California pension proposal seeks to hike employee contributions
Sacramento Bee July 12, 2011
From California to Florida, many public employees are paying more for their pensions now than a year ago as strapped state and local governments cast about for savings.
Now a sweeping Republican proposal in the California Senate, among other changes, would hike how much all current and future state and local government workers pay toward their pensions.
A union coalition has blasted the long-shot proposal as a one-size-doesn't-fit-all encroachment on bargaining rights. Many labor groups, including a dozen representing California state workers, already have agreed to higher pension contributions from their members.
Plus, the unions say, pension payments are part of their members' total compensation package. Deals struck that allow low or no employee contributions were in lieu of higher pay, they say.
"Taking this away doesn't take the previous trade-offs into consideration," said Dave Low, head of Californians for Retirement Security, the coalition battling efforts to change public pensions.
Nationally, 15 states have either bargained or legislated higher pension contributions from public employees, according to the National Conference of State Legislatures. Of those, eight states – including California – are offsetting the employee contribution increases with lower government contributions.
CalPERS figures that those higher state worker payments will save government nearly $407 million on its 2011-12 pension bill.
New Mexico workers started contributing another 1.75 percent of their salaries into their pension programs on July 1. Their employers – state government, school districts and colleges – will save a combined $50 million this year by reducing their pension payments by the same amount.
Lawmakers in New Jersey, traditionally a union-friendly state, recently passed a landmark measure that increases employee pension payments. Unions there are suing to block the increases.
Unions also are fighting a new Florida law that required 560,000 employees to begin paying 3 percent of their salaries to the state retirement system on July 1. The contributions will save state and local governments $806 million in the first year.
"Raising what employees pay toward their pensions is a big deal," said Ron Snell, a pension expert for NCSL. "It's an infusion of cash right off the bat and, in the short run at least, eases some pressure on general fund budgets."
Erin Guerrero, chief of staff for state Sen. Anthony Cannella, R-Ceres, said her boss co-authored the California measure aiming to "fix our broken pension system" which faces "anywhere from $50 billion to $300 billion" in unfunded liabilities, depending on who is estimating. "The only way to make them actuarially sound is to either reduce benefits or increase employee contributions," she said.
Senate Constitutional Amendment 13 would mandate, among other things, that California state and local government workers pay 5 percent more of their salaries toward their retirements if their pension fund's assets equal less than 90 percent of promised payments.
Cannella and fellow Republican Sens. Tom Berryhill of Oakdale, Bill Emmerson of Hemet and Tom Harman of Huntington Beach co-authored the measure, which – if approved by two-thirds of state lawmakers – would go before voters on a statewide ballot.
If approved, the measure would immediately increase pension contributions paid by state and local workers in the 3,000 agencies whose retirement plans are administered by the California Public Employees' Retirement System.
Although the fund's assets are valued at about $240 billion, that's enough money to cover only about 70 percent of its long-term obligations. Most experts consider an 80 percent funding status to be the bare minimum required for a public pension fund's health.
The pension measure is a long shot, given that labor-friendly Democrats control both chambers of the Legislature. But it could serve as a template for a proposal that may reach the ballot.
CalPERS spokesman Brad Pacheco said the fund is examining the bill and hasn't yet taken an official position.
Steve Maviglio, spokesman for the union coalition Californians for Retirement Security, blasted the Republicans for spending six months in unproductive budget talks "proving they are irrelevant and out of sync with Californians."
"With this new gambit, it looks like they didn't learn their lesson," he added.
The unions are particularly ticked that the Republicans are trying to legislate something that they argue should be hashed out at the bargaining table.
They also point out that in the last year, a dozen unions representing about 200,000 California state workers negotiated contracts that increased what members contribute toward pensions to as much as 11 percent of their pay. About two-thirds of the employees who were paying 5 percent now contribute 8 percent of their pay.
State government kicks in the employer's share of the pension contribution to CalPERS, now between 16 percent to 31 percent of payroll, depending on the union agreement and CalPERS' requirements.
CalPERS invests the money to build assets that, ideally, churn enough in returns to fully cover retirement benefits.
CalPERS also administers retirement benefits for roughly 3,000 local public agencies and school districts. Their employer/employee contribution splits vary widely. Some pick up the employees' share of pension costs.
Many local government unions also have agreed to shift more of the pension burden to employees.
This month, for example, Folsom Local 522 fire captains, engineers, firefighters and paramedics started paying 5 percent of their salary toward their CalPERS pensions. The payment increases to 9 percent next year.
CalPERS says about 175 cities and counties have either raised employee contributions, reduced pensions for new hires or both.
The amount that state workers contribute toward their pensions varies, based on union agreements and state law. Here are examples of the state/employee split.
State/employee contribution as a percentage of compensation
• State miscellaneous member (about two-thirds of the state workforce)
18 percent / 8 percent
• California Highway Patrol officers*
31 percent / 10 percent
• Peace officers (correctional officers)*
27 percent / 11 percent
27 percent / 10 percent
*Do not contribute to or receive Social Security.
– Source: CalPERS