By Dale Kasler
dkasler@sacbee.com
Published: Friday, Feb. 3, 2012 – 12:00 am | Page 6B

By lowering its investment forecast by another quarter point, CalSTRS made a bow toward economic reality – but also may have complicated efforts to shore up its finances.

The teachers’ retirement board agreed Thursday to reduce CalSTRS’ official investment forecast to 7.5 percent, down from 7.75 percent. It was the second cut in 14 months, after the $144 billion fund left the forecast untouched for 15 years.

In a volatile investment climate, following a year in which CalSTRS’ portfolio earned just 2.3 percent, board members took their consultants’ advice and went with the lower number.

“I think it’s best that we be conservative,” said Terry McGuire, representing board member and state Controller John Chiang.

The board of the California State Teachers’ Retirement System voted 9-1 to reduce the forecast. The lone dissent came from Pedro Reyes of the Department of Finance. The higher forecast “is not unreasonable,” he argued. “Let’s stay where we are right now, (and) visit this in another year.”

By cutting investment projections, the board instantly ballooned CalSTRS’ funding gap – the estimated shortfall of assets available to meet the pension fund’s long-term needs. The gap will grow by nearly $6 billion, or roughly 10 percent.

That could create problems in the Legislature, which must OK changes in how CalSTRS is funded.

CalSTRS gets around $5.6 billion a year from the state, school districts and teachers. The pension fund had already calculated that it needed another $4 billion a year to eventually get healthy. With the lower investment forecast, those needs grow by another $500 million a year.

While CalSTRS is pushing for more money, many Republicans want to erase funding shortfalls for public pensions by reducing benefits. Democratic Gov. Jerry Brown wants to give newly hired employees a combination traditional pension and a 401(k)-style program.

Read more here: http://www.sacbee.com/2012/02/03/4235828/calstrs-gap-rises-as-return-forecast.html#mi_rss=Business#storylink=cpy

Gov. Jerry Brown laid out a detailed plan to alter California’s state and local public retirement systems on Thursday – and immediately drew fire from his core labor constituency.

The details delivered to the Legislature on Thursday generally tracked with an outline he unveiled in October. Representatives of a union coalition hoped to negotiate what they consider a less severe package. On Thursday, they said they felt blindsided.

“To launch this bomb in the early stages of the legislative season can only be counterproductive,” said Steve Maviglio, spokesman for the union coalition Californians for Retirement Security. “The timing and severity of this was quite a surprise.”

Because the package of proposals amends the state constitution, it needs support from two-thirds of lawmakers in the Democrat-controlled Senate and Assembly to be put on the Nov. 6 ballot.

The centerpiece of Brown’s plan ends traditional pensions for state and local government employees hired July 1, 2013, and later. Employers would be offered “hybrid” plans that combine a smaller guaranteed payout with a more volatile 401(k)-type component.

“I think there’s a lot of really good stuff in the proposal,” said retired state Finance Director Mike Genest, who is now aligned with California Pension Reform, a group that is raising money for its own ballot measure.

While the unions and some experts have warned that hybrid pensions would devastate retiree security, Genest said that the idea is fair because “at least some of the risk is shared with the employee.”

Brown’s plan aims to replace 75 percent of an employee’s income assuming 30 years of service and a retirement age of 57 for public safety employees. Other workers would reach full retirement at 67 after serving 35 years.

To read entire story, click here.

By Dale Kasler
dkasler@sacbee.com
Published: Wednesday, Feb. 1, 2012 – 12:00 am | Page 6B

CalSTRS is thinking of cutting its investment forecast for the second time in barely a year, a move that acknowledges the increased financial strain on the pension fund.

The teachers’ retirement board on Thursday will consider a recommendation from its actuarial consultant to cut the forecast by a quarter point, to 7.5 percent.

The consultant, Milliman Inc., told the board the current forecast “exceeds the expected long-term return.”

Pension funds are reluctant to adjust their investment forecasts. After months of hand-wringing, the California State Teachers’ Retirement System cut its forecast by a quarter point in December 2010 – the first adjustment in 15 years.

Now it might do so again, just a week after CalSTRS revealed that its earnings for calendar 2011 came to just 2.3 percent.

The timing is coincidental, pension officials said. The latest recommendation is part of a typical review that takes place every four years, said Ed Derman, CalSTRS’ deputy chief executive.

What happened in 2010 was unusual, and was a reaction to the extraordinary losses suffered in the 2008 market crash, he said.

To read entire story, click here.

Executive Editor Frank Pine
Created: 01/28/2012 06:06:04 AM PST

San Bernardino County’s Board of Supervisors asked county lawyers last week to draft language for a ballot measure that would give voters the final say on increases to pension benefits for public employees.

Supervisors Janice Rutherford, Gary Ovitt and Josie Gonzales voted yea with supervisors Brad Mitzelfelt and Neil Derry voting nay.

Gonzales and Mitzelfelt both expressed at least a little ambivalence, saying they wanted to wait and see the final language of the ballot measure before committing.

We didn’t quote Derry in our story, but he was the first person to comment on it once it was posted on our website, and the nuance of his nay is significant.

Derry: “This wasn’t pension reform. It was a feel-good measure that would have had zero impact on current employee pensions and would create a significant roadblock to negotiating pension reductions in the future. How is it `reform’ if the pensions aren’t being changed?”

Mere hours after the board made its decision Tuesday, the head of the county’s most powerful union – the Safety Employees Benefit Association – announced it would fund an initiative to cut supervisors’ pay by reducing their employment status to part time.

Union president Laren Leichliter said the SEBA announcement was not intended to intimidate supervisors and noted that signature gatherers were collecting names the Thursday before the pension item was placed on the supervisors’ agenda.

His quote: “All our elected officials, according to them they’re all overpaid, so we’re just trying to assist them in their progression of trying to save county residents money,” Leichliter said.

Maybe that’s the case, but the timing is pretty suspect and it’s hard to see this as anything other than the latest example of the rough-and-tumble politics of San Bernardino County in particular and California in general.

The real issue here, however, appears to be the county’s ongoing contract negotiations with SEBA. As the county struggles to close daunting budget shortfalls, those negotiations have been anything but smooth.

In December, the county threatened to impose a 14 percent reduction in pay and benefits on SEBA’s Specialized Peace Officers bargaining unit, which includes probation officers, coroner investigators and welfare-fraud investigators.

To avoid that, the unit approved a contract with a 7 percent cut in benefits and a reduction in annual merit raises from 5 percent to 2.5 percent.

The county is now negotiating with the unit that represents sheriff’s deputies, SEBA’s largest constituency.

In the context of the negotiations, both initiative proposals look a lot like bargaining chips.

The irony here is that, in these difficult economic times, both measures will probably pass if they make it to the ballot.

To read entire story, click here.

Monday, January 30, 2012
By Ed Mendel

The nation’s two largest public pension funds last week reported slim annual investment earnings, CalPERS 1.1 percent and CalSTRS 2.3 percent, as experts continue to say hitting their long-term earnings target, 7.75 percent, will be difficult.

While CalPERS reported weak earnings in 2011, a prominent private-sector investment manager, Robert Arnott of Research Affiliates, told the board last week he thinks the most they can expect from stocks and bonds next decade is 4 percent.

Another major investor, Laurence Fink of BlackRock, told the CalPERS board during a similar educational session in 2009 that during the next 15 years: “You’ll be lucky to get 6 percent on your portfolios, maybe 5 percent.”

A Wall Street Journal columnist, Jason Zweig, said last week Warren Buffet’s Berkshire Hathaway pension fund projects a return of 7.1 percent. He said William Bernstein of Efficient Frontier Advisors expects roughly 6.5 percent from stocks.

Consultant Girard Miller said in Governing magazine this month, while discussing 12 basic public pension issues, that earnings “closer to 7 percent” are more realistic until global debt is reduced.

The California Public Employees Retirement System board decided last March to leave its earning assumption unchanged at 7.75 percent, despite a recommendation by actuaries to lower the forecast to 7.5 percent.

Even a small drop in the earnings forecast could boost the annual employer payment to the pension fund. CalPERS, which may revisit the forecast in March, is not turning a deaf ear to the experts.

“Like all talented investment managers, and Rob Arnott is one of the most talented, he laid out a problem—in a low return environment conventional approaches to asset management are likely to disappoint—and a solution—invest unconventionally,” the CalPERS chief investment officer, Joe Dear, said by e-mail when asked for a comment.

“He did not say we can’t earn our target rate of return. He said to do that we’ll have to have an investment strategy that is different. Much of what he suggested, such as fundamental indexing, and higher exposures to emerging markets, we are already doing. The low return environment makes achieving our return objective more difficult, but not impossible.”

Why experts think this is a “low return environment” was explained by Pension Consulting Alliance, a CalPERS and CalSTRS adviser, in a report in October to the Rhode Island state pension fund, which was overhauled by legislation in November.

“Factors that provided a tailwind in the past are expected to present a headwind,” said the PCA report by Allan Emkin.

Low interest rates (the 10-year U.S. Treasury bond yield dropped from more than 8 percent in 1990 to about 2 percent now) means that the bond portion of investment portfolios will have lower yields.

Large government and private-sector debts run up in recent years means debt repayment can crowd out purchases and projects, limiting economic growth and potentially lowering stock returns.

Population trends in developed economies such as the United States, Europe and Japan (getting older and growing slower) mean their economic growth is likely to be slower, potentially lowering stock returns.

Under Rhode Island investment policy, the report shows a 50.3 percent probability of exceeding a 6.75 percent annual return during the next decade, the highest in a range decreasing to a low of a 36.9 percent chance of exceeding 8 percent.

To read entire story, click here.

Gov. Jerry Brown pledges to cut spiraling costs, but key parts of his rollback plan apply mainly to future workers. Activists want quicker action.

By Patrick McGreevy, Los Angeles Times
January 28, 2012

Reporting from Sacramento— Gilbert Robles retired as a state parole agent at age 53, able to collect a $101,195 annual pension — 94% of his final salary. Last year, six months after he retired, the Arcadia resident accepted a political appointment with the same agency that pays an additional six figures.

Scott Hallabrin took retirement as the top attorney for the state’s ethics agency on June 29, 2009. The next day, he went back to the same post, as he prepared to watch his pension checks roll in on top of a salary.

Los Angeles school administrator Norman Isaacs got a 35% raise in 2006, the year before he filed for his public pension. The increase sharply boosted his retirement benefits.

Robles, Hallabrin and Isaacs acted within their rights under California’s pension rules, which the Legislature’s independent budget analyst recently described as “among the most generous in the country.” That generosity comes with a price: The main pension system for public employees is expected to cost taxpayers $2.3 billion this year and has long-term obligations that it is $85 billion short of being able to fund.

Gov. Jerry Brown came to office promising to reduce the state’s burgeoning pension costs, partly by limiting the kinds of practices that inflated the three employees’ retirement incomes. Saying the system is not financially sustainable, the governor has laid out a 12-point plan to change it. He would raise the retirement age, require many employees to contribute more toward their benefits and stop allowing workers to buy retirement credit for years they don’t work, among other changes.

But key parts of the plan would apply only to people hired in the future — after the overhaul passed the Legislature and became law. Tens of thousands of current public employees would still be able to take advantage of the rules that benefited Robles, Hallabrin and Isaacs.

“The governor’s plan doesn’t go far enough,” said Dan Pellissier, president of California Pension Reform, a group led by former state officials that is proposing a ballot measure to rein in pensions further.

Eliminating one of the three practices, the kind of salary “spiking” that swelled Isaacs’ retirement pay, could be difficult. Courts have ruled that the California Constitution prevents the state from changing the terms under which employees were hired. One of the terms is that retirement benefits are based on a worker’s highest-paid year of service.

Attorneys advising Pellissier’s group say the courts left room for changes in case of a financial emergency such as the pension crisis. But Evan Westrup, a spokesman for Brown, said, “We went as far as we thought we could with current employee pensions within existing legal boundaries.”

Similar legal constraints do not apply to the other two income-boosting methods. Hallabrin, 61, used a “revolving door” that allows a government employee to retire one day and go back to work the next day for the same agency, drawing a paycheck and a pension. Brown’s plan would not prevent that.

Hallabrin was making $136,500 a year as general counsel for the state Fair Political Practices Commission, California’s ethics watchdog, in June 2009 when he filed retirement papers. His pension payments were to be $78,648 a year. The day after he retired, he returned as the agency’s general counsel. As a “retired annuitant,” he may work only 120 days a year, but that pays him $63,000 annually on top of his pension.

Hallabrin said annuitants give the state the benefit of knowledgeable workers at lower cost.

To read entire story, click here.

San Bernardino County supervisors Brad Mitzelfelt, First District; Janice Rutherford, Second District; Neil Derry, Third District; Gary Ovitt, Fourth District; and Josie Gonzales, Fifth District (File photos)

Joe Nelson, Staff Writer
Posted: 01/25/2012 04:21:42 PM PST

A proposed initiative to make county supervisors’ jobs part-time would spell doom for residents desiring a stronger presence of government in their communities, San Bernardino County Board of Supervisors Chairwoman Josie Gonzales said Wednesday.

“In my opinion, the representation would be extremely limited, and in the unincorporated areas I would venture to say next to none,” Gonzales said.

Laren Leichliter, the president of the San Bernardino County Safety Employees Benefit Association, or SEBA, announced the initiative Tuesday after supervisors directed county counsel to prepare a ballot measure proposing that any benefit increases for county employees proposed by county supervisors be put to a vote of the citizens.

He said the board has slashed its meeting times in half over the past two years, has delegated much of its constitutional duties to Chief Executive Officer Greg Devereaux and that land-use responsibilities are shrinking with annexations and incorporations.

SEBA is backing initiatives that make up the San Bernardino County Elected Officials Pay Reduction Act, filed with the Registrar of Voters in August by 84-year-old Wrightwood resident Kieran Brennan. The three initiatives propose reducing county supervisors’ job status to part-time, limiting campaign contributions to elected officials to no more than $1,000, and placing limits on county employee pension benefits.

Under the initiative calling for part-time county supervisors, each supervisor’s staff budgets would be cut from $1.5 million to $250,000 annually.

Gonzales said supervisors would not be able to run their offices on a budget of $250,000 a year, even if they worked for free.

In a similar initiative brought last year in Riverside County, a Superior Court judge sided with Riverside County Counsel Pamela Walls, who argued the initiative was in violation of the state Constitution, which mandates that such proposals be put to a referendum, not an initiative.

Former Norco Councilman Herb Higgins withdrew his petition to circulate the initiative in March, said Riverside County spokesman Ray Smith.

San Bernardino County spokesman David Wert said in an email Wednesday that county counsel had no intention of going in the same direction as Riverside County.

“If the county were to make such a challenge, it would not consider doing so until after an initiative passes,” Wert said.

To read entire story, click here.

Safety union announces push for part-time supervisors
January 25, 2012 10:31 AM
Natasha Lindstrom, Staff Writer

SAN BERNARDINO • On a split vote Tuesday morning, the San Bernardino County Board of Supervisors directed staff to draft a ballot measure that would require voter approval for any future pension increases for county employees.

A few hours later, the county Safety Employees’ Benefit Association announced it was funding an effort to reduce the Board of Supervisors to part-time status.

The pension ballot measure would prevent any increases in retirement benefits for county employees, legislative officials and elected officials without voter approval. It would make exceptions for cost-of-living adjustments.

Supervisors Janice Rutherford and Gary Ovitt touted the idea for giving taxpayers a say in retirement benefits, and Supervisor Josie Gonzales voted in favor of at least reviewing a draft proposal.

But supervisors Brad Mitzelfelt and Neil Derry rejected the idea over concerns it would hamper upcoming contract negotiations without addressing comprehensive pension reform.

“Nobody’s talking about increasing any pensions. It wouldn’t change any formulas,” Derry said by phone before SEBA’s announcement. “This measure was a big stick in the eye and it was unnecessary and it wouldn’t change a thing, but it would hurt our ability to negotiate future pension reforms with our unions. While we need to come to an agreement, we need to do it in a manner that’s fair and open and creates dialogue, not something that shuts the dialogue down.”

Mitzelfelt had some similar concerns, though depending on the drafted proposal’s details “he may still vote to place the proposed measure on the ballot,” according to David Zook, chief of staff for Mitzelfelt.

SEBA, comprised of 3,100 members including sheriff’s deputies, district attorney investigators and probation corrections officers, is backing the “San Bernardino County Elected Officials Pay Reduction Act” to reduce compensation for supervisors and slash their office budgets from a total of $6 million to $250,000 per office.

The SEBA Political Issues Committee has been funding paid petition circulators “who are gathering signatures at a record pace” for the “very popular charter amendment,” according to a statement by SEBA President Laren Leichliter.

“It is our position that the Board of Supervisors has become a part-time body and should be compensated accordingly,” Leichliter said in the statement. “Over the past two years they have met barely 50 percent of the time. They have delegated much of their constitutional duties to an unelected CEO. Their land use responsibilities are shrinking with annexations and incorporations.”

Other actions at Tuesday’s meeting included

• The board directed staff to draft an ordinance reducing elected department heads’ benefits packages to put them in line with counterparts in neighboring counties. The decision was made on a 4-1 vote, with Gonzales opposing. Supervisors already approved a similar ordinance reducing their own benefits by about $48,000 annually.

• Supervisors set aside $2.63 million for a new Spring Valley Lake fire station and awarded a $210,091 design contract to STK Architecture. To save on costs, STK will base the design on a modified version of the design for the county’s new station in Needles. The project is expected to begin construction in late summer or early fall and be completed in fall 2013.

• The board approved a new prescription drug discount program for Sans Bernardino County residents. Coast2Coast Rx cards, which cover more than 60,000 medications, can be printed at www.coast2coastrx.com/sbc.

Natasha Lindstrom may be reached at (760) 951-6232 or at NLindstrom@VVDailyPress.com.

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Supervisor Josie Gonzales

BY IMRAN GHORI
STAFF WRITER
ighori@pe.com

Published: 24 January 2012 07:08 PM

San Bernardino County supervisors moved forward Tuesday with a proposal to require voter approval of future pension increases but face opposition from employee unions who quickly announced plans for a competing measure aimed at supervisors.

The board agreed to have county staff draft a ballot measure requiring voter approval before retirement benefits for county employees, legislative officers and elected officials could be increased. But final approval is not assured with supervisors split 3-2 on whether to consider the proposal.

Board Chairwoman Josie Gonzales, who cast the tie-breaking vote, expressed serious misgivings but said she would wait until seeing the ballot measure language before making a final decision.

Supervisor Janice Rutherford said the measure allows voters a say in long-term costly financial decisions. For every dollar the county spends on salaries, 27 cents is paid for pension costs for general employees and 47 cents for public safety employees, she said.

“This is simply insurance for the taxpayers who will be footing the bill long after politicians and union leaders are out of the picture,” Rutherford said.

She said she hoped to have the ballot measure ready for the June election. She noted that other counties, including Riverside and Orange, have enacted similar measures.

But leaders for the two largest unions representing county employees said it could hurt the county’s ability to work with the groups in the future.

“Do you not trust your own ability to make decisions you were elected to make?” Bob Blough, general manager of the San Bernardino Public Employees Association, representing about 11,000 county employees, asked them.

Laren Leichliter, president of the Safety Employees Benefit Association, representing about 3,100 public safety employees, echoed those sentiments. He said unions would not be able to trust negotiations with the county, knowing that it could ultimately hinge on an election campaign.

Rutherford said the proposal does not take away employees’ benefits but merely requires them to make the case for any increases to voters. However, only Supervisor Gary Ovitt, who co-sponsored the measure, expressed support.

To read entire story, click here.

Dan Walters

Published: Monday, Jan. 23, 2012 – 12:00 am | Page 3A

Whenever someone suggests that California’s public employee pension systems need reform, civil service unions react dismissively, often with attacks on the credentials or even the morals of critics.

When, for example, a Public Policy Institute of California poll found strong support – even among public workers themselves – for Gov. Jerry Brown’s middle-of-the-road pension reform plan, the union-backed Californians for Retirement Security reacted thusly:

“These poll results are not surprising. They amount to more fallout from a sustained and unrelenting misinformation campaign being fed to Californians,” and continued: “Millions of public servants in California are doing their jobs and planning their futures with the promise of retirement security made to them. Even they are being peppered, however, with misleading and disproportionate examples of the tiny fraction of six-figure pensions and isolated cases of abuse. Pensions equal less than 3 percent of this state’s beleaguered budget, while California corporations swim in profits and are dodging contributing tens of billions to state coffers through a slew of tax breaks.”

A day after that poll was published, a research team based at Stanford University and headed by former Democratic Assemblyman Joe Nation released an updated analysis of state and local pension funds, concluding that they are hundreds of billions of dollars underfunded, and unless reformed, will seriously erode future financing of schools, health care and other services.

The reaction from Californians for Retirement Security was even more scathing, to wit:

To read entire column, click here.

George Skelton

By George Skelton, Capitol Journal
January 23, 2012

It’s the norm in January: After the governor proposes a new budget and delivers his State of the State address, legislators slide into hibernation until spring.

Oh, there’s some rustling around in the dens — a few committee hearings, brief floor sessions — but no strenuous activity, no risk taking until May, when deadlines sprout and the governor revises his budget proposal.

Not every year follows that pattern — last March, the governor and the Legislature made sharp spending cuts — but winter 2012 has all the signs of the rhythmic long nap.

So it’s not surprising that there seems to be a look of lethargy among legislators concerning the sensitive issue of public employee pensions.

We’re being told to be patient. Pension reform will happen. This year.

“It has to,” says Senate President Pro Tem Darrell Steinberg (D-Sacramento). “And it will. The public expects it, first of all.”

And, the Democratic leader adds, “it’s going to be an important part of convincing the voters that we’ve done everything reasonable we can to help deal with costs.

“Sometimes an issue is used as a wedge for political purposes, but it’s a legitimate issue nevertheless. It’s amazing how political the issue of public pensions has become.”

Not really.

Over the last decade or two, companies butchered pension plans while many governments boosted theirs outrageously. That led to inevitable outcries of unfairness by private-sector taxpayers. Also, government pension plans face unfunded liabilities reaching into the hundreds of billions, depending on the study. So that’s a time bomb ticking for taxpayers.

The nonpartisan Field Poll reported last month that an increasing number of California voters are viewing state and local government pensions as “too generous” — 41%, compared with 32% two years ago.

Another nonpartisan poll, by the Public Policy Institute of California, found that even government workers — nearly two-thirds of them — think that they should contribute more to their pension systems and that new hires should be provided only 401(k)-type plans.

Actually, through collective bargaining, state and local pension plans are starting to be rolled back for future hires, and current employees are contributing more to their retirements.

But practically everyone in the Capitol knows a major overhaul is needed because the current system is not sustainable fiscally or politically.

“There’s a desire to do it and get it over with,” Steinberg says. “But it’s going to take several months of sustained work to drill down below the ideology and easy sound bites and to actually analyze what the various options mean…. I’d like to get this done before the budget.”

The constitutional deadline for the Legislature to pass a balanced budget is June 15.

Gov. Jerry Brown has proposed a 12-point pension overhaul, but seems to be telling legislators to take their time — a dangerous suggestion in Sacramento.

To read entire column, click here.

By Ed Mendel
Monday, January 23, 2012

A new advisory panel, following a move by CalPERS last year, recommends that public pensions take a small step that touches on a big issue: What happens if pension fund earnings fall below the forecast?

Investment earnings are expected to provide two-thirds or more of the money needed to pay pensions in future decades. Critics say earnings forecasts, 7.75 percent a year for CalPERS and CalSTRS, are too optimistic and conceal massive taxpayer debt.

To make more pension information public, the first report of an actuarial panel recommends, among other things, that retirement systems add a “sensitivity analysis,” which is likely to show what happens if earnings miss their target in the next few years.

It’s not a long-term forecast like a Stanford graduate student study two years ago. Using a lower risk-free bond rate advocated by some economists, 4.1 percent, the study showed how state pension debt ballooned from the reported $55 billion to $500 billion.

Pension debt has become a political issue cited by reform advocates, who say public pensions must be overhauled to prevent the growing cost from eating up money needed for basic government services.

A short-term “sensitivity analysis” is intended to be practical, a way to help state and local governments know how much their annual pension costs may vary in the next few budget cycles if investment earnings or other factors miss their target.

For the first time, the annual California Public Employees Retirement System actuarial report last fall on state and non-teaching school pensions included a sensitivity analysis.

The report showed how employer contributions could vary if, all other factors remaining unchanged, earnings during three fiscal year are above or below the target by a little or a lot.

For example, if earnings hit the target of 7.75 percent the employer contribution in fiscal 2015-16 for most state workers would be 19.5 percent of pay. (The employee contribution, 8 percent of pay, is bargained with labor and presumably unchanged.)

But if total investment earnings this fiscal year and the next two fiscal years show a loss, minus 3.64 percent, the employer contribution in 2015-16 would increase by about half to 28.9 percent of pay.

Falling short of the 7.75 percent target with earnings of 2.93 percent would increase the 2015-16 contribution to 22.6 percent of pay. Exceeding the target with earnings of 19.02 percent would produce little change, dropping the rate to 18 percent.

The sensitivity analysis may not be the long-term debt calculation sought by reformers. But it does clearly show the risk of how a double-dip recession, and another plunge in the stock market, could drive up government costs.

The California Actuarial Advisory Panel, with eight members appointed by public officeholders and agencies, was created by legislation recommended by the California Public Employee Post-Employment Benefits Commission four years ago.

“There is no single clearinghouse for funding policies and practices from around the state and country which can be used to evaluate the actuarial assumptions, crediting rates, or proposed actions of a particular retirement system,” the commission said.

Actuaries have a key role in setting the annual payment that state and local governments must make to pension funds. During a push to cut pension costs, former Gov. Pete Wilson obtained legislation giving lawmakers control of the CalPERS actuary.

A labor-backed initiative, Proposition 162 in 1992, returned control of the actuary to the CalPERS board, while also giving all public pension boards control of their administration and pension funds to prevent Wilson-like “raids” on “surpluses.”

The importance of actuary control was seen in a major state pension increase, SB 400 in 1999. The trendsetting benefits now called “too rich” and “unsustainable” by some are being rolled back for new hires and blamed for soaring pension costs.

CalPERS, the SB 400 sponsor, told legislators the increased pensions would be paid for by a surplus, investment earnings and inflating pension fund assets, leaving state pension costs unchanged for a decade, said a legislative bill analysis.

To read entire column, click here.

BY IMRAN GHORI
STAFF WRITER
ighori@pe.com

Published: 20 January 2012 10:26 PM

Future retirement benefit increases for San Bernardino County employees could be decided by voters under a proposal that will go before the Board of Supervisors on Tuesday.

Supervisors Janice Rutherford and Gary Ovitt are proposing that the county place a ballot measure before voters in the June election to amend the county charter. If it passes, county voters’ approval would be required before retirement benefits for county employees, legislative officers and elected officials could be increased.

Rutherford described the proposal as “insurance” for taxpayers.

“All this is doing is (for) any future increases the voters get a say in good times and bad,” she said. “The taxpayers are obligated to fulfill those pensions.”

While no increases are being contemplated given the current economic climate, the county has approved increases during boom times that ended up being short-sighted and costing the county, Rutherford said.

Laren Leichliter, president of the San Bernardino County Safety Employees Benefit Association, representing about 3,100 public safety employees, said Friday he had not seen the proposal yet. But he said the union would be concerned with attempts to limit their rights.

“If they’re trying to take away our collective bargaining rights, that’s going to be an issue with us,” he said.

Bob Blough, general manager of the San Bernardino County Public Employees Association, which represents 16,000 employees, did not return a call for comment Friday.

Rutherford said the proposal does not limit the unions’ ability to bargain on behalf of their members.

“It simply means that if they want to advocate for those (benefits), they have to take their case to the entire public they serve, not just three members of the Board of Supervisors,” she said.

To read entire story, click here.

Public Money

BY: Girard Miller | January 5, 2012

One of my pet peeves in the ongoing debates over public pension reform is the way partisans on each side try to pitch half-truths and myths to support their arguments. The other side seldom believes any of these, but they help rally the allies on the speaker’s side. Sometimes the press naively re-circulates these fallacies, which leaves the general public even more confused about what to believe. There’s an old saying in politics that if you tell the same lie long enough, the public will eventually believe it — and that apparently is the mentality of lobbyists on both sides. In an effort to start the new year with a clean slate for public debate, I’d like to set the record straight on a dozen of the most glaring fallacies and silly slogans.

This is a lengthy column, so readers can click on to any one of these topics to jump to that subject

1. “The pension mess was caused by greedy people (from the other side), not us.”

2. “There’s no crisis. The stock market will recover and then there is no problem.”

3. “The solution is to replace pensions with 401(k) plans, like the private sector.”

4. “Experts consider 80 percent to be a healthy pension funding ratio.”

5. “Only 15 percent of pension costs is paid by employers. Investment income pays the lion’s share.”

6. “My pension contract is protected by the Constitution and can’t be violated.”

7. “States are already fixing the problem with reasonable pension reforms.”

8. “The solution is collective bargaining. There is no need for drastic legislation.”

9. “This is a $3 trillion problem when you measure it using honest (risk-free) math.”

10. “We earned more than 8 percent in the last 25 years, and will do so again.”

11. “The average public pension is $23,000.”

12. The $100,000 pension club.

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So let’s look at each of these myths, misrepresentations and slogans, one-by-one

Half-truth #1: (Multiple-choice) “The pension mess was caused by greedy …
(a) Employees
(b) Unions
(c) Politicians
(d) Wall Street investors and bankers
… and they are the ones who should pay to fix it.”

There is a target for every finger-pointer. The truth is that the pension community has plenty of blame to go around. About half of the underfunding in most public pension plans is attributable to the six-sigma market plunge that nobody saw coming in 2008. When stocks declined by 55 percent in the last recession, more than double the average decline in the 13 previous recessions, that knocked a gaping hole in funding ratios and doubled the average plan’s unfunded liabilities. I guess you could try to blame the big banks and the homebuilders and the money managers and the mortgage brokers and the speculators and hedge funds and the real estate industry and the CEOs of the Fortune 500 with their short-sighted stock options and Fannie Mae and Freddie Mac and the Congress that goaded them to lend to unworthy borrowers in the name of universal homeownership, for causing pension deficits. But I’m at a loss to see how that will ever help us fix the public pension problem.

Yet that is only half of the story. Long before the Great Recession, the seeds of today’s mess were carelessly sown by politicians who declared pension holidays, unions that bargained for retroactive pension increases, trustees who assumed that investment returns would continue to grow to the moon, employers that granted early retirement incentives and gave away benefits to pass the buck to future taxpayers, pension administrators who were too timid to stand up to self-interested trustees or stakeholders and insist on more conservative practices, accountants who allowed unfunded liabilities to be amortized over two generations, and actuaries abetted by investment advisors who jiggered the investment portfolios toward ever-riskier allocations to enable disingenuous trustees to justify discount rates that would avoid the inevitably heftier contribution rates needed to assure intergenerational equity. Those who point fingers of blame should first look in the mirror.

Half-truth #2: “There is no crisis. Once the stock market recovers, there is no problem.”

Some of today’s pension Pollyannas claim that when stock-market trends return to their historical averages, everything works out. That is simply ignorance and puffery from people who don’t even bother to understand pension math. The actuarial projections used by most public pension plans are already assuming that 85-year historical returns will continue indefinitely, even though many of the major investment consultants have already dialed down their projections for the next decade. Perpetual stock-market increases of 10 percent annually are already baked into the funding ratios that now hover just above 70 percent on average nationwide. Even if stocks return next year to their previous peak levels (DJIA 14,100), that wouldn’t restore pre-recession funding ratios. That’s because there have been no capital gains from equities for the five intervening years while the underlying liabilities have grown about 50 percent. Stocks may have good and bad growing seasons, but there is never a crop failure on the liabilities farm. As I explained last year, stock indexes would have to double in the next two years to restore most pension funds to their 2007 funding ratios. To return the average pension fund to full funding, stock markets would have to produce 14 percent compounded returns the rest of this decade, with no intervening recession. That would put the Dow Industrials at 30,000 in January 2020. I’ll gladly give even odds against that scenario to anyone who wants to buy into that long-shot.

Half-truth #3: “The solution is to replace pensions with 401(k) plans, like the private sector.”

First of all, new 401(k) plans cannot be instituted for state and local government employees under the 1986 tax act. Pre-existing “k” plans are allowed, but there is no ongoing federal tax authority to install these corporate-style, defined contribution (DC) plans for public employees. But there are 401(a) defined contribution plans that can be offered, so a DC option is still available by law. However, the creation of a new DC plan does nothing to eliminate or even reduce the unfunded liability of a pension system. In fact, it probably makes matters worse, as described in my earlier column on this topic.

Freezing an existing pension plan will compel prudent trustees to adopt a more conservative investment portfolio to manage its risks as retirees age (just like individuals must de-risk their own investments as they age), and that will reduce the discount rate which in turn increases the employer’s contribution rates. This doesn’t mean that DC plans should not be part of the solution, but a wiser approach is a hybrid structure with a smaller pension (using a 1 percent multiplier) with a companion DC plan — like the federal employees’ system or the Washington state model. Rhode Island has officially figured this out, as did California Gov. Jerry Brown in his proposed reforms.

Half-truth #4: “Experts consider 80 percent to be a healthy funding level for a public pension fund.”

This urban legend has now invaded the popular press, so it’s about time somebody set the record straight. No panel of experts ever made such a pronouncement. No reputable and objective expert that I can find has ever been quoted as saying this. What we have here is a classic myth. People refer to one report or another to substantiate their claim that some presumed experts actually made this assertion (including a GAO report and a Pew Center report that both cite unidentified experts), but nobody actually names these alleged “sources.” Like UFOs, these “experts” are always unidentified. That’s because they don’t actually exist. They can’t exist, because the pension math and 80 years of data from capital markets history just don’t support these unsubstantiated claims.

With only one rare and fleeting exception (which occurs at the very bottom of a business cycle, similar to the green flash in a tropical sunset), 80 percent funding is not a sufficient, sound or healthy funding level for a pension fund. The only authoritative references to 80 percent funding ratios are the federal ERISA and pension protection act provisions which require private-sector pension plans below 80 percent funding to take immediate remedial action! (Remember that public plans are not even governed by these laws.) These statutes do not make funding ratios at 80 percent “healthy” or “good” or “sound” or “well-funded.” Pensions funded at 80 percent are no different than a $400,000 house in a distressed neighborhood with a $500,000 mortgage — you can keep living there if you keep making the payments, but it’s underwater and your balance sheet is now upside down no matter how much you try to double-talk it. The only difference is that state and local governments can’t mail in the keys to the bank.

Until the last recession, respectable and world-wise actuaries would tell you privately that when a pension system gets its funding ratio above 100 percent, there is a political problem. Employees, unions and politicians suddenly become grave-robbers who invariably break into the tomb to steal enhanced benefits and pension contribution holidays. So these savvy advisors historically have tolerated modest underfunding, based on their recurring past experience with the forces of evil in this business. They figured the ideal public plan would drift between 80 to 100 percent funding over a market cycle, and nobody would be hurt if the plans were a “little bit underfunded” in normal times. Obviously that didn’t work out so well in the Great Recession, which has forced us all to take a harder look at the math and this conventional wisdom.

As I have explained in one of my very first Governing columns in late 2007 (when the last business cycle was peaking), a fully funded pension plan must today have market-value assets of 125 percent of current accrued actuarial liabilities near the peak of an average business cycle — in order to offset the near-certain loss of stock market values in the following recession. Historically, that is because the 14 recessions since 1926 (including the most recent) have shrunk equity values by 30 percent on average, and equity investments represent about two-thirds of the average public pension funds’ portfolio. Real-time pension funding ratios will therefore likely decline by about 20 percent in the average recession, depending on how much the bond portfolio offsets the stock losses and mounting liabilities. So there is not a major public pension plan in the United States today that can be described as “overfunded.”

A pension plan that is 100 percent funded at the end of a business expansion will likely lose 20 percent of its value in an average recession, so 80 percent is the bare-minimum “healthy” funding level at the bottom of a recession — and only then. Once the economy begins to recover, it is mathematically necessary for a reasonable funding ratio to be higher than 80 percent and rising on a clear path to full funding. Otherwise, the plan is doomed to be chronically underfunded with current taxpayers supporting retirees who didn’t ever work for them. A plan funded at 80 percent going into a recession will likely find itself funded at 65 percent at the cyclical trough — and that’s a toxic recipe calling for huge increases in employer contributions to thereafter pay off the unfunded liabilities. That’s why today’s 70 percent funding ratios are a legitimate concern and a financial burden on younger generations who will inherit this problem that their elders keep sidestepping.

Just think for one minute about what would happen if Europe unravels or China lands hard and we suffer another average recession from today’s levels. That would take most pension funding ratios well below 60 percent percent and trigger a more horrendous multi-year budgetary catastrophe for public employers nationwide. Pension trustees and plan administrators with funding ratios at or below today’s national average should be asking that question on the record in formal board sessions — if they understand how fiduciaries are expected to perform their duties.

One can argue that a pension plan with 80 percent funding today can be deemed prudently funded if it adopts a more aggressive amortization schedule that defrays its unfunded liabilities over the average remaining service period of incumbent employees. That’s essentially what the GASB’s proposed service-life amortization guidelines would ultimately imply. Anything less should invite suspicion and deserves serious reconsideration of the plan’s funding policies and benefits levels. And if employees put skin in the game by agreeing to hereafter bear one-half the cost of paying down the plan’s unfunded liabilities during their working years, we can then talk about 80 percent funding as a logically “healthy” or “sustainable” number.

Half-truth #5: “Public employers and thus taxpayers only pay about 15 percent of the cost of public pensions. The rest comes from employee contributions and the investment income.”

The idea that investment income comes out of thin air to pay the bills is disingenuous and deceptive. I’m all for actuarial pre-funding and using the power of compounding investment earnings to achieve intergenerational equity, but “interest follows principal.” If employers/taxpayers hadn’t made their contributions, there would be no investment income in the pension fund. Instead, the employers/taxpayers could have invested the money themselves and pocketed the earnings. Especially for police and fire funds and the majority of pension plans with serious underfunding, most public employers today continue to make the lion’s share of total contributions — even though we are beginning to see worthwhile incremental increases in employee contributions toward normal costs in some states. But when you count employer contributions to pay for unfunded liabilities that are required (because investments didn’t earn what these same pension advocates expect them to earn as part of this myth), the employers’ share dwarfs most employees’.

If interest does not follow principal, then why do plans pay interest on refunds on unvested participants’ contributions, and retirees’ deferred retirement “DROP” accounts?

Half-truth #6: “This is a contract, protected by the federal Constitution’s contracts clause. You can’t reduce my pension.”

The federal Constitution also authorizes Congress to create bankruptcy courts, which routinely overturn contracts, although I doubt that municipal bankruptcy proceedings will be the solution to pension problems, as explained in an earlier column on bankruptcy and benefits reform.

There is no question that some state constitutions declare the pension promise to be inviolable, and some state courts have held that the pension promise is a contract. In “normal” economic times when the pension plan is properly funded, almost everybody would agree that contractual pension obligations should be fulfilled. But these are not ordinary times, and dozens of major public pension plans are facing the potential for depletion of their assets during the lifetimes of current employees if nothing is changed. Ultimately, some municipal employers will face a genuine financial emergency if they don’t significantly revise their plans’ benefits structures. We have already seen such actions upheld in Colorado and Minnesota, where courts held that benefits changes could be made, in order to preserve a reasonable benefit for everybody in the plan. Rhode Island just enacted a law to change benefits including the retirement age for incumbent employees. The city of Cincinnati took similar actions. In some states, these “breaches of contract” will go to court, but what the plaintiffs often do not understand when they file suit is that several courts have supported the police power of the state to make plan modifications if they are necessary — provided that the remaining benefits are reasonable, and if the plan change is the minimum change required to fix the plan. The simple economics of pension plans inform us that the sooner you fix them, the less pain the beneficiaries will suffer later on. This does not mean that every underwater pension plan should stiff its retirees; the plan must clearly be at risk and alternative remedies should be explored. In fact, the courts typically require such efforts before they impair contracts and reduce vested benefits.

Half-truth #7: “Many states have already adopted pension reforms. We can manage through this problem with some moderate consensus-based changes.”

As this editorial cartoon from California illustrates, the magnitude of the pension problem dwarfs the scope of reforms enacted in most state legislatures and proposed in others. Not that I would belittle the work done so far and the ongoing efforts of pension reformers nationwide. But the simple math is that, when you include both the pension and the retiree medical benefits (OPEB) obligations, we are facing a $2.5 trillion problem with state and local government retirement deficits. Most of the state reforms made to date focus on prospective benefits changes, often with increased employee contributions and sometimes with higher retirement ages for new hires. But they seldom address the massive unfunded liabilities of the plans. Very few states have seriously attacked the unfunded liabilities, which leaves the bills for these debts to the next generation — what President Obama rightfully calls “kicking the can.”

What’s worse mathematically, not even one state has adopted laws to require public employers to begin funding their OPEB plans on an actuarial basis. Not one. What are we waiting for? It’s been 28 years since Massachusetts belatedly joined the other 49 states to require actuarial funding for pensions instead of pay-as-you-go. It’s been 7 years since GASB issued Statement 45 to put OPEB liabilities on the books. The DNA tests are all positive: How much longer will it take the legislatures to admit paternity of this orphaned child?

Half-truth #8: “The necessary changes can be achieved through collective bargaining.”

I’m quite impressed by dozens of public-sector unions that have stepped up and agreed to increase employee contributions to support their current benefits. Their leadership is directionally correct, and although their critics may quibble with the magnitude of their concessions, these specific unions deserve genuine praise for becoming part of the solution. They genuinely understand the value of the benefits, and their members are willing to pay a fair personal price to preserve them. I’ve even seen a few cases where unions have agreed to share some of the cost of contributions to their OPEB (retiree medical benefits) That was unheard-of in most localities before GASB shed light on the size of those liabilities seven years ago. So my hat’s off to you folks: your hearts are in the right place, and your payroll deductions are too.

That said, most unions must still be dragged to the table to address retirement plan reform. When confronted with harsh reality, most will begrudgingly agree to plan changes for new hires. But in 2012, real change must begin with incumbent employees. At the very least, we must see more multi-year increases in employee contributions for both pensions and OPEB. Where state law permits prospective benefits reforms for future service of current workers, those must be included in the package as well.

To read entire column, click here.

By Ed Mendel
Tuesday, January 3, 2011

An official analysis of two public pension reform initiatives last week raised an issue quickly seized by opponents — a potential cost increase of $1 billion or more a year for state and local governments during the next two or three decades.

Much of the focus in the pension debate has been on court rulings widely believed to mean that pensions promised state and local government workers on the date of hire can’t be cut, not even for future service as is allowed in private-sector pensions.

Now the analysis of the two proposed initiatives makes the point that switching new hires to cheaper retirement plans can drive up costs, mainly by cutting the cash flow used to help pay pensions under the old plan.

To replace the cash from new hires the old plans would have to switch some investments to yield cash not capital gains, lowering expected earnings. And a lower earnings forecast can increase employer contributions to the old plans and long-term debt.

The nonpartisan Legislative Analyst’s Office review of two versions of an initiative proposed by California Pension Reform, led by Dan Pellissier, said putting new state and local government hires in cheaper retirement plans could trigger major costs.

The analyst said an initiative giving new hires 401(k)-style investment plans could increase employer costs for two or three decades by “up to several billion dollars more per year (in current dollars) to cover pension costs of current and past employees.”

Over a similar period, the analyst said an initiative giving new hires a “hybrid” retirement plan combining a smaller pension with a 401(k)-style plan could cost employers “$1 billion more per year (in current dollars).”

But the initiatives also would cap employer contributions, raise the contributions of current employees to help pay off pension debt and make other cost-cutting changes virtually certain to be challenged in court by public employee unions.

The analyst’s summary of the fiscal effect of the 401(k) initiative, similar to the hybrid summary, reflects the uncertainty and concludes that government costs could go up or down:

“Over the next two or three decades, potentially significant increased annual costs or some savings in state and local government personnel costs, depending on how this measure is interpreted and administered.”

The analyst’s summary is more certain about what happens under the 401(k) initiative, and potentially under the hybrid plan depending on its structure, when most workers are in the cheaper retirement plan.

“In the long run (several decades from now), annual savings in state and local government personnel costs of billions of dollars per year (in current dollars), offset to some extent by increases in other employee compensation costs.”

The analyst thinks that if retirement benefits are cut by the initiative, pay or compensation for government jobs is likely to be increased to keep them competitive in the labor market.

A labor coalition, Californians for Retirement Security, issued a news release about the Legislative Analyst’s Office review of the initiatives that emphasizes the potential cost increase.

“LAO: GOP Pension-Slashing Measures Would Mean ‘Large Uncertainty’ and $1 Billion a Year in New Costs for at Least 30 Years,” said the headline on the labor news release. “Legislature’s Fiscal Watchdog Says Proposals Threaten Massive Legal Challenges, Reduced Returns and Would Hurt CalPERS and CalSTRS.”

The author of the initiatives, Pellissier, a former aide to a Republican governor and legislator, said part of the potential increased cost of the initiative would be covered by increased employee contributions.

Pellissier said he had expected a more detailed analysis, perhaps using data available from the 20 largest public pension plans that cover about 90 percent of the state and local government employees.

To read entire column, click here.

The Legislature will consider unresolved budget and pension issues when members reconvene this week.

By Patrick McGreevy, Los Angeles Times

January 2, 2012

Reporting from Sacramento—- When state lawmakers convene again Jan. 4, their plates will be filled with leftovers.

Their agenda is expected to be dominated by issues that have been unresolved in the last few years: state budget problems, pension reform, a new water supply system and legalizing poker on the Internet.

But lawmakers face a huge distraction: The 2012 elections will be the first since their districts were redrawn to make them more competitive. Many officeholders face an uncertain political future.

The backdrop for those anxieties is the state’s persistently grim financial situation. The deficit is expected to be nearly $13 billion for the new fiscal year that starts July 1.

“That is the big issue of the year, how we continue to grapple with the economic crisis,” said Assembly Speaker John A. Pérez (D-Los Angeles).

So officials are revisiting earlier ideas for raising money — besides increasing taxes, which Gov. Jerry Brown hopes voters will do on the November ballot.

One revenue-spinner could be Internet gambling. Lawmakers held hearings in 2011 on a proposal that the state sanction certain websites for poker and other gambling, with a cut of the action going to the treasury. The matter was postponed until this year amid opposition from some Indian tribes that see such games as competition for their brick-and-mortar casinos.

Now, Senate President Pro Tem Darrell Steinberg (D-Sacramento) has brought the two sides together in hopes of forging a compromise that lawmakers will pass, according to Mark Hedlund, a spokesman for the leader. Steinberg wants to regulate cyber-gambling “while providing revenue — hopefully hundreds of millions of dollars — to help us reinvest in public schools, higher education and public safety,” Hedlund said.

Both Steinberg and Pérez said their priorities include making California’s universities more affordable after years of tuition and fee increases. Leaders of the minority Republicans said theirs include job creation, a cap on state spending and an overhaul of the public pension system.

“Reforms will bring jobs,” said Sen. Bob Dutton (R-Rancho Cucamonga), who is expected to step down as Senate minority leader.

Sen. Bob Huff (R-Diamond Bar), competing to succeed Dutton, said he wants to reduce bureaucratic red tape to help spur economic recovery.

Brown wants to put before voters a measure to raise taxes by nearly $7 billion, and lawmakers will be under pressure to get the state’s financial house in order first, according to Raphael Sonenshein, a political scientist at Cal State Fullerton.

“That way, a better case can be made by the Legislature that voters can trust them with their money.” Sonenshein said.

One way they may try to do that is to change the public pension program so the state can afford its future obligations — an issue left over from 2011. California’s retirement system is underfunded by tens of billions of dollars.

To read entire story, click here.

BY DUANE W. GANG
STAFF WRITER
dgang@pe.com

Published: 31 December 2011 05:04 PM

Changes in public employee retirement were a hot-button issue in 2011 and will likely continue this year as a dominant policy debate at the state and local levels.

Gov. Jerry Brown late last year proposed a 12-point pension overhaul plan that includes increased retirement ages and employee contributions. He has been trying to rally support among skeptical majority Democrats in the Legislature.

In addition, a group called California Pension Reform is pushing proposed ballot initiatives seeking more sweeping changes to public employee retirements.

At the same time, local governments throughout the Inland region also are seeking changes in the pension plans for current and future employees.

To read entire story, click here.

BY DUANE W. GANG
STAFF WRITER
dgang@pe.com

Published: 29 December 2011 07:21 PM

Riverside County imposed pension changes on its largest union Thursday afternoon, a move that means 7,000 employees will begin paying more toward their own retirements starting next month.

The Laborers’ International Union of North American Local 777 had agreed in 2009 to negotiate changes in the pension plan for new and existing employees. But in a news release Thursday, the county said the union was unwilling to negotiate any changes.

In a letter Thursday to the union, Human Resources Director Barbara Olivier said the fundamental issue for the county in the negotiations was reducing costs to help the county cope with its fiscal woes. Given the “lack of response” from the union, Olivier said the county will be forced to impose the pension changes on current and new employees.

But Laborers’ Local 777 Business Manager Stephen Switzer on Thursday disputed the county’s characterization of how the negotiations unfolded, the declaration of an impasse in the contract talks and the imposed retirement changes.

“Our position was, and remains, that we are willing to engage in good faith bargaining on the issue of pension reform,” Switzer said by email. “The county, from the outset, clearly has had no intention in engaging in good faith negotiations.”

Switzer this week said the impasse is a clear statement that the county didn’t intend to bargain.

“If the county is serious about wanting to negotiate, then they will rescind their declaration of impasse, the validity of which is shaky at best, and come to the bargaining table with fair and open minds,” he said. “That is something we have yet to see from the county on this topic.”

The union’s options include challenging the imposed terms with the state, filing a lawsuit or asking members to strike as a possible recourse. Switzer told members Thursday the union would have a clearer picture of its legal strategy by Tuesday. A membership meeting is planned for Jan. 10 at the Riverside Convention Center.

The county faces an estimated $80 million budget gap between ongoing expenses and revenue and has been seeking ways to reduce expenses. Requiring the employees represented by the Laborers’ union to pay toward their own retirement would save the county $1.4million between now and June 30, and $8.9 million next year, county spokesman Ray Smith said Thursday.

With the changes for the Laborers’ union, the county has now imposed pension changes on its three largest employee groups. They imposed pay and benefit cuts on the Service Employees International Union Local 721 and the Riverside Sheriff’s Association earlier this year.

SEIU has said it was willing to accept changes in employee pensions but also sought pay and cost-of-living increases. Members ultimately rejected the county’s final offer, citing the pay cuts and a dispute over a fairness agreement with management.

To read entire story, click here.

Gov. Brown’s proposal to give new state and local government employees a hybrid retirement plan is part of a national trend, joined by Rhode Island last month and Utah last year.

A typical hybrid combines a smaller monthly pension, guaranteed for life, with a more risky and unpredictable 401(k)-style investment plan, whose value can rise and fall with the market.

For government employers a hybrid reduces the annual costs of pensions and their long-term debt — a national burden said by Pew and other researchers to have soared to $1 trillion or more after massive pension fund losses.

A brief issued by the National Association of State Retirement Administrators last month said hybrids are “receiving increased attention” as some states look beyond the standard cost-cutting methods: increasing employee contributions and giving new hires lower pensions.

The NASRA brief lists nine states (Rhode Island acted after publication) that have some version of a hybrid retirement plan: Nebraska, Texas, Georgia, Indiana, Michigan, Ohio, Oregon, Washington and Utah.

Before Brown issued his plan, the nonpartisan Legislative Analyst’s Office had recommended a hybrid as a way to reduce the risk of “future unfunded pension liabilities” or long-term debt.

The analyst said in a review of Brown’s plan that a hybrid also would address “a key policy concern” about public pensions: a “growing disparity” with the private sector where pensions are increasingly rare, largely replaced by 401(k) plans.

The bipartisan Little Hoover Commission recommended in February that California move to a hybrid model to “restore the financial health and security” of public pensions.

The commission pointed to a “breakthrough” hybrid for new federal employees begun in 1985. The hybrid was 100 percent funded in 2009, while the traditional pension fund for federal employees hired before 1987 was only 39 percent funded.

The employee contribution to the pension part of the federal hybrid is low enough (0.8 percent of pay compared to 8 percent for most California state pensions) that in September a 5 percent hike was proposed to help finance President Obama’s jobs plan.

The federal hybrid is generous enough that some supporters fear Congress, as it struggles to reduce the deficit next year, may give new federal employees lower retirement benefits.

“We may end up with a two-tier situation where they grandfather existing employees under the existing rules but change them for new employees,” John Palguta of the Partnership for Public Service told the Washington Post last week.

One of the problems in persuading politically powerful public employee unions to back a hybrid plan is the potential for poor performance or big losses in the 401(k)-style investment part.

“The 401(k)-style component must be risk-managed to provide retirement security and minimize investment volatility,” said the Little Hoover hybrid recommendation.

The California State Teachers Retirement System, which recently called itself a hybrid, has a supplemental investment plan that guarantees a minimum return based on the 30-year federal bond, sometimes yielding more in good economic times.

For a decade ending last January, a quarter of the teacher contribution (2 percent of pay from a total of 8 percent) to the now seriously underfunded CalSTRS pension plan was diverted into a Defined Benefit Supplement created by AB 1509 in 2000.

An unusually brief legislative analysis of the last-minute bill, which did not go through the usual committees, said diverting part of the teacher contribution would have “no (state) general fund effect and no effect to the solvency of STRS.”

Now the contribution to the little-known supplement to CalSTRS pensions is mainly from pay earned outside the regular school year, such as summer school and overtime.

In his hybrid proposal, Brown said the 401(k)-style part “will be managed professionally to reduce the risk of employee investment loss.” The goal is to replace 75 percent of salary based on a full 35-year career, 30 years for police and firefighters.

The retirement income would come from a smaller pension, a 401(k)-style plan and Social Security, each providing about a third. For workers not in Social Security, the pension would be two-thirds of retirement income.

To read entire story, click here.

Jannise Johnson, Staff Writer
Created: 12/22/2011 05:33:53 PM PST

MONTCLAIR – The Montclair City Council decided 3 to 1 Wednesday night to require members of the Montclair Fire Fighters Association to continue their 6 percent individual contribution toward their retirement fund.

Negotiators for the city and the association (MFFA) had been at an impasse since February.

Wednesday’s labor negotiations impasse hearing in council chambers went on for more than three hours as city officials, council members and a negotiator and lawyer for the MFFA laid out arguments in favor of each of their positions.

One of the main sticking points was the individual contribution to the retirement fund known as CalPERS or California Public Employees’ Retirement System. In past years, the employees did not make an individual contribution.

However, city officials have argued that the economic slowdown has required that some of that burden be borne by the employees.

City Manager Edward Starr said the money does not constitute a loss of wages.

“The members aren’t actually losing that money,” Starr said. “They are being asked to contribute it into their own retirement accounts.”

Starr went on to say that pension liabilities are a large component of the city’s costs.

To read entire story, click here.

Wednesday, December 21, 2011 – 11:00 a.m.

A stark contrast has emerged between San Bernardino County and neighboring Riverside this week.

A contrast in how each county deals with collective bargaining and budgeting.

Yesterday, Riverside County supervisors approved a new 4-year collective bargaining agreement with the union representing 350-plus deputy district attorney’s.

The agreement requires the county workers to pay 8-percent towards their retirement, while receiving cost of living adjustments of 7-percent over the same period.

The ability for Riverside County to offset is due purely to heavy cost cutting and workforce reductions over the past 36-months.

San Bernardino County, not known for paying competitive wages to rank and file employees, on the other hand, is ramming 7 to 12 percent reductions down employees throats.

A heavy-handed tactic resulting from lackadaisical budgeting, economic denial, and the refusal to reduce the counties ballooning full-time workforce.

The term “Banana Republic” actually may be appropriate here.

One has to wonder what county leaders have been thinking all this time.

This week the California Department of Labor reported the number of government workers in the state has actually inched up from a year ago.

It’s plausible that San Bernardino County is the source of the increase.

BY DUG BEGLEY
STAFF WRITER
dbegley@pe.com

Published: 20 December 2011 08:50 PM

Riverside County supervisors on Tuesday warily approved a four-year deal with a union covering various lawyers, setting the stage for a larger face-off with the county’s largest union next year.

County negotiators reached an agreement with the Riverside County Deputy District Attorneys Association on Dec. 13, according to a report prepared for the supervisors. The four-year agreement covers 381 employees in the district attorney’s office as well as public defenders and some county counsel staff.

Workers next month will start paying 4 percent of their salary to cover pension costs, and pay an additional 4percent beginning in January 2013.

To offset the added pension costs, employees will get three across-the-board raises; 1.5 percent in September 2012, 2.5 percent in July 2013 and 3 percent in August 2014.

First District Supervisor Bob Buster, a longtime critic of the power that unions exert on county finances, voted for the agreement despite fears it would push other salaries up. If wages for rank-and-file workers increase, so do management salaries.

“I think we have done something here that we are going to regret,” Buster said.

Salaries for management and even elected officials such as the sheriff and district attorney are normally set at least 5 percent higher than their subordinates, said county Human Resources Director Barbara Olivier.

The deal with the district attorneys’ union was the best possible outcome, Olivier said. The union won a lawsuit reinstituting raises that had to be considered in the deal. But, Olivier said, it was also vital the union agreed to the pension payments.

County officials expect tense negotiations next year with the Laborers’ International Union of North America Local 777, the county’s largest employee union covering more than 6,200 county positions.

Buster and Olivier said they did not expect negotiations with LIUNA to be successful, as the union has already stated it would not accept the pension contribution plan. Both said they expected to impose labor terms on the union, unless a deal could be reached. That would force the concessions on workers but also set off a protracted contract fight that could lead to strikes or court action.

To read entire story, click here.

Daniel Borenstein

By Daniel Borenstein
Staff columnist

California taxpayers should ask themselves, in the words of Clint Eastwood’s famous movie character, “Do I feel lucky?”

We’re not staring down the barrel of “Dirty Harry” Callahan’s gun wondering whether there’s a bullet in the chamber. Instead, we’re gambling our financial future on whether public pension fund investments will surpass reasonable expectations.

If state Treasurer Bill Lockyer, union leaders and the state’s largest government employee retirement funds have their way, they’ll continue betting against the odds. It’s not surprising. It’s not their money at risk. They won’t have to cover the losses. Taxpayers will.

Last week, a study led by Joe Nation, a Stanford public policy professor and former Democratic assemblyman from Marin County, made explicitly clear the magnitude of the risk. He found that there’s a better-than-even chance we’re going to lose the wager.

It was an insightful analysis of the high-stakes gamble we’re taking by counting on unrealistic investment returns for the California Public Employees’ Retirement System, the nation’s largest government pension fund; the California State Teachers’ Retirement System, No. 2 in the nation; and the University of California Retirement Plan.

If Californians understood their risk exposure, and Nation’s findings, most would be outraged.

Here’s how it works: Public-employee pension systems are supposed to be pre-funded. That means employees and employers should contribute enough money in advance, when combined with investment returns on those funds, to pay those workers in retirement.

The assumption about the investment returns is critical. The higher the expected return, the less money must be contributed now. But here’s the kicker: If investments don’t meet expectations, the employer — the taxpayer — must make up the entire shortfall. The employee has no risk.

So labor groups typically push for high return-rate assumptions. That means less pressure on workers and employers to kick in more now, and that frees up government funds to hire workers and pay for salaries and benefits. But unrealistically high assumptions mean we’re shortchanging the system, creating a debt for future taxpayers.

Currently, the UC system uses an annual assumed rate of return of 7.5 percent, while CalPERS and CalSTRS use 7.75 percent. Defenders say those rates are based on past performance. Nation, like many academics, thinks they’re irresponsible. Investment guru Warren Buffett has called them “crazy.”

Yet, Nation’s questioning of the rate drew blistering attacks last week and was a key reason for Lockyer’s public tantrum as he announced he was quitting the advisory panel Nation had assembled.

Lockyer’s histrionics, which became the focus of much of the press coverage, obfuscated the important points in the study.

To read entire column, click here.

The State Worker
Chronicling civil-service life for California state workers
December 13, 2011

California’s three largest pension systems have promised $500 billion beyond their current ability to make those payments to retirees, according to a study released to today by Stanford University Professor and former Democratic Assemblyman Joe Nation and a student researcher.

The Stanford Institute for Economic Policy Research issued the report, documenting what it claims is the state’s deepening pension crisis. California Common Sense, an organization dedicated to engaging the public in “data-driven discourse” is also behind the report.

Among the report’s findings for CalPERS, CalSTRS and the University of California Retirement Plan:

Using a “risk-free” or low-risk discount rate — a method that is debated when experts talk about figuring out a pension system’s obligations — the total unfunded liability for CalPERS, CalSTRS, and the UC system is $498 billion. That’s up 17 percent higher than the $425 billion shortfall Stanford estimated in April 2010.

If you assume an investment rate of return of 6.2 percent for CalPERS, CalSTRS, and UCRP, the shortfall is nearly $300 billion, assuming future investment rates of return of 6.2 percent. Even if the three systems earn 7.75 percent (CalPERS, CalSTRS) and 7.5 percent (UCRP) per year, the shortfall is $142.6 billion, or nearly $12,000 per California household.

Public agency contribution rates will probably double or even triple, crowding out education and social services spending. The state’s general fund pension costs will probably likely to rise from its current 5.7 percent share than 17 percent.

To read entire story, click here.

State Treasurer Bill Lockyer

PolitiCal
On politics in the Golden State
December 13, 2011 | 3:27 pm

The debate over pension reform in California reached a boiling point Tuesday.

State Treasurer Bill Lockyer resigned from a pension advisory panel to protest a study it was affiliated with that called for reducing retirement benefits for current public employees and overhauling the boards that oversee the public pension systems.

The study was issued by the Stanford Institute for Economic Policy Research and authored by Stanford public policy professor and former Democratic Assemblyman Joe Nation. It warned that the worsening finances of public pension systems in California would continue to squeeze state budgets unless there were significant changes.

In quitting the institute’s pension advisory panel, Lockyer said he questioned the conclusions and methodology of the study.

To read entire story, click here.

By Jon Ortiz
jortiz@sacbee.com
Published: Wednesday, Dec. 7, 2011 – 12:00 am | Page 3A
Last Modified: Wednesday, Dec. 7, 2011 – 10:50 am

A majority of California voters support Gov. Jerry Brown’s plan to dial back public employee pensions and a plurality think that state and local government retirements are “too generous,” according to a new Field Poll.

A little more than half – 51 percent – said that Brown’s pension proposal “strikes about the right balance.”

Poll director Mark DiCamillo said that finding shows that Brown, a union-backed Democrat who introduced a 12-point pension reform plan last month, has credibility with voters.

“He hasn’t riled up one side or the other,” DiCamillo said. “He’s managed to strike the middle ground on a very polarizing issue.”

Brown’s proposals offer less generous state and local pension benefits for new hires and raises the retirement age for many, among other changes. The governor’s plan also would increase how much current employees pay toward their pensions and reduce how much employers pay in.

The slim majority of voters polled agreed with Brown’s proposals included 55 percent of registered Democrats and 43 percent of Republicans. Nearly one in four felt the plan “goes too far.”

Meanwhile, 41 percent of voters said that public retirement benefits are “too generous,” essentially mirroring a March Field Poll survey. That compares with 35 percent who said pensions are “about right” and 14 percent who believe the benefits “aren’t generous enough.”

Democrat Herb Thompson, who works in the Bakersfield oil industry, said the focus on pensions is really a thinly veiled attack on labor and the middle class.

“Even though I’m not a union guy,” Thompson said, “the unions help me,” noting that they set competitive pay and benefits that affect the state’s workforce. “I don’t think the real discussion here is about pensions. It’s about getting rid of the unions.”

To read entire story, click here.

Gov. Jerry Brown stepped up Thursday to defend his proposed overhaul of the state’s public pension systems against criticism from legal experts and unions, telling lawmakers it would save money without running afoul of legal restrictions that protect retirement benefits for current employees.

Brown appeared before a legislative committee that includes lawmakers skeptical of portions of his plan. Assemblyman Warren Furutani (D-Gardena), the committee’s co-chair, was among those who said the plan may be too far reaching, but the governor indicating that his proposal was not intended as an opening bargaining position to be scaled back.

“In my opinion, this is the minimum,’’ Brown told the lawmakers. “This is what makes sense, consistent with the law and even consistent with what I think the Legislature can get to. Its not easy because there is some reduction.’’

The governor told the legislators that action is needed to put the pension systems on firmer financial ground, but also to show good faith to voters. Brown plans to ask voters in November to raise taxes.

To read entire story, click here.

By Catherine Saillant, Los Angeles Times
November 27, 2011, 10:54 p.m.

It’s business as usual at Santa Ana City Hall as residents trickle up to the counter to pay business fees, pick up a dog license or, in a newer wing next door, apply for a free solar permit.

But on the top floor of the eight-story concrete fortress, city officials in Orange County’s most labor-friendly city are doing the once unthinkable: demanding big benefit concessions from their employee unions.

Getting a handle on pension costs in the county’s largest city is a must, officials here say. Santa Ana is facing a $30-million deficit, has only $300,000 in reserves and is jettisoning jobs by the dozens to keep its head above water. Last year, the city paid out about $11.3 million for employee pension costs.

Now the city and scores of others around the state are getting a potential assist from Gov. Jerry Brown, who is calling for sweeping reforms in public-employee pensions. Santa Ana is among the cities that would see the most significant cost reductions if workers were required to pick up more of their retirement costs.

A Times analysis based on 2009 payrolls shows that cities and counties in California would save an estimated $1.3 billion if local government workers statewide paid what the governor’s office determines to be the normal employee share of pension contributions. Brown says workers should be contributing about 8% of their paychecks to their own retirement. Police and firefighters, who have more generous pensions, should pay about 9%, Brown says.

In Santa Ana, a densely packed city of 320,000 where nearly one-fifth of the residents live at the poverty line, there would be an immediate annual savings of $4.5 million if workers paid their normal share, officials said. Santa Ana was already negotiating to get employees to pay more of their pension costs when Brown made his proposal, said Paul Walters, the city’s longtime police chief who is filling in as city manager.

“Anything that helps that along is good for us, definitely,” Walters said. “Every little bit helps.”

Newport Beach, Fullerton, Santa Monica and Long Beach are taking a similar hard-line approach to gain concessions on retirement costs. Like Santa Ana, all have been generous in picking up pension costs in the past.

In Los Angeles, city and county employees are already required to contribute nearly all of the normal employee portion. But under Brown’s plan, they could be required to kick in more.

To read entire story, click here.

The Golden State’s pension systems are fraught with areas of concern.

A report last year by the Stanford Institute for Economic Policy Research said retirement funds for 2.6 million California teachers, state workers and university employees have long-term unfunded obligations totaling as much as $500 billion.

At the center of the attempt to fix the state’s pension system is an Inland Valley lawmaker who faces a difficult election bid next year.

State Sen. Gloria Negrete McLeod, D-Montclair, is co-chairing a bipartisan panel of six state lawmakers – the Joint Legislative Conference Committee on Public Employee Pensions – that will hear the statewide concerns of employers and employees on the issue of pension reform.

“We have to find some way to fix it,” McLeod said in a recent interview.

Committee members said they are expected to examine the current public pensions systems, the efficacy of recent reforms, and options going forward to help bring fiscal stability to the systems in a way that is fair to both workers and the citizens of California.

The next hearing is scheduled from 1 to 5 p.m. Dec. 1 at the state Capitol. Another hearing is set for the Bay Area but has not been scheduled.

“I am hopeful that the final outcome of these hearings will be a package that achieves real and measurable reform that has broad support and represents a consensus agreement,” McLeod said.

The committee got to work on Oct. 26 in Carson with a discussion of the condition of the public pension system, including reforms recently implemented at both the state and local level.

Local government representatives discussed some of the actions taken and being considered to reduce and contain costs such as layoffs, reduced benefits, the creation of a second tier of benefits, and the elimination of employer pickup of employee contributions.

To read entire story, click here.

Justice Marvin Baxter, pictured on Nov. 10, wrote for the court: “Under California law, a vested right to health benefits for retired county employees can be implied under certain circumstances from a county ordinance or resolution.” (Jeff Chiu / Associated Press)

By Maura Dolan, Los Angeles Times
November 21, 2011, 5:50 p.m.

Health benefits for government retirees may not be eliminated if state and local governments had clearly promised workers those benefits, the California Supreme Court ruled in an Orange County case Monday.

The unanimous ruling is expected to make it more difficult for state and local governments to shave costs by cutting health benefits to retirees if elected officials in previous years made it clear that those benefits would last a lifetime.

The state high court decided that retired Orange County employees may be able to show they had an implied contract that prevented the county from changing a healthcare plan in a way that caused the premiums of many retirees to skyrocket.

“Under California law, a vested right to health benefits for retired county employees can be implied under certain circumstances from a county ordinance or resolution,” Justice Marvin R. Baxter wrote for the court.

Retirees sued Orange County in 2007 after it revamped the health benefit program to save money. A federal trial court sided with the county. An appeals court, which is now considering the case, asked the California Supreme Court to clarify state law in the case.

To read entire story, click here.