pensions

By Ed Mendel
Monday, August 5, 2013

After a five-day trial last month, a judge is looking at 13 issues in suits filed by unions and retirees against a San Jose pension reform. The big one is whether pensions earned by current workers can be cut.

Measure B, approved by 70 percent of San Jose voters last year, challenges the widely held view that a series of court rulings mean pensions promised state and local government workers on the date of hire become a “vested right” that cannot be cut.

Most attempts to reduce pension costs, including a statewide reform pushed through the Legislature by Gov. Brown last year, spare current workers but give new hires a lower pension, delaying savings for years or decades.

Critics who think under-funded and overly generous public pensions are a runaway train say there is a quicker way to brake growing costs: Give current workers lower pensions for the work they do in the future.

In San Jose, as the city struggled with budget deficits totaling $670 million during the last decade, retirement costs ballooned from $73 million to $245 million, the court was told. The number of sworn police dropped 21 percent, firefighters 11 percent.

Retirement costs now eat up about 20 percent of the city general fund, diverting money from other programs. Actuaries for the city’s two independent retirement systems are continuing to project big cost increases.

“These costs will exceed 25 percent of the general fund by 2017-18,” Mayor Chuck Reed said in his June budget message, “unless we implement the additional employee contributions and lower-cost pension option for our current employees, and get all new employees into the Tier II plan, as approved in Measure B.”

This year the city contributes 57.7 percent of pay for police and fire pensions and retiree health care, while the employees contribute 11.16 percent of pay, the court was told. Next year the city is projected to contribute 70.55 percent, employees 11.67 percent.

(In comparison, the state contributes 35.9 percent of pay for Highway Patrol pensions this fiscal year and employees 11.5 percent under rates set by the California Public Employees Retirement System.)

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