No issue seemed to garner more attention — and legislation — nationwide in 2012 than pension reform. Suddenly, states and municipalities discovered that they purportedly could no longer afford to pay retirees the benefits they were promised.
Sellers” remorse, as it were, set in as governmental entities realized they had negotiated themselves right into the red. For their part, unions woke up to the painful realization that they might be victims of their own collectively-bargained successes.
Workers who relied upon promised retirement benefits found themselves scapegoated. While there are surely some sensational examples of pension-spiking baby boomers collecting six-figure payouts before they even received their first AARP magazine, such is not the norm.
Many of these employees worked at government jobs for decades in lieu of more lucrative private sector employment, precisely because of the retirement security such employment supposedly offered.
Nevertheless, the problem is real. Nationwide, unfunded pension liability estimates reach into 13 figures. Promised benefits are high and the labor force is not replacing retirees with enough workers. Retirees are living longer and retirement age has not kept up with retiree life expectancy.
Pension costs were pinpointed as major factors in the bankruptcy filings of the major Golden State cities of Stockton and San Bernardino. And voters in San Diego and San Jose approved November ballot measures to scale back pensions.
In California, AB 340 or “The Public Employees” Pension Reform Act of 2013″ (PEPRA), was part of a final whirlwind week of legislation crammed through the legislature last August.
PEPRA did receive strong bipartisan support in both legislative chambers, passing 48-8 in the Assembly and 38-1 in the Senate. It was signed into law by Gov. Jerry Brown on Sept. 12.
The bill, which applies to workers hired after Jan. 1, raises retirement age to 62 for most public employees, and to 57 for public safety workers.
It reduces the size of worker pensions, caps the amount of salary that counts towards pension calculations, and excludes overtime pay, unused leave time and other benefits from calculations. The bill also requires workers to pay half the cost toward their retirement packages each year.
While estimates vary, PEPRA could save the state $55 billion over three decades, according to the California Public Employees Retirement System (CALPERS), the state”s main pension plan. But the state”s public pension plans are underfunded by hundreds of billions of dollars.
California is not alone. Many states are grappling with this powder keg. In Illinois, the state legislature adjourned last week without a deal to rescue the state from a nearly $100 billion unfunded pension liability crisis putting state services such as health care and public safety at risk of further cutbacks.
Other states like Kentucky, New Jersey and Rhode Island have made legislative tweaks to their retirement systems.
But while tweaks may be the only politically palatable steps available to legislators, they won”t get the job done. Shutting unions out of the bargaining process isn”t the answer but neither is labor”s line-in-the-sand stance on fixes. Labor must be part of the solution. If not, state legislatures will continue to craft reforms on their own, or worse, do nothing.
Dirk Stemerman is a lawyer with Rucka, O”Boyle, Lombardo & McKenna in Monterey. This column is intended to answer questions of general interest and should not be construed as legal advice. Mail queries to “On the Job,” c/o The Monterey County Herald, Box 271, Monterey 93942.
