Pension Reform

By Ed Mendel
Monday, October 14, 2013

San Jose Mayor Chuck Reed may soon file a proposed statewide initiative aimed at allowing cuts in pensions earned by current workers in the future, triggering an all-out battle with labor and possibly with CalPERS.

Reed and others say soaring retirement costs are eating up funds needed for basic programs. Because court decisions protect current workers, retirement costs are difficult to reduce without waiting decades for a shift to a workforce with lower benefits.

The mayor is proposing a state constitutional amendment intended to allow cuts in pensions earned by current state and local government workers in the future, while pensions already earned through time on the job would be protected.

Reed said private-sector pensions and public pensions in 12 other states have the flexibility to control costs by reducing pension amounts that current workers earn in the future.

Under the constitutional amendment, cuts in the pensions earned by current workers in the future could be bargained with unions or placed on ballots through initiatives. There also could be no change.

“It’s all about empowering cities to solve their own problems,” Reed said after addressing a pension conference last week at Stanford’s Hoover Institution. “How they do it will be up to them.”
Mayor Reed addresses pension conference

Mayor Reed addresses pension conference

Reed said the proposal is similar to the top recommendation of the bipartisan Little Hoover Commission in a 2011 report that warned rising pension costs could “crush” government.

“The Legislature should give state and local governments the authority to alter the future, unaccrued retirement benefits for current public employees,” said the report.

The commission said the standard way of dealing with unaffordable pension costs (lower pensions for new hires and increasing employee pension contributions) will not cut soaring pension costs quickly enough.

A pension reform pushed through the Legislature by Gov. Brown last year, AB 340, did not attempt to cut the pensions of current workers. Instead, lower pensions were given to new hires.

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