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Reneged pension promises

By Barbara Whelehan · Bankrate.com
Friday, June 8, 2012
Posted: 5 pm ET

The pension landscape this week underwent a tectonic shift in California, a state well known for its natural and financial disasters.

Earlier this week, referendums passed in two California cities that changed the pension promises made to public sector workers. Seven out of 10 voters in San Jose voted to require municipal workers to make a choice: either contribute a heck of a lot more money to their pensions or get a smaller pension payout in retirement.

In recent years, pension cutbacks have been implemented in various cities and states around the country. But this one in San Jose, dubbed Measure B, is significant because it affects the benefits of current workers and retirees, not just those of future workers, as is usually the case. Measure B almost certainly will be challenged in court by San Jose's public workers unions on the premise that pension benefits are contractual obligations that are legally binding. But if the voters get their way, similar pension changes are expected to spread across the country like an uncontained wildfire.

According to an article in The Wall Street Journal, San Jose's police officers and firefighters say they made sacrifices over the years, giving up higher salaries in return for the promise of pension benefits. Those public servants who have retired since 2007 collect pensions of $95,336 on average, according to that article.

In my opinion, you can't pay cops and firefighters enough money during their careers to put their lives on the line in the course of their duties. But public servants in California and throughout the country have been goosing their paychecks by "pension spiking," a type of abuse where sick leave and unused vacation days are used in the calculation of pension payouts. Governor Jerry Brown presented a pension reform plan earlier this year that called for curbing the practice and instead calculating pensions on base pay over three years prior to retirement.

Reform measures

Public safety workers in San Jose, who already contribute 11 percent of their salaries toward their pensions, may have to fork over another 16 percent if they want to keep the same level of benefits, according to The Wall Street Journal. The mayor of San Jose told the publication the ballooning pension deficits hanging over the city caused it to reduce library hours and cut police personnel in recent years. With the $25 million that San Jose will save in the first year the reform is implemented, the city can open four libraries that have been sitting unused because of a lack of operating funds.

In San Diego, voters passed a less ground-shaking measure, called Proposition B, by a 2-to-1 margin. Unlike the changes in San Jose, that reform probably didn't register on the Richter scale. It calls for the introduction of a 401(k)-type plan for future public workers (except police officers). And it would freeze pensionable pay for a five-year period, according to an article on ai-Cio.com by contributing editor Benjamin Ruffel.

Ruffel's conclusion about this week's events: "Coming on the heels of municipal bankruptcies in Alabama and Rhode Island, exacerbated by unaffordable pension benefits, the success of these twin referendums in California may demonstrate to other ailing municipalities that pension reforms are not the electoral poison that they were long assumed to be."

However, whether or not they'll withstand challenges in court is another question. "Judges in several states have approved (cost-of-living adjustment) freezes or reductions, but to my knowledge any major reforms applying to current pensioners have all been rejected by the courts," Ruffel wrote me in an email.

What do you think should change, if anything? Should state and municipal workers get the pension benefits they had been promised, or should they accept less and revise their retirement planning because of revenue shortfalls in their city or state? Is it fair to cut their benefits unless they pony up more money?

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15 Comments
Kay
June 10, 2012 at 9:08 pm

They are trying to do this to railroad workers as well not realizing that they pay twice the amount of Social Security workers into their pension system even those that are retired are to be involved in reduction in pension benefits and most dont't retire until 30 to 40 years of service. Why doesn't
Congress have to part with some of their benefits and salary as
they sure are not worthy of it.

Randy Kyle
June 10, 2012 at 2:53 pm

All right John. After you've "sued the other party (the State) into the stone age" and it (the State) is now completely broke, just exactly whom are you going to get "satisfaction" from? State has no money = State cannot pay pensions! Or infrastructure. Or current employees. Or production of new regulations, taxes, etc...On the other hand John, go right ahead and sue for all you're worth! That way we'll be rid of both the idiotic bureaucracy AND the blood-sucking unions all in one felled swoop. I like it!

John Phoenix
June 09, 2012 at 11:43 pm

All I know is, if I enter into a contract with another party who then tries to renege on the original terms agreed upon, I'm going to sue them back to the stone age. Put that in your pipe and smoke it.

Ray
June 09, 2012 at 12:30 pm

Government workers compensation and benefits need to be aligned with the private sector. This means transitioning to 401K type (possibly with a match) retirement plans and freezing pensions the way the private sector has done. If salaries are in fact lower than the private sector (to offset pension costs), then they need to be raised. Perhaps those with more dangerous jobs could receive a better match.

Taxpayers cannot fund pensions just as most corporations no longer do.

joe
June 09, 2012 at 11:27 am

test

Ken
June 09, 2012 at 9:59 am

As a former state employee and criminal investigator for 38 years, I was paid as negotiated in collective bargaining agreements. My earnings included my salary, vacation and sick pay as well as the pension benefits I earned and to which I contributed. I and all state employees earned less in salary than in the private sector in exchange for the pension benefits. The services for which these pension benefits are remunerated are for services already rendered and as such are not subject to further negotiation or change. Taking our earned pension benefits is the same as taking the things you own and paid for(such as your home)with your earnings. How would you like it if the government told you that they have to take your home sue to an alleged budget problem, all so the rich don't have to pay taxes? Taking what you earned and paid for is the same as taking what we have earned and paid into as part of the negotiated remuneration package for the services we already rendered. If public sector pension benefits are in danger, where is our bail out? Let the government fund our pensions as they agreed or get the funding from the ultra-rich, whom we already paid to bail out and who thanked us by raising credit card interest!

Kurt
June 09, 2012 at 8:52 am

"Fair" has nothing to do with it. This country is bankrupt. The money does not exist. Get used to unfair or prepare to be a whiner for the rest of your life. And by the way, nothing against police and firefighters but cab drivers have a more dangerous job than either of them and I never hear anyone saying we should heap money and benefits on cabbies for the risks they take.

Jeff
June 09, 2012 at 3:09 am

I have been hearing and reading news papers, and hear more people Jumping on the so called (pension reforms) band wagon for the last few months. I am a fire fighter that has been working full time for over twenty years. Over this twenty years I've been through many negotiations and every one of them we would always end up with less pay and less benefits then our surrounding departments.We would give up raises for better benefits. Let's remember that we have a very high hazard job that we might not return home from, and this is one of the main reson we get paid for what we do. Today fire fighters are exposed to more hazards from fire and medical emergencies then ever before, and we are running three to four times more calls. Fire fighters, Police Officers, and Teachers are not the financial problem. There are needs for a overview of who gets public safety retirement, ie people working outside of fire fighters, and police jobs. I know I don't get anymore retirement then my base salary at last highest year. I must work 30 years before getting my retirement. Let's look at the facts of some retirement reports that are out there in the news and proposed reforms. One of the most disturbing and mis-used reports was put out from Stanford Unv. About Cal-Pers retirement. In this report, the two worst years of investment returns was used instead of a average return for each year. For example, in 2011 fiscal year return for Cal-Pers was 21 percent. The reason the report used the worst return years was to show the retirement was underfunded. Second, everyone will not retire tomorrow. No one can predict future returns, but reports need to use the basic accounting of average return for a period of time, not the lowest two year period. I feel the motive behind this attack on public safety workers (fire fighters & police) personnel in coming from jealousy and people seeking a scapegoat to used these tuff economic times to cut public safety and avoid cutting or reforming the out of control entitlements that the working people are paying for. I do my job to help those in need of help at any given time, I don't expect anything in return from anyone I provide service to. But, I earned a fare salary for what we do, I have a family too and the hazards of my job can take me at any given moment. I knew the hazards that fire fighters faced when I was hired and knew then we were paid for the type of hazards that can happen. It's one of the hardest jobs to get full time, you seen what we do first hand from 9-11. Public service workers (fire fighters, police, and teachers) are not to blame for the districts, city's, state's, and our countries financial problems. We are closing fire stations, laying off police officers, teachers and many others, and now people want to take our retirement too. I feel under attack. Is this class warfare?

Jeff
June 09, 2012 at 2:15 am

I have been hearing and reading news papers, and hear more people Jumping on the so called (pension reforms) band wagon for the last few months. I am a fire fighter that has been working full time for over twenty years. Over this twenty years I've been through many negotiations and every one of them we would always end up with less pay and less benefits then our surrounding departments.We would give up raises for better benefits. Let's remember that we have a very high hazard job that we might not return home from, and this is one of the main reson we get paid for what we do. Today fire fighters are exposed to more hazards from fire and medical emergencies then ever before, and we are running three to four times more calls. Fire fighters, Police Officers, and Teachers are not the financial problem. There are needs for a overview of who gets public safety retirement, ie people working outside of fire fighters, and police jobs. I know I don't get anymore retirement then my base salary at last highest year. I must work 30 years before getting my retirement. Let's look at the facts of some retirement reports that are out there in the news and proposed reforms. One of the most disturbing and mis-used reports was put out from Standford U

Jeff
June 09, 2012 at 12:53 am

I have been hearing and reading news, news papers and many people