Pension Reform Bill Backed by Anaheim’s Tait and San Jose’s Reed is Dead

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The pension reform initiative backed by San Jose Democratic Mayor Chuck Reed and backed by Anaheim Mayor Tom Tait died a quiet death last Friday when the major backer of the measure backed out.  The so called “Pension Reform Act of 2014” would allow voters to change the state constitution to allow government employers and the voters to lower retirement and healthcare benefits going forward.

We’re only surprised Costa Mesa’s council majority wasn’t all over this.

From a story in the Sacramento Bee:

San Jose Mayor Chuck Reed and his allies officially gave up after a judge rejected Reed’s challenge to language describing the measure for purposes of signature collection.

Despite the loss in court, the Democratic mayor said he and his allies “remain committed” to rolling back what they believe are unaffordable government pensions and will be “targeting the 2016 election cycle for our proposed pension reform initiative.”

The measure would have changed the state constitution to give government employers, under certain circumstances, the authority to freeze accrued retirement benefits for current employees and then reduce them in the future. A body of case law says that public pensions, once promised, cannot be cut without an offsetting benefit.

Reed and others who backed his measure say public pensions cannot be sustained at the benefit levels promised without siphoning money from crucial government services. Unions counter that the measure scapegoats government workers, that changes must be bargained and that officials such as Reed exaggerate the issue for personal political gain.

Despite the measure’s quiet death, Tait’s unwavering support of this proposed legislation should be a strong signal to labor unions in Anaheim that the Mayor certainly doesn’t care about union pensions.  The average pension is around $26,000 a year.

Those who argue that public employee pensions represent a huge unfunded liability should take a look at basic facts.  From the linked post:

Unfunded liability simply is a mismatch between a pension plan’s estimated obligations and assets. Defined Benefit pension plans such as California’s CalPERS and CalSTRS are pre-funded, meaning regular contributions for each worker are made into the retirement fund during the course of that worker’s career. A pension plan’s obligations are the estimated dollar value of the benefits that have been promised by the plan, and earned by employees and retirees. A pension plan’s assets consist of financial holdings—cash, stocks, bonds, and other securities—that have been accumulated by the plan over the years. When investment markets drop or if benefits are improved, many pensions find themselves facing a funding gap, or unfunded liability, because the benefits owed to current and future retirees exceed the amount of money the plan has socked away to meet these obligations.

A funding gap does not need to be closed in a single year, but the payments can be spread out (or “amortized”) over a number of years—governmental accounting standards permit a pay-down period of up to thirty years. Most people do not currently have assets that come even close to 70 percent of their mortgage obligation. For most states and localities, filling funding gaps will be manageable. Researchers at Boston College project that if total contributions increase by just 2.2 percent of payrolls, state and local governments can pay off the total unfunded liabilities in 30 years.

Countless studies have concluded that a well-managed group defined benefit pension plan is the most economical way to achieve retirement security. A recent analysis of the cost to achieve a target retirement benefit under a group pension structure, as compared with a defined contribution plan based on individual accounts found that a group pension can do the job at almost half the cost of the defined contribution plan. (Almeida, B., and Fornia, W. 2008. A Better Bang for the Buck: The Economic Efficiencies of DB Plans. Washington, DC:  National Institute on Retirement Security) Time and again, states that have carefully studied the issue have concluded that, even in tough economic times, continuing to provide retirement benefits via cost-effective group pension plans meets the joint interests of fiscal responsibility for employers and taxpayers, and retirement security for employees.

To get on the ballot in the first place, organizers needed just under 808,000 signatures.

Tait remains on the side of those who seek to change contracts between labor and government entities to diminish union influence.  Tait was the highest profile Southern California mayor to back the proposed legislation. Perhaps Unions will make him pay for this at the polls in November.

  1 comment for “Pension Reform Bill Backed by Anaheim’s Tait and San Jose’s Reed is Dead

  1. Robert Lauten
    March 18, 2014 at 8:32 pm

    Reason Foundation:
    “How California’s Public Pension System Broke (and How to Fix It)”
    June 2010 Policy Study 382 by Adam B. Summers
    http://reason.org/files/california_pension_crisis_reform_study.pdf
    Page 3:
    Many of the few businesses that have retained defined benefit plans, largely those in industries characterized by greater labor union strength, have been forced to dump their pension obligations on the Pension Benefit Guarantee Corporation (PBGC), the quasi governmental agency created in 1974 to insure private sector pensions.
    Page 5, – SB 400:
    The adoption of SB 400 in 1999 ushered in an era of dramatic pension increases, including the “3 percent at 50.” The politicians bankrupted the public employee pension system when they made the 3% at 5 increase retroactive to date of hire.
    56 page report: there’s more, – a lot more

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