A group of California Mayors are advocating for a statewide ballot initiative to provide state and local governments with the tools needed to fix California’s unsustainable public employee retirement plans.
The Pension Reform Act of 2014 would amend the California Constitution to give government agencies clear authority to negotiate changes to existing employees’ pension or retiree healthcare benefits on a strictly going-forward basis.
The measure explicitly protects retirement benefits government employees have already earned, while allowing benefits to be modified for future years of service.
“Many of California’s public employee retirement plans are simply unsustainable and it’s in everyone’s interest to provide the tools to fix the problem now before even tougher actions are necessary,” said Mayor Chuck Reed of San Jose. “During tough economic times, we believe employees would much rather adjust their future expectations than risk seeing their accrued benefits slashed in bankruptcy. We’ve already seen that tragic situation play out in cities like Stockton and Central Falls, RI. Our teachers, police officers, firefighters and other dedicated public servants deserve to know that the pensions they’ve earned will be there when they need it – not just the day they retire, but also when they’re 85 or 90.”
Federal law allows private pension plans to prospectively change employee retirement benefits. At least 18 states have the flexibility to do so for public employees as well. However, in California, a series of judicial decisions has made it extremely difficult for government employers to make any changes to retirement benefits for existing employees, even if he/she has only been on the job for a single day. (Read Professor Amy Monahan’s article detailing the genesis of the so-called “California Rule” on vested rights)
Given California’s skyrocketing retirement costs and huge unfunded liabilities for pension and retiree healthcare benefits, numerous independent experts have argued that prospectively modifying current employees’ benefits is the only way to solve the problem. This includes the state’s Little Hoover Commission, which determined:
“Public agencies must have the flexibility and authority to freeze accrued pension benefits for current workers, and make changes to pension formulas going forward to protect state and local public employees and the public good.”
- Little Hoover Commission: Public Pensions for Retirement Security (2011)
The Pension Reform Act of 2014 also includes provisions to:
- Prevent the State of California, pension plan administrators, and other government boards from interfering with elected leaders’ or voters’ ability to amend their public employee retirement benefits for employee’ future years of service.
- Protects existing collective bargaining agreements by requiring government employers to wait until current labor contracts expire before negotiating changes to retirement benefits.
- Require any government agency with a pension plan that is less than 80% funded to prepare and publish a public report outlining how it can achieve full-funding in 15 years.
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