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Gov. Jerry Brown: California should be able to reduce public employees’ pension benefits

Gov. Jerry Brown: California should be able to reduce public employees’ pension benefits

Potentially a more meaningful legacy than the one that earned him the “Moonbeam” moniker.

https://www.facebook.com/jerrybrown/photos/pb.48001409120.-2207520000.1444524094./10152163487064121/?type=3&theater

As Professor Jacobson recently noted, California Governor Jerry Brown occasionally has moments of sanity and clarity.

In what can only be described as a Thanksgiving miracle, it is being reported that Brown is endeavoring to tackle the looming employee pension crisis by reforming the pension benefits for current government employees.

Gov. Jerry Brown got most of what he wanted when he carried a proposal to shore up the state’s underfunded public employee pension plans by trimming benefits for new workers.

Five years later, he’s in court making an expansive case that government agencies should be able to adjust pension benefits for current workers, too.

A new brief his office filed in a union-backed challenge to Brown’s 2012 pension reform law argues that faith in government hinges in part on responsible management of retirement plans for public workers.

“At stake was the public’s trust in the government’s prudent use of limited taxpayer funds,” the brief reads, referring to the period when he advocated for pension changes during the recession.

Brown has been battling the public employee unions in California over the 2012 pension reform measures, and his office this month supplanted the attorney general in defending Brown’s pension reform law court. Legal Insurrection readers will recall that the state attorney general is Xavier Becerra, who has spent much of his time in office overseeing the states War Against President Trump.

The numbers behind California’s current pension woes are staggering.

The state’s unfunded pension liabilities are currently estimated at nearly $60 billion. Its annual contributions to the pension fund under current assumptions are expected to nearly double from about $5.8 billion now to $11.2 billion in 2031-32.

The sources of the shortfall are etched into history; they include a period during the late 1990s when CalPERS felt so flush from market gains that it gave the state a contribution “holiday,” cutting required annual contributions by more than 80% even as it endorsed increases in pension benefits. When the markets crashed in 2000 and again in 2008, a yawning gap opened in the pension fund. The options for filling it today are to raise taxes, cut services, or deny workers promised benefits, none of which is palatable.

As it appears a robust economy helps with pension payments, maybe Brown and his Sacramento minions should declare a truce in the war against Trump. The president’s regulation-cutting, business friendly approach has already created four trillion dollars of wealth.

Perhaps Brown could at least have a chat with the White House on how to actually grow the state’s economy instead of slamming the administration with more social justice inanity? The only danger here is that Trump could tweet about his new friend!

Brown has a year to cement his political legacy forever. It would be wise for him to pursue this course, instead of continuing to pursue climate change glamour or constructing the bullet train to nowhere.

Furthermore, it could be a more meaningful,national legacy than the one that earned him the “Moonbeam” moniker. States with their own looming employee pension crisis (e.g., New Jersey and Illinois) could actually benefit by following the new California model.

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Comments

knowing the courts here, they will throw out the law entirely.

good thing he’s termed out, because taking this stance would pretty much ensure getting voted out of office.

OleDirtyBarrister | November 24, 2017 at 5:05 pm

First, every pension of every troughfeeder in California should be frozen at the end of the year, with everyone satisfying the vesting rules to be vested. Then put them on a 401(k) like everyone in the private sector actually creating something.

OleDirtyBarrister | November 24, 2017 at 5:10 pm

All the federal pensions need to be frozen and the employees converted to a 401(k) as well.

ERISA needs to be modified to make it easier to freeze pensions and convert to a defined contribution plan, and perhaps modified along with he bankruptcy code to make it a little harder to discharge or otherwise evade pension obligations on a big scale. We do not want to destroy private or public entities with pension overloads on the one hand, but do not want them to be able to go so far as to entirely evade their promises and drive elders onto transfer programs like welfare, foodstamps, govt housing, subsidized houses, meal programs, etc. and thereby redistribute a burden to the burden force us to take care of all their retirees.

    The Fed retirement was greatly changed in 1986. There is still some defined benefit portion but most of the retirement plan is a 401k like Thrift Savings Plan and Social Security. There are still some on the old plan, but there will not be many soon. The big pension problems are in state systems.

This, from the clown who set the stage for California’s ruin in his first pathetic two terms as governor.

No way CA can get out of this short of bankruptcy. The pensions are a contractual arrangement; state employees, useless though they may be, put in their time and did their work, and the state is obligated to pay them for it, as per whatever agreements already exist. The fact that the people handling the funds made absurd assumptions and projections about the returns on their fund investments—an error which has been known for decades without anyone even trying to do anything about it—is hardly the fault of the pensioned employees.

CA is in the same position as Greece. The standard tricks countries with national economies do in such situations aren’t available, because neither CA nor Greece has its own currency. This may be the best argument so far for CA secession. Split off, set up its own currency, and start inflating it like there’s no tomorrow (which there won’t be, if they don’t do something radical). This “Weimar” solution isn’t a good one, but they’re out of good ones.

Perhaps Californites are hoping for a colossal Federal rescue, but that’s hardly tenable, since the US is made up of fifty states which all have the same problem as CA, just not quite as overwhelming … yet.

    cwillia1 in reply to tom_swift. | November 25, 2017 at 7:31 am

    Tom, there are three categories of public employees, former employees, current employees and new hires. Brown is talking about reducing future benefits for current workers that have not been earned and vested yet. Companies in the private sector do this all the time.

    Example:Someone was hired in 1990. His plan was improved in 2000. He has a vested pension today. His pension will grow until 2020 when he retires. The question is can the state reduce the rate at which his vested pension will grow over the remaining 3 years of his career. The answer in most states would be yes.

      Anonamom in reply to cwillia1. | November 25, 2017 at 10:25 am

      I agree. This type of action can be, and has been in non-PERS California counties, done. I think that the big question here is political. California is overwhelmingly a Democrat state; will the pols have the stomach to stand up to the unions which have bought and paid for them? Somehow I doubt it.

        It has nothing to do with unions. It is a simple contract between the employees and the employer. The union is simply the agency which handles contract negotiations for the workers. And, this is a perfect example of when unions are needed.

        If your elected represented was dishonest enough to willingly be “bought” by ny special interest to work against the long term interests of his constituents, then those constituents deserve exactly what they get.

          cwillia1 in reply to Mac45. | November 25, 2017 at 2:08 pm

          Mac, collective bargaining agreements normally run three or four years and are renegotiated. I doubt that there is a contractual obligation to offer the same pension plan to current employees for the rest of their careers. What they earn for current service is generally vested and they have a right to that by law. Pension benefits for future service beyond the term of the latest contract is almost certainly not theirs by legal right. It is either negotiated in future contracts or is determined by laws that can be changed in the future.

          Subotai Bahadur in reply to Mac45. | November 25, 2017 at 2:48 pm

          1) the union is the agency that handles the contract negotiations AND collects dues, passes a significant portion of those dues to selected politicians, works for those politicians, and threatens any political movement that is a danger to those politicians.

          2) both unions and the politicians eagerly and openly seek the symbiotic relationship. Unions are eager to buy the politicians. The politicians are eager to sell themselves. Both know that any costs down the line will be paid by the serfs.

          3) noting that relationship, yes the voters who elect those politicians do deserve what they knowingly voted for, good and hard. California is an example of that happening.

Well my private not for profit employer dumped out retirement program just when I saw it was actually making some money for me and would be a decent retirement benefit. They replaced it with a very watered down benefit .
Very disappointing because I had 10 more years, stuck really , bad timing

Turning upon his own now… just sit back.
This should be good.

I love people who think that it is perfectly alright to screw over long-time, dedicated workers simply because they work for the government. The same people who advocate reducing the agreed upon pension benefits for government employees are the same ones who scream the loudest if the government were to take their 408(k) or raise their taxes.

These employees have a contract with the people of the political subdivision for which they work. Part of that contract is a pension. Most of the time, the average skilled government employee makes about 20% less than he could make in the private sector. However, that lower wage is offset by greater job security and a retirement pension. The employee lives up to his part of the contract by coming to work every day and performing his job to acceptable standards. And, after 20-30 years, that employee expects to retire with certain retirement benefits. Now, the Governor wants to unilaterally change the contract, to the detriment of the other party, the workers.

Look, the elected representatives of the people of California, the politicians, willingly entered into these pension fund agreements. They willingly granted contribution holidays for political subdivisions. The workers did not threaten their lives. They did not take their families hostage. The politicians, who are the elected representatives of the people of California did this all on their own. Now, if they, or the people whom they represent, want a do over, that is just too damn bad. They should renegotiate the pension plans with the employees affected.

There is a simple way to address the problem of pension system shortfall. Get rid of some of the useless social welfare programs that these government run and bring the contribution levels up to those which used to exist which guaranteed 20 year solvency.

The same thing has happened with Social Security and Medicare. People actually paid into it for decades and expected to get certain levels of benefits from those programs. Instead, due to gross mismanagement, they beneficiaries are faced with fees, increased fees and reduced benefits. All because it is was more politically expedient not to adequately fund these programs or cap the benefits at realistic levels to begin with.

    Merlin in reply to Mac45. | November 25, 2017 at 12:33 pm

    I think most politicians are pretty much incapable of thinking beyond their current term, which is why so many are willing to buy votes at prices they won’t be around to pay. Union leadership has always helped row that boat by convincing membership to accept future “gains” in otherwise stagnant labor agreements. They’ve continued to push these deals long after it became clear that the governmental entities were simply floating massive unfounded liabilities. Both sides of the table knew they were signing garbage agreements. This is not new. It has been going on nationwide for decades. California and Illinois are just among the worst offenders.

    Subotai Bahadur in reply to Mac45. | November 25, 2017 at 3:47 pm

    We are not that far apart on the concept of right and wrong. I have just come to accept that no unit of government can be made to fulfill its side of the contract or keep any promise that they make. And to accept that they will promise anything based on immediate short term profit. And both wings of the UniParty are actively seeking corrupt bargains for their short term profit, citizens and employees be damned.

    I am a retired Peace Officer who worked for a state LEA for 28 years. Went in under a set retirement plan under PERA. In the 1990’s Colorado was in a bad budget crunch. Then State Senator Mike Coffman put together a plan to reduce the state’s contribution to employee’s retirement to help the state budget work. This reduction [which is still in place] means that the state pays far less than they would if we were all on Social Security. Incidentally, the employee contribution is a multiple of Social Security. Coffman, who at that time was still pretending to be a conservative member of the Republican wing of the UniParty, got up on his hind legs and promised that if it ever put PERA at fiscal risk, the state would come back and raise their contribution again.

    A few years later, PERA while still stable was looking shaky for the future. And the state budget was looking a lot better. PERA asked for consideration of restoring part of what was taken away. At that point Coffman was State Treasurer, and the state’s reply delivered by him was that somehow the shortfall was all our fault, and that the state had absolutely no obligation to pay the retirement it had promised. Coffman, by the way is now Congressman for CO-6, and does exactly as he is told by the GOPe.

    Shortly after, the state [with Coffman’s input] revamped PERA for all new employees. Previously the formula was, the percentage of your Final Average Salary for your last year that you retired with was based on how many years of service and your age, with 25 years service and 55 years of age getting 50% of your FAS. And out of that, by the way, you paid for both sides of your health insurance, and there were some other factors that could reduce it. Cost of living increases were about half of what the Federal rate of inflation was running. Fortunately, I was long vested in the old plan.

    The new plan required doing 35 years to get anything at all except for the State Patrol, and it is about half of the old system. Note that in my agency, 25 years is a rarity. At 28 years I was the last person from my academy class to leave, and it gave those I left another reason to look at me funny; because I was a line SGT for 26 of those years. If you are anything but a paper pusher, you are not going to get a pension because your body will wear out first.

    Those who hired on after the change knew what they were getting into. In my old agency, any who are career motivated are using it as a stepping stone to another job with a better agency elsewhere with all that implies for quality of personnel. I assume that holds to a certain extent for even the paper shuffling agencies.

    And they do change things for retirees after the fact. A few weeks ago, I got formal notice from PERA that the state had changed the formula for cost of living adjustments to make them functionally zero absent Zimbabwe level inflation.

    Mind you, actuarially PERA is in good shape and getting better. Because they are not going to be paying out except for long-term bureaucrats.

    And as far as Social Security, there is a quirk. I had enough SSA credits for the full SSA retirement before I went to work for the state [I worked off the books for years before I was 16, and on the books continuously since]. If I had gone to work for a local agency, or for the Federales, or a private company; I could collect both full SSA and an employer’s retirement plan. Because I went to work for an evil state, SSA keeps 2/3 of the SSA retirement I already paid for.

    Short form:

    1) Is it right that they unilaterally change the contract with current employees? No.
    2) Does any level of government care about right and wrong in reference to their employees or constituents? No.
    3) Is there any practical way to compel them to do so? No.
    4) Absent 3, California employees are scrod. Mind you, they would be anyway once reality kicks in, but they have no more claim than the rest of us.

In other words, today is the day the socialists ran out of other people’s money.

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