Monday, September 26, 2011
By Ed Mendel

In pension-troubled Rhode Island the state auditor general is recommending the end of something that makes California unusual among states: allowing labor unions to bargain for pension and retiree health benefits.

Bargaining is blamed by critics for a “bidding war” that drove local government pensions in California to unaffordable levels. New benchmarks were set when CalPERS sponsored legislation, SB 400 in 1999, giving state workers a major pension increase.

A nonpartisan watchdog, the Little Hoover Commission, said SB 400 started “a chain reaction of retroactive pension increases granted to public employees up and down the state” and is regarded as “pivotal” in the pension crisis.

Last week the auditor general of Rhode Island, where the receiver in bankrupt Central Falls is said to be cutting the pensions of some retirees by 50 percent, proposed a series of changes to prevent more city bankruptcies in the nation’s smallest state.

The fourth of 12 recommendations by auditor Dennis Hoyle is that cities “seek to remove pensions and retiree health benefit provisions from collective bargaining” and instead set them through “local ordinances or charter provisions.”

State worker pensions and retiree health in Rhode Island are set by law, not bargained. Benefits are more uniform and visible, said the auditor, and there is less tendency to negotiate current savings by offering more retiree benefits in the future.

An end to bargaining is not among the pension reforms recommended by Little Hoover in February or by the final report of a governor’s commission on public employee retirement in January 2008.

Collective bargaining by public employee unions for wages and working conditions, not just pensions, moved into the national spotlight earlier this year in Wisconsin.

A new Republican governor, Scott Walker, obtained legislation limiting bargaining and union dues collection, despite demonstrations, a quorum-busting walkout by Democratic legislators, lawsuits and recall elections.

About 30 states allow collective bargaining by public employees. But only a few allow bargaining for retirement benefits — notably California, Vermont and New Jersey in a survey by the National Association of State Retirement Administrators in 1998.

Pension bargaining is rare enough that a paper taking a broad national look at the impact of unions on public pension benefits assumes that the pension benefits are legislated, not bargained.

“The generosity of the pension formula does not appear to differ between states with high levels of unionization and those with low levels,” said a paper issued by the Center for Retirement Research at Boston College in July. “This result is most likely explained by the fact that pensions are legislated, not bargained …”

The best-known provision of the landmark SB 400 sponsored by the California Public Employees Retirement System gave the Highway Patrol a 50 percent pension increase.

A pension based on 2 percent of final pay for each year served at age 50 was increased to 3 percent at 50. The increase was bargained by the Highway Patrol union before being enacted by the legislation.

Critics say “3 at 50” spread as local governments were asked during contract bargaining to match competing employers. The pension formula in SB 400 became the standard for many urban police and firefighters.

Now after a recession and stock market crash took a big bite out of pension fund investments, government pension costs are going up to cover the losses — particularly in local government, where most of the budget is spent on personnel.

One of the issues is whether unions will agree to enough “give backs” in bargaining to reduce pension costs, which are growing while funding for other programs and services is being cut.

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