The Battle Over Public Pensions Heats Up With Two Calif. Votes

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Pension reformMany economists view underfunded pensions as one of the biggest threats to the nation's fiscal health. Two key votes in California yesterday show how public sentiment is leaning toward cutting costs, even if it means taking away previously promised pension benefits:

  • In San Jose, voters approved a measure that will require public employees to make a tough choice: Either make greater contributions toward their own retirement, or receive less generous benefits.
  • San Diego voters supported a similar ballot proposal that will cut benefits and impose new limits on pensions for government workers.

But Will It Stick?

Even after the voters have spoken, pension cuts aren't a done deal.

Unions plan to file suit to block the cuts, arguing that workers relied on present benefit levels when they chose to accept their jobs. Previous court cases have typically supported the idea that employers aren't allowed to impose pension benefit cuts on current workers without offering some other type of benefit in exchange.

Private workers have the express protection of the federal law known as ERISA, which prevents private companies from going back on pension-related promises they made to their employees. But ERISA doesn't generally apply to public pensions, arguably giving state and local governments a greater ability to cut pension benefits.

There's no doubt, though, that both private companies and public employers have the right to cut benefits for future workers. For decades, the trend in both the public and private sectors has been to make workers increasingly responsible for their own retirement savings, with most employers switching away from traditional pensions and toward 401(k) plans that put the onus on workers to make retirement contributions.

The real problem, though, is that the benefits already promised to current workers are behind the potential fiscal catastrophe of public pensions.

Without some type of reform, more cities will start to find themselves in a financial hole they can't climb out of -- and having to squeeze their taxpaying residents to foot the bill.

Voters can see that future, and you're likely to see more measures like the two in California on ballots around the nation in the months and years to come.

For more on the retirement crisis and how you can beat it:


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nealfamily1009

My husband was employed with the Police Department from 1978 - 2010. The department isn't union. When he was hired in 1978 the wages were so low that a family of four could qualify for welfare if the spouse did not work. The pay was considerably lower than a private sector job. My husband left his job as supervisor at a small plant and a $5,200.00 per year decrease in wages to go to work as a policeman. That was his choice and that was what he loved doing. All the policemen contributed to their pensions and paid insurance premiums. Also, the retirees continue to pay their insurance premiums the same as current employees do. The only thing to look forward to was being able to draw a pension. That's the only thing they had to make up for such low wages. At that time almost all the police had to work a second job-either full time or part time just to get by. I believe it was 1997 that the city decided that employees hired from then on would not have a pension. The pay is better now but it's still nothing to brag about. I don't know what the police, fireman or teachers earn when they are in a union or what benefits they have along with their pension when they retire but I think there is nothing wrong with asking them to contribute a percentage to their pensions and to help pay their insurance premiums but they should get the pension they were promised.

June 14 2012 at 2:12 AM Report abuse rate up rate down Reply
sgentilejr

When any worker is told "Come and work for me and "this" is what I will give you as compensation for your working for me___It is a Legally Binding Contract. Employers cannot Legally have you work for them for 20 or 30 years and then say___Too Bad I am not going to pay you the pension that you worked for all of these years.

June 11 2012 at 3:31 AM Report abuse rate up rate down Reply
1 reply to sgentilejr's comment
indisposed99999

I certainly understand the sentiment, but the reality is that the money that pays these pensions has to come from somewhere. For states and municipal governments that don't have luxury of printing their own money (as the federal government does), that means they have to come from either state and local taxes or borrowing. The problem is that these local governments are basically at the limit of their borrowing power. That leaves only tax increases. However, even left-leaning economists realize that there are limits to how high you can raise taxes before it becomes counterproductive, i.e., you lose more money than you take in.

California has basically reached that point. Its raised taxes massively during the past 3 years, and is taking in less in revenue than in 2008. Why? Certainly the economy is part of the problem.

However, the bigger problem is that California is surrounded by low-tax states like Arizona, Nevada and Utah, and people are fleeing the state in droves. Its lost a net 2 million people over the past decade. And the reality is far worse, since the people it is losing tend to be at the TOP of the income spectrum, while the people coming in tend to be at the bottom.

So, how to close a $20 billion state budget deficit? How to close that same budget deficit if your unfunded pension liability is estimated to be between $250 - 450 billion? Thats nearly 50% of the state's GDP. Answer....you can't. Not without cutting the benefits promised to state and local workers.

So, if you are a retired teacher in California, your choice is not whether to keep your current benefits or agree to take something less. No, your choice is to agree to take something less in order to make sure you keep that something less or be stubborn, agree to nothing, and PRAY the federal government steps in when the state declares bankruptcy. Because, otherwise, you will get NOTHING.

Unfair, absolutely. But "fairness" is a human construct. The immutable laws of economics don't care about "fair" or "unfair".

June 11 2012 at 8:59 AM Report abuse rate up rate down Reply
hap0749

you should also give more tax cuts to the already rich as we know how many real jobs they created in China for those poor people. maybe they will come back here and do the same for you kids. LMAO. it is too late for you all. you are too stupid to think for yourself. most of you anyway. you will pass on fake emails, never checking to see if there is any truth to them at all. You ASSume they are true. cause they sound real. lmao. in the real world you get what you deserve. remember that. when you are all on the soup line wondering how you got there. :)

June 11 2012 at 12:22 AM Report abuse rate up rate down Reply
hap0749

i think many many years ago. state and public workers did not make standard wages. they had low paying jobs and to get and keep fair people in those jobs, law makers offered good health care and pensions! then something strange happened! someone went wild with the paychecks and state and public workers who were at the bottom end of the pay scale, lower than almost everyone i know! are not making big bucks and not having to pay into health care or pensions! the health care stays with them for life! that was ok when they only made $1.75 an hour but now they make $20.00 an hour! and do not put a cent into those bennies! that is the real problem! I am a union man and paid into my own Pension and Health care for a long time now. The state and public worker has just not got on with the program. they are spoiled. but the elected people! Just like those elected people do not pay into their health care and pensions. They should! they make $100,000's of bucks. time to wake up America!

June 11 2012 at 12:15 AM Report abuse rate up rate down Reply
1 reply to hap0749's comment
tjintol

What do you mean they pay nothing for pensions or health care? If they don't, they gave up pay raises. Public sector jobs as you said were substandard, yet when the party was going full blast and Generous Motors was flush, no one wanted public jobs. Now the private sector has eroded to the point public jobs look good now by comparision. Hap, you ought to be questioning why your status has dropped, instead of joining the race to the bottom. This state worker is not spoiled and pays into both pension and health care. If the public employees have it so good hap, why is it you never became one?

June 27 2012 at 12:38 PM Report abuse rate up rate down Reply
gmydogbud

The problem with Public Pensions, is due to the Politicans who signed the contracts with the Unions and then did not put the necessary money aside for their payment. What those Politicans have done is to put Joe Q Public in debt while they have walked away free and clear. Those are the people the Unions and the Public should be going after to collect their money! In N.J., Republican Christie Todd Whitman took the money she needed from the Teachers Pension Fund! While she continues to live very well the teachers have tuned into the Bad Guys, because of what she Did!! The Democrats are No better, they have done the same thing. John Q. Public does not have a JOB, or has retired and does not have the money, yet property taxes continue to go up while home values have continued to go down! The Politicans are the ones with the money and they are the ones who must be made to come up with the money that they promised!

June 10 2012 at 10:46 AM Report abuse +2 rate up rate down Reply
ha6ai

Its the beginning of the end for Obama's government workers' unions.

Even in left-coast California, land of liberalism, tax-payers are sick of the corruption, and cycle of political graft (government unions funding lefty politicians who in turn protect and pay off government unions, who in turn fund ... etc, etc.)

The pensions are on the road to bankruptcy, and government unions are trying to get their corrupt State assemblymen and senators to pass a law making it tougher for California cities to go bankrupt - and pass on the cost of the outrageous government pensions to State tax payers.

California voters are FINALLY starting to rebel. Its about time!

June 09 2012 at 11:46 PM Report abuse +3 rate up rate down Reply
basscat58

Caplinger welcome to the real world. Corporations have been cutting and eliminating defined pension programs since the 90's. It is legal but not pretty! Just because you have been employed 20 years or more your
promised pension can be cut. You get cashed out early and there is a reduction in retirement money! If you are under age 50 when it happens you usually get less than half of the amount!

June 07 2012 at 12:15 PM Report abuse +3 rate up rate down Reply
donut999

What in the world are all these "rich" idiots on here for? Just go stand on the sidewalk and wave a fistful of $100's and you will have all the dates you want. On topic, this is basically a travesty. Clueless why those who are whining to put these civil servants down. No ability to put yourself in the other persons shoes? Many folks "accepted" 10-30 years ago that they would settle for a mundane civil service type job. The pay has always been OK to slightly above basic. Most of the appeal was the benefits, particularly retirement. So now, everyone wants to pull the plug on them? Do the shoe exchange thing and rethink it.

June 07 2012 at 10:41 AM Report abuse +1 rate up rate down Reply
1 reply to donut999's comment
indisposed99999

As usual, you are so interested in claiming the moral high ground that you completely miss the point.

Municipalities in California simply cannot afford the costs of providing for the pensions and healthcare of retired employees. San Jose, which recently voted to cut pension benefits, has seen the annual costs of providing pensions for its retired employees go from $73 million in 2001 to $245 million this year. The money to pay for those benefits has to come from somewhere. That means cutting services, i.e., fewer police officers (about 1200 today vs. 2400 10 years ago), less money for parks, schools, etc.

Given the choice between fewer services or cutting pensions for RETIRED civil servants, its not surprising that residents of these cities are choosing to cut the pensions. Unfortunate, perhaps, but not surprising.

Whats truly amazing is that it has come to this choice of the lesser of two evils. The vast increase in costs was not only predicable, but preordained. I won't get into the political reasons, but when you have elected officials reliant on votes from public union members, the outcome is always the same, regardless of whether its California, New Jersey, Illinois, New York, etc.

Its not about bashing teachers and retired cops, its about math. And, since you seem intent on making this a rich vs. poor divide, you might want to consider that the net present value of the average teacher's pension in California on the day they retire is close to $1.5 million. In other words, they ARE THE RICH.

June 07 2012 at 2:59 PM Report abuse +3 rate up rate down Reply
marine1942

If you over charge your credit card they will take it away.
Welcome to the real world.

June 07 2012 at 7:55 AM Report abuse +3 rate up rate down Reply
Shelley

My husband is a Firefighter, a government worker, who pays taxes and has a pension. So you who say cut all government pensions would like to see my husbands pension taken from him and our family of 5? He goes to work everyday not knowing if he'll come home, or if a child will die in his arms, or if he'll have to cut a working mans arm off to save his life, or if he'll get his buddy out of the fire safe and sound...again. Yes, all those things and more have happened. He deserves his pension, his full wages, and your gratitude. Think about that the next time you call 911 and tell those men and women who show up that they make too much money and have too good of a retirement plan. Tell me how that works out for you.

June 07 2012 at 1:01 AM Report abuse -1 rate up rate down Reply