California Mayors Propose Public Pension Reforms

The proposed Pension Reform Act of 2014 is being sponsored by the Coalition for Fair and Sustainable Pensions, a group of California elected officials and other parties with concerns about the rising cost of retirement benefits. It says it is seeking to protect vital services and improve retirement security.

A group of California mayors have filed a statewide ballot initiative to provide state and local governments with the coalition terms as “the tools needed to fix California’s unsustainable public employee retirement plans.” According to the coalition, the proposed act would protect retirement benefits that California state government employees have already earned, while allowing benefits to be modified for future years of service.

“Many of California’s public employee retirement plans are simply unsustainable and it’s in everyone’s interest to provide the tools to fix the problem now before even tougher actions are necessary,” said Mayor Chuck Reed of San Jose. “During tough economic times, we believe employees would much rather adjust their future expectations than risk seeing their accrued benefits slashed in bankruptcy. We’ve already seen that tragic situation play out in cities like Stockton and Central Falls, Rhode Island. Our teachers, police officers, firefighters and other dedicated public servants deserve to know that the pensions they’ve earned will be there when they need it.”

The proposed act includes provisions to:

• Prevent the state of California, pension plan administrators and other government boards from interfering with elected leaders’ or voters’ ability to amend their public employee retirement benefits for employees’ future years of service;
• Protect existing collective bargaining agreements by requiring government employers to wait until current labor contracts expire before negotiating changes to retirement benefits; and
• Require any government agency with a pension plan that is less than 80% funded to prepare and publish a public report outlining how it can achieve full funding in 15 years.

The proposed act also calls for amending California’s state constitution and any relevant state laws. In addition, the act would supersede portions of the California Supreme Court decisions, such as Kerry v. City of Long Beach and Miller v. California, which “have been construed as limiting the ability to prospectively modify pension and retiree health care benefits for work not yet performed by government employees.”

In response to the proposed act, the California Public Employees’ Retirement System (CalPERS) said: “Public employee pensions are deferred compensation, a key part of the compensation of public employees, and a valuable tool for those employers who choose to use them. Public employees work hard during their careers to serve their fellow Californians and virtually all contribute toward their retirement each month. Secure and reliable pensions benefit the California and local economies, aid in recruiting and retaining employees, improve work force stability and ensure the quality of life for retirees in our communities.

“The retirement benefits promised to employees, and guaranteed by the federal and state constitutions, are determined by the employers and the employees, not by CalPERS. The courts have clearly established that California public employees have a vested right to the level of benefits promised to them when they are first employed. This prevents not only a reduction in the benefits that have already been earned, but it also prevents a reduction in the benefits that an employee has been promised for their future service. CalPERS is bound by fiduciary duty to deliver the promised pension benefits according to the U.S. and California constitutions, statutory law and case law. The California voters placed these protections and duties in our constitution to ensure that employees’ pensions would be protected by CalPERS as their fiduciary and trustee. CalPERS will continue to support and defend our members’ vested rights, in accordance with the laws of the land and our obligations under the federal and state constitutions.

“All Californians deserve a secure retirement. A better solution would be to help those without pensions find ways to save for retirement, not to reduce the pensions of those who already have them. Changes to pension benefit levels should be determined by the employer and the employees, and not at the ballot box. If this initiative were to pass, then all contractual rights in California could be in jeopardy. Fairness and the rule of law are the foundations of a society that honors and respects the promises made by that society to its public servants.”

A copy of the proposed act can be downloaded here, and additional information about it can be found here.