Monday, October 3, 2011
By Ed Mendel
As state and local governments in California face soaring public pension costs, unions insist that cost-cutting changes must be bargained, not imposed by legislation.
But there is one major exception: schools.
Teachers and non-teaching school employees in California are in unions that do not bargain pensions. Instead, their pensions are in big statewide pools that have some of the lowest costs for employers and some of the lowest pension formulas for retirees.
Bargaining for pensions is used extensively only in California and a few other states. One of the first pension reform proposals to include ending bargaining came last month in Rhode Island, where bankrupt Central Falls is drawing national attention.
The Rhode Island auditor general, Dennis Hoyle, said an end to bargaining for pensions and retiree health would make benefits more visible to the public, set a standard and avoid the tendency to save now by pushing employee costs into the future.
In California, particularly in local government, critics say bargaining tends to result in pensions not based on what retirees need or on what governments can afford, but on pensions offered by other government employers.
Often blamed for triggering market-like competition resulting in costly local police and firefighter pensions: a CalPERS-sponsored bill, SB 400 in 1999, enacting a 50 percent pension for the Highway Patrol negotiated by their union.
The same competitive pressure can drive up the salaries on which pensions are based. An article in the November issue of Vanity Fair magazine, “California and Bust,” makes the point in a section on pension-troubled San Jose.
“The effect was to make the sweetest deal cut by public-safety workers with any city in Northern California the starting point for the next round of negotiations for every other city,” wrote Michael Lewis, author of “Moneyball” and “The Big Short.”
Another criticism of bargaining is that managers who can curb retirement costs personally benefit from higher pensions. A lawsuit forced the Sonoma County retirement system to release records last month, showing 98 pensions of $100,000 a year or more.
Rod Dole, 59, a former county auditor-controller-treasurer who retired in May is said to have a $254,625 annual pension, $46,600 more than his final pay. Others with pensions above $200,000 are a former sheriff and a former county administrator.
“What’s particularly discouraging to us is how many of those at the top of the pension pyramid are those — former supervisors and department heads — who had the decision-making authority to be part of a solution,” said an editorial in the Santa Rosa Press Democrat, which filed the lawsuit.
Compared to other public pensions, the two school retirement systems where pensions are not bargained have a significantly lower cost for employers, similar or better funding levels, low costs to employees and formulas that provide lower pensions.
Employer costs. The California State Teachers Retirement System receives a total employer contribution of 12.75 percent of pay for teachers and others — 8.25 percent from districts and other employers and 4.5 percent from the state.
The California Public Employees Retirement System receives an employer contribution of 10.9 percent of pay for non-teaching school employees (office, food, maintenance and others).
For employees that do bargain pensions, CalPERS receives employer contributions of 18.2 percent of pay for miscellaneous state workers and 31.2 percent for the Highway Patrol.
At the high end, the CalPERS employer contribution for police and firefighters in 55 local governments, where these “safety” worker costs are a big part of the total budget, is 40 percent or more of pay.
Funding levels. The latest CalPERS valuation, as of June 30, 2010, shows that the non-teaching school employee pension fund has 69.5 percent of the assets needed to fund future obligations.
The five CalPERS state worker funds that bargain have a lower average funding level of 62.8 percent, ranging from 68.3 percent for industrial to 57.6 percent for the Highway Patrol.
The latest CalSTRS valuation, also as of last year, shows a funding level of 71 percent using the actuarial value of assets. Switching to the market value of assets, the CalPERS method, drops the funding level to 63 percent.
(Critics argue that the real funding level of CalPERS and CalSTRS is much lower because the nation’s two largest public pension funds use an overly optimistic forecast of what their investments will earn in the future, 7.75 percent).
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