currrent ‘poverty level’ instead?

    Reply this comment
  3. Pops
    Pops 21 April, 2010, 18:34

    I don’t think anyone has considered that by raising the retirement age of police and firefighters, the likelyhood of them retiring on a work-related injury increases tremedously. So what happens if they get injured between the age of near the age of 57? Once they retire, the first 50% is tax free. Yes, no federal or state taxes are paid on it. It kind of becomes a catch 22. Before passing the bill, perhaps a study should be done on how many retirees, under the current system, are getting injured and at what age they are getting injured. I can almost guarantee you, it will be near, or after, the age of 50. We all know that a 55 year-old man’s body feels differently in the morning than a 30 year-old man’s body feels. Behind a desk, it all sounds great, but when you are wearing the uniform and doing it, everything changes.

    Reply this comment
  4. marcia fritz
    marcia fritz 21 April, 2010, 20:35

    We are clearly winning. I’m challenging every union boss who oppose this to propose another alternative that saves $110 billion over 30 years.

    Reply this comment
  5. Kris Hunt
    Kris Hunt 22 April, 2010, 05:22

    Great point Marcia!

    Reply this comment
  6. e silver
    e silver 22 April, 2010, 19:09

    This bill would mean people would work longer, so that means there would be less jobs for young people to get into! What the use of education if there are barely any jobs to apply for! Lets let grandpa relax at a decent age and let the new younger workforce have a chance for a job. Do you really want old firefighters and police!

    Reply this comment
  7. OCO
    OCO 23 April, 2010, 07:39

    . We all know that a 55 year-old man’s body feels differently in the morning than a 30 year-old man’s body feels.
    ===================
    Hey “Pops”-welcome to the real world.

    A 55 year old mans body is not the same as a 45, 40, 35 or 30 year old mans body either-that doesn’t mean you get to live on easy street-that is a prt of life buddy. We all deal with it in the real world. I woudl LOVE to “retire” at age 45, because my body wasn’t what it was at age 22, but I deal in reality.

    If you have to I will find something you CAN do at age 55, like sweeping streets, or painting curbs, or working the cross walk at the local K-6 school-you can handle that can’t you?

    Reply this comment
  8. SEESAW
    SEESAW 23 April, 2010, 08:18

    The plan needs to pass actuarial muster before it can be considered.

    Reply this comment
  9. Pension Actuary
    Pension Actuary 23 April, 2010, 09:56

    To SEESAW, a silly attempt to put up a roadblock.
    This proposal will obviously cause lower pension costs, so it can be considered now. Remember this, the legislature did not try to pass actuarial muster when they made the existing excessive pension promises. They told the actuaries what to think, and then told them that the bills were going to be passed anyhow. The actuaries at the state are paid employees subject to political interference and mandated assumptions.

    On a separate note, Stanford made a study using the US Treasury interest rates. But they were too optimistic. Long term US Treasury STRIP bonds are indexed for inflation. Their pricing is the proper yield rate to reflect true risk-free yields. And STRIPs are selling below a 3% current yield, compared to the 4%+ rates used by Stanford’s paper.

    Reply this comment
  10. magie
    magie 23 April, 2010, 10:23

    Sen. Dennis Hollingsworth, (R-Murrieta), reform SB919 is a start but is does not go far enough. The ideal reform would be for the State of California file Chapter 11 Bankruptcy and get rid all contracts. Start with a new plan that puts all state workers under the Social Security System with a Medicare type health insurance and Social Security Retirement. Then Public Employees could see how the majority of Americans live in the real world!

    Reply this comment
  11. Mitch
    Mitch 23 April, 2010, 16:03

    Ok Marcia Fritz, I have a proposal. It is time to form a Private CalPERS. Not social security, but a private state of california portable private defined benefit program. The difference this time would be that the employer and employee will contribute a SET amount lets say 10% of gross salary per year. You and I both know the state of california paid ZERO percent into CalPERS for over a decade, that is 10 years plus … yep that is a fact. If, as you contend, calpers is not properly funded, THAT IS THE CAUSE. Public agencies are all different but they also paid little or nothing for over a decade. Lets do it right with the private employees, make the employer pay just like the employee has. People dont want to see their 401K’s tank again.

    Reply this comment
  12. SEESAW
    SEESAW 23 April, 2010, 21:37

    Pension Actuary:
    No attempt at roadblock on my part. I am already retired and not affected personally by whatever is decided. But, I do believe that everything pensionwise, that is adopted, should get the ok of the actuary first. My former entity is offering a retirement incentive this year in order to encourage early retirement. One thing that must be done in each individual case, is that an actuary from CalPERS must go over the details of each individual case. It would only make sense to me, that any new formulas adopted by the legislature should be scrutinized by the CalPERS actuaries. Jerry Brown has stated that he will continue to favor the DB plan for State Workers, but he wants to make sure the Plan is actuarily sound. Certainly makes sense to me. I’m not one of those “got mine, to heck with you” people. I am concerned that everyone may come out of this as well as possible.

    Reply this comment
  13. SEESAW
    SEESAW 23 April, 2010, 21:43

    Magie: You haven’t been paying attention. The State of CA is a sovereign entity and cannot claim bankruptcy like cities. Go read up on the City of Vallejo–you will see why no other city has tried it.

    Reply this comment
  14. SEESAW
    SEESAW 23 April, 2010, 21:48

    More to Magie: I am married to someone who worked as a carpenter for 23 years and then as a supervisor in construction for another 7 years. He lost his union benefits when the illegals came in, and his defined benefit pension barely covers the medical insurance premium. I live in the real world, and am as much an American as anyone.

    Reply this comment
  15. OCO
    OCO 24 April, 2010, 08:16

    Magie: You haven’t been paying attention. The State of CA is a sovereign entity and cannot claim bankruptcy like cities.
    ================

    You are 100% correct seesaw, and because CA is a sovereign entity they don’t need to claim BK, they can simply refuse to pay and there is nothing any public employee or Calpers can do about it. Not in state court and not in federal court.

    If CA refused to pay, you and other public employees would be stopped dead in your tracks with nothing. You better hope that does not happpen.

    Reply this comment
  16. SEESAW
    SEESAW 24 April, 2010, 10:21

    To Mitch: One of the panelists at the CalPERS sponsored CA Dialogue in Los Angeles on Feburary 12, was the Policy Director of the National Pension Rights Center. The aim of that organization is to set up DB pension plans for all American workers. I have heard talk from PERS-member cohorts that PERS has bandied about the idea of opening up PERS to private entities. I’m sure all of the pension enviers, who spout such hateful rhetoric at public workers, would jump at the opportunity to be put on a DB plan.

    Reply this comment
  17. SEESAW
    SEESAW 24 April, 2010, 10:29

    OCO: If you would wish such pain on millions of people in your state, you are a little sick. I am confident that we are far enough out of the dark ages, that the State of CA would never consider doing such a thing to its pensioners. You are even supposing that the State would take over the 213 billion that CalPERS now has. That will not happen. This is America. The City of Vallejo did not get away from its pensioners.

    Reply this comment
  18. BIll
    BIll 24 April, 2010, 11:27

    I would like to see some language added to it to prevent spiking and double dipping. If you retire, you can longer get a paycheck from the government.

    Reply this comment
  19. magie
    magie 24 April, 2010, 22:11

    My Spouse and I worked in the private sector and paid Social Security Tax 52 weeks every year. We never made enough to hit the cut off period. We both retired at the age of 65 after working for 47 years. Now at 70 with Social Security income and Medicare, mandatory withdrawals from IRAs, and other investments we still pay State and Federal Income Tax, Property Tax, Sales Tax, User Tax, DMV Tax, the list is endless, all to support Public Employee Benefits, higher wages, longer vacations, early retirement, Cadillac insurance plans, and full pay after retiring, this list is also endless and unaffordable and unsustainable.

    Bottom line, when Presidents, Senators, Congressmen, Governors, Policemen, Firemen, Teachers, and I are all kicked back on the front porch in our rocking chair drawing taxpayer money, I can’t see where one is worth any more than the other, but what does a poor old dirt farmer know?

    Reply this comment
  20. OCO
    OCO 24 April, 2010, 23:02

    OCO: If you would wish such pain on millions of people in your state, you are a little sick.
    ======================
    No, I do not “wish” that on anyone seesaw.

    I am just pointing out to oyu that the state of CA can refuse to pay their pension obligations and there would be nothing ANYONE could do about it.

    It was a comment to you b/c you said states could not file BK-and I just wanted to point out they have no need to file Bk when they have the power to simply not pay. The 11th Amendment protects all states from being sued.

    Bottom line, these 90% pensions at age 50 are not going to last, a few more years max and the entire system will be broke.

    Reply this comment
  21. OCO
    OCO 24 April, 2010, 23:05

    The City of Vallejo did not get away from its pensioners.
    =============
    The The City of Vallejo did not try tp shed their pension obligations-they should have tried.

    Google Prichard Alabama and see what happened to their retirees public pensions in BK court;

    ?Prichard Alabama declared bankruptcy on October 28, 2009 over pension obligations. Since then pensioners have not been paid. ”

    http://globaleconomicanalysis.blogspot.com/2010/03/bankruptcy-court-gives-prichard-alabama.html

    Reply this comment
  22. SEESAW
    SEESAW 25 April, 2010, 11:19

    OCO: You must have fingers crossed on both hands. You say you do not wish that on anyone, and then you turn around and say you think Vallejo should have gone after the pensions.

    My heart goes out to the retirees in Pritchard, Ala. They are victims of a poorly mangaged pension system. There is no comparison with Pritchard and CA. CalPERS has enough money to pay every current annuitant for the next 20 years without bringing in another cent.

    The columnists and commenters all fail to acknowledge that many respective public entities began working on their pension sustainability issues many years ago–and that’s how the problems will be solved if they can be left alone to do it. My own former entity set up a second tier for new safety workers five years ago and for all new miscallaneous hew hires a year ago.

    I worked at my muni for 40 years, and I do not know a single safety retiree from my muni that retired at age 50 with 90%. How many do you know?

    Funny thing is, if the columnists who print these 100+ lists would state the titles of the retirees, instead of the names, they would discover that 99% are former dept. heads and high level managers–all non-union.

    Reply this comment
  23. StevefromSacto
    StevefromSacto 27 April, 2010, 09:00

    This anti-pension hatred shouldn’t be surprising.

    A recent study by a couple of Stanford University graduate students which contends that public pensions are on the brink of collapse was jumped on by the press like fleas on a hound.

    At the same time, a UC study showing that budget cuts in health and human services programs would actually cost more money than they save was completely ignored.

    Another example of the “liberal” media, I guess.

    Reply this comment
  24. Jacksonville Joe
    Jacksonville Joe 27 April, 2010, 12:06

    Blah blah blah…. Haven’t you folks got nothing better to do? Go back to work like all the rest of us. Geezz. Anyways – By the time you get 55 you’ll be dead of a heart attack.

    Reply this comment
  25. StevefromSacto
    StevefromSacto 28 April, 2010, 08:45

    This just in:

    NEW STUDY FINDS PUBLIC SECTOR EMPLOYEES EARN LESS THAN COMPARABLE PRIVATE SECTOR EMPLOYEES

    Analysis May Shed Light on Government Hiring Difficulties, Despite Economic Conditions

    WASHINGTON, D.C., April 28, 2010 – Employees of state and local government earn an average of 11% and 12% less, respectively, than comparable private sector employees. An analysis spanning two decades shows the pay gap between public and private sector employees has widened in recent years.

    These findings are contained in a new report, “Out of Balance? Comparing Public and Private Sector Compensation Over 20 Years,” commissioned by the Center for State and Local Government Excellence (Center) and the National Institute on Retirement Security (NIRS). The study provides an original analysis of data from the U.S. Bureau of Labor Statistics. The study finds that:

     Jobs in the public sector typically require more education than private sector positions. Thus, state and local employees are twice as likely to hold a college degree or higher as compared to private sector employees. Only 23% of private sector employees have completed college as compared to about 48% in the public sector.

     Wages and salaries of state and local employees are lower than those for private sector employees with comparable earnings determinants such as education and work experience. State workers typically earn 11% less and local workers 12% less.

     During the last 15 years, the pay gap has grown – earnings for state and local workers have generally declined relative to comparable private sector employees.

     The pattern of declining relative earnings remains true in most of the large states examined in the study, although there does exist some state level variation.

     Benefits make up a slightly larger share of compensation for the state and local sector. But even after accounting for the value of retirement, healthcare, and other benefits, state and local employees earn less than private sector counterparts. On average, total compensation is 6.8% lower for state employees and 7.4% lower for local employees than for comparable private sector employees.

    “The picture is clear. In an apples-to-apples comparison, state and local government employees receive less compensation than their private sector counterparts,” said Keith A. Bender, report co-author and associate professor, Department of Economics at the University of Wisconsin-Milwaukee. “These public sector employees earn less than they would earn if they took their skills to the private sector,” he added.

    John S. Heywood, report co-author and distinguished professor, Department of Economics at the University of Wisconsin-Milwaukee said, “Jobs in state and local governments consist disproportionately of occupations that demand more education and skills. Indeed, accounting for these differences is critical in understanding compensation patterns.”

    The study sheds light on a recent survey of government hiring managers, sponsored by the Center. Elizabeth K. Kellar, president and chief executive officer of the Center reported, “Hiring managers told us that despite the economy, they find it difficult to fill vacancies for highly-skilled positions such as engineering, environmental sciences, information technology and healthcare professionals. The compensation gap may have something to do with this.”

    Beth Almeida, NIRS executive director said, “For a long time, there has been a compensation trade-off in public sector jobs – better benefits come with lower pay as compared with private sector jobs. This study tells us that is still true today.” She added, “What’s striking is that on a total compensation basis – looking at pay and benefits – employees of state and local government still earn less than their private sector counterparts.”

    Reply this comment
  26. magie
    magie 30 April, 2010, 07:35

    NEW STUDY FINDS PUBLIC SECTOR EMPLOYEES EARN LESS THAN COMPARABLE PRIVATE SECTOR EMPLOYEES.

    Borrowing a line from Jacksonville Joe, “Blah blah blah…”.
    Sounds like someone is trying to baffle us with B.S.

    Reply this comment
  27. StevefromSacto
    StevefromSacto 30 April, 2010, 13:14

    Nah, nah, nah, nah, says Magie, don’t confuse me with the facts. If Rush doesn’t say it, it can’t be true.

    Reply this comment
  28. dromk
    dromk 13 June, 2010, 16:04

    all u people want these officers and firefighters to be out doing their job at 55. u complain about the pensions etc.. how many of u r willing to go out everyday and risk your life. if you think its a safe job look at the stats of dead officers and fire fighters each year. how many of u whinners would go into a burning building to save someone. or go into life or death situation, like lets remember the hollywood shootout. i say they earn their retirements. if u dont think so, walk in their boots, or go to an officers funeral (oakland pd) and see if u would be willing to die like they did.

    Reply this comment

Write a Comment

<


Related Articles

Republicans cringe before Jerry Brown

Sept. 11, 2012 By John Seiler Governments today wield immense power over every aspect of our lives. That’s why threats

Rent-control push surges to forefront of state housing debate

A ballot measure that would repeal California’s 1995 state law limiting what properties can be subject to rent control seems

Southern CA ‘Bonfire of the vanities’

July 11, 2013 By Katy Grimes Whenever environmental or social justice activists want something banned, they create a health or