Public employee pensions under pressure

[one...two...tree 2,762]

State and local leaders see the growing cost as a threat to California's fiscal well-being. Efforts to reduce benefits are setting up a collision course with public employee unions.

Evan Halper and Marc Lifsher, Los Angeles Times

Reporting from Sacramento — Across California, state and local leaders are moving to confront the cost of public employee retirement packages — an escalating financial burden that threatens to choke off funding for other government services.

Legislation now being debated in Sacramento would curtail pension benefits to future state employees. Elsewhere, city and county governments are looking at a variety of measures, including raising property taxes to cover shortfalls and reducing payments to retirement funds.

On Thursday, pension consultant Girard Miller told California's Little Hoover Commission that state and local governments have $325 billion in unfunded pension liabilities, which he said amounts to $22,000 for every working adult in the Golden State.

"In California we had the Internet bubble, we had the housing bubble, and I see in the very near future the public pension bubble," Gov. Schwarzenegger said this week. Confronting the pension crisis, he said, should be the state's No. 1 policy priority.

If the problem is not addressed, the burden for funding government employee pensions would fall to the state's taxpayers. Many elected officials are advocating a reduction in benefits mostly for new hires to stave off tax hikes — setting up a collision course with the state's powerful public employee unions.

"When you have men and women standing side by side in extremely stressful, hazardous, grueling situations over the course of a career, it's hard to look one or the other in the eye and say your future security matters less," said Carroll Wills, a spokesman for California Professional Firefighters, which represents 30,000 state public safety workers.

Wills said state employees are taking the fall for the Wall Street financial crisis, which bludgeoned the stock portfolios that help fund pensions.

"We would argue that reforms like this basically are hitting the little guy for what the big guys did," he said.

Others contend that the typical pensions enjoyed by the public sector have simply become too expensive and have largely been abandoned by the private sector in favor of 401(k)-type plans in which employees build a nest egg but can't count on monthly payments for life.

Under current law and union contracts, for instance, retirement packages allow some classes of government workers — mostly police officers, firefighters and prison guards — to retire as young as age 50 with a pension equal to nearly their entire salary.

"Public pension costs are becoming unsustainable, and benefits are out of alignment with the private sector, generating public resentment," the nonpartisan League of California Cities recently warned.

The shortfall at the California State Teachers' Retirement System has ballooned so big — the system estimates it at $42.6 billion — that officials there say future investment profits could not come close to covering it.

CalSTRS would have to see returns exceeding 20% a year for five years in a row to make up the gap, according to an internal report. Otherwise, school districts and taxpayers would have to foot the bill.

In Los Angeles, where pension costs are expected to consume 19% of the general fund budget in the coming fiscal year, Mayor Antonio Villaraigosa wants voters to sign off on scaling back the pensions available to police officers and firefighters. The City Council, he said, has the authority to make those changes for the rest of the city's employees.

Grand juries in Fresno and Ventura counties, and the city and county of San Francisco, have all warned of pension shortfalls. San Diego and Orange counties have taken steps to trim benefits.

In Rialto, the City Council is mulling over a plan to cover an $8-million shortfall in the pension fund with a property tax hike that would cost the owner of a $200,000 home $300 each year. Voters in the San Bernardino County community will have a chance to weigh in on the idea in an advisory measure on the June 8 ballot.

City Councilwoman Deborah Robertson, who opposes the proposed tax hike, can guess at the outcome.

"The comments have been, 'Hey, why should we in these times want to add an additional tax?' " she said.

Labor leaders and some pension system officials say the condition of the retirement funds is not as dire as many critics have forecasted.

They say much of the problem would disappear if the financial markets simply performed as they have over the last two decades and if public employers and employees kicked a little more into their pension funds.

But many government officials are leery of betting too heavily on the financial markets to cover future costs.

Local governments are not permitted to default on pension payments short of declaring bankruptcy. And the state government, which cannot legally go bankrupt, has to pay the obligations even if it means eliminating other services — such as healthcare and social programs — or raising taxes.

Current benefits are less generous for those public workers outside of public safety ranks but still far outpace what is typically available in the private sector. And many government workers can begin collecting their pensions at age 55.

Lifetime healthcare is also part of the retirement package for hundreds of thousands of government workers.

That costly benefit, which most private employers stopped providing long ago, was created decades ago when health insurance was inexpensive and the offering seemed an easily manageable expense; money was never invested to cover it, but now the bills are astronomical.

Unions have at times traded salary increases for the bigger pension payouts. They contend that payments to most public-sector retirees are modest, averaging $2,100 a month for those under the state's largest pension fund, the California Public Employees' Retirement System.

But with so many Californians in the private sector having lost their jobs or seen their pay cut, supporters of rolling back benefits say the public wants changes.

The Field Poll, one of the state's largest independent polls, found in a survey it conducted in October that majorities of voters favored replacing public pension plans with 401(k)-style savings programs or setting limits on the benefits given newly hired public employees.

Still, public employee unions have successfully resisted changes to retirement formulas, contending that warnings of a pension funding collapse are exaggerated.

"There's been a big drumbeat from a relatively small group on the issue," said Dave Low, assistant director of governmental relations for the California School Employees Assn. "It's not exactly a groundswell. The issue is of low salience to the average voter."

But former Assemblyman Joe Nation, a Marin County Democrat, said local governments will find themselves in serious trouble if they don't take action.

"This may end up pushing more cities and counties either into or closer to bankruptcy," he said. "The numbers are just staggering."

In Los Angeles, which faces a $1-billion shortfall in three years, the mayor and top budget officials are working on a plan to cut pension costs by scaling back benefits for newly hired workers. Changes in pension plans for police and fire employees can be reduced only with voter consent.

The city projects that the taxpayers' share of city pension costs will grow from $653 million this year to nearly $1.3 billion in four years, accounting for 1 of every 4 dollars spent on basic services.

The city of San Diego, one of the first to experience a pension crisis early this decade, is preparing for a round of employee layoffs and a slashing of services to try to close an unanticipated $179-million budget gap created by a jump in pension obligations.

Heavy investment losses and an increase in the number of city employees deciding to retire contributed to the increase. The system now has only 66.5% of the money it needs to cover its obligations to retirees, the lowest level in six years.

The minimum a system typically needs to cover retirees is 80% of its total obligations.

Yet even in relatively flush cities, such as Ventura, which has set aside more than 90% of the money needed to pay future pensions, concern is mounting.

In the last year, Ventura budget officers and a citizens task force have been studying a number of pension solutions, including a so-called two-tier program that would dramatically reduce benefits for newly hired workers. They also would have all workers pay for a share of their pension costs.

"These are the kinds of techniques we might use to have a more financially sustainable pension," said Ventura Mayor Bill Fulton.

evan.halper@latimes.com

marc.lifsher@latimes.com Copyright © 2010, The Los Angeles Times

Edited April 23, 2010 by El Buscador

[SMOKE 1,426]

pffew. sure am glad that heathcare bill that lowers the cost of healthcare passed...oh wait.

[Obama 2012 1,714]

Two things that don't mix: Unions & Public Employees.

Of course, the idea that you can still leech of tax payers even after retiring is a load of ####### anyway as well.

[mawilson 2,133]

Gut them!

The idea of "monthly payments for life" is utterly ridiculous, considering that most

workers retire in their 60's and live happily for another 20 or 30 years.

Social security + 401(k) is the answer.

[Mr. Big Dog 10,747]

Of course, the idea that you can still leech of tax payers even after retiring is a load of ####### anyway as well.

Gets worse here in the sunshine state where public employees retire and then return to their jobs 30 days later. It's called double-dipping: collect both your salary as well as your retirement benefits. It's going on grand scale here. Don't want to hear about shortfalls in the budgets.

[one...two...tree 2,762]

Gets worse here in the sunshine state where public employees retire and then return to their jobs 30 days later. It's called double-dipping: collect both your salary as well as your retirement benefits. It's going on grand scale here. Don't want to hear about shortfalls in the budgets.

Yep. That is one thing that needs to end.

[one...two...tree 2,762]

Looks like many states are already working on to end double dipping.

States pummeled by the recession and heavy job losses are moving to bar government employees from "double dipping" — the practice of collecting a pension and a paycheck at the same time. The new rules are meant to curb employees from retiring only to return to their old jobs. They come at a time when unemployment has climbed to its highest level in 25 years.

It's impossible to determine exactly how many government employees also collect pension benefits, but some of the states that studied the issue have identified thousands of workers.

"We have to fix the mess we've made," says Utah state Sen. Daniel Liljenquist, the chairman of a committee that oversees the state's pension system.

Utah lawmakers will consider an overhaul when they convene in January. "It will happen, because it's something we have to do," Liljenquist says.

Officials in other states are taking similar steps:

• New Mexico Gov. Bill Richardson proposed changes in November that would bar new government retirees from double dipping. State legislators had already backed a broader plan that would also have limited current retirees.

• The board that runs South Dakota's public retirement system will meet this week to consider changes that would make public employees wait four months after they retire before seeking a new government job.

• Florida Gov. Charlie Crist signed a law in June that requires new retirees to wait at least six months before returning to work.

• Arkansas lawmakers are considering a measure that would stop elected officials who quit from returning to work. "They don't even empty out their desk," state Rep. Allen Kerr says.

Jon Greiner retired as police chief of Ogden, Utah, in 2002 to start collecting benefits, then immediately returned to his job. Greiner, also a state senator, says there's nothing wrong with that arrangement, and that lawmakers shouldn't use the laws to punish public employees. He is currently paid $107,000 annually as police chief; he estimated he makes about $4,000 a month from the pension.

A state audit in Utah identified more than 4,300 public employees in the state who also collected public pensions. A review in Florida found more than 9,000 — among them, prison wardens, college officials, and the former chief judge of the state's highest court, according to The St. Petersburg Times.

The nation's state and local retirement systems lost about $800 billion in 2008, says Keith Brainard, research director for the National Association of State Retirement Administrators.

Employees who double dip tend to collect benefits sooner, though Brainard says it has a "relatively small" impact on the overall cost of pension plans.

South Dakota's planned changes will save only about $5 million a year, says the system's executive director, Rob Wylie. New Mexico's proposed changes would save about $7 million. Elsewhere, the bill is bigger: An audit this year for Utah lawmakers suggested that double dipping by employees there could cost the state as much as $900 million over the next decade.

link

[w¡n9Nµ7 §£@¥€r 123]

Double dipping is a tiny part of the problem.

[Mr. Big Dog 10,747]

Double dipping is a tiny part of the problem.

True but it's still wrong. Especially when we have a 12% unemployment rate in the state.

[w¡n9Nµ7 §£@¥€r 123]

True but it's still wrong. Especially when we have a 12% unemployment rate in the state.

Of course it's wrong. But public employee unions want you to think that's the problem and that addressing it will be a huge victory after which we can all chillaxx.

Not so... the problem is structural and the solution is a wholesale dismantling of said structure.

[Mr. Big Dog 10,747]

Of course it's wrong. But public employee unions want you to think that's the problem and that addressing it will be a huge victory after which we can all chillaxx.

Not so... the problem is structural and the solution is a wholesale dismantling of said structure.

Agreed.

[one...two...tree 2,762]

Here's what the state of Illinois is proposing through the Pension Funding & Fairness Act:

1. Require greater employee contributions, increase the retirement age, and create a two-tier system for new state employees. This reduces the total unfunded liability and the annual payments required by law. This is a modest step and more aggressive reforms are needed, but we begin with this level of reform.
2. Enact a spending growth index that would allow the state budget to grow by the increase in inflation plus the increase in population. Over the last 20 years, inflation plus population has increased at an average annual rate of 2.4 percent. Assuming this same average going forward, the state budget will still grow over time, and funding to core government services will increase each year at a sustainable pace that taxpayers can afford.
3. Revenues have grown at a 20-year historical average of 4.8 percent, twice the rate of inflation plus population. Assuming that same rate of growth going forward, we direct all revenue that comes in over the projected spending growth limit of 2.4 percent to the state's annual pension contribution amount. Under current law Illinois must have its pension systems 90 percent funded by 2045. The Pension Funding & Fairness Act follows the contribution schedule that was created to meet this target.
4. Because the state's annual pension contribution will initially exceed the projected budget surplus from FY2011-FY2015, two provisions are necessary in the short term to meet the state's obligations:
   
   • The first provision is to institute a three-year budget freeze at FY 2010 levels. This would allow the state government to immediately begin running a budget surplus after the enactment of a spending limit.
   • The second provision is to sell or lease state assets like the Illinois Tollway System. Total proceeds could be as high as $23.8 billion, well above the $12.2 billion needed for the transition period. Alternatively, limited borrowing with tight payback covenants could be used.

Once the annual state pension contribution is at 100 percent, beginning in 2016 the surplus revenue would flow to the Budget Stabilization Fund, equal to 12 percent of the General Revenue Fund. The Budget Stabilization Fund is designed to provide emergency cash flow in the event that the increase in state tax revenue is not enough to cover the increase in state spending under the limits.<li>Remaining surplus revenue would then flow to the Taxpayer Relief Fund. The Taxpayer Relief Fund will send rebate checks to taxpayers in proportion to the number of exemptions claimed on the previous year's tax return. The refunds begin as early as FY 2018 and total $45 billion by 2025 and $702 billion by 2045.http://www.illinoisp...icleSource=2032

Edited April 23, 2010 by El Buscador

[I AM NOT THAT GUY 5,715]

Of course it's wrong. But public employee unions want you to think that's the problem and that addressing it will be a huge victory after which we can all chillaxx.

Not so... the problem is structural and the solution is a wholesale dismantling of said structure.

Do what they did to the railroad workers, take all the remaining pension funds and buy into SSI. Screw 'em.

[SuperDuper! 230]

Social Security + 401(K) is enough for retirement. Problem is, people keep dipping into their retirement funds, and not saving for a rainy day. Pension funds not needed.