CALIFORNIA: Pension panel gets an earful on future of retirement costs
John Wildermuth, Chronicle Staff Writer
Friday, July 13, 2007
Retired government workers clashed Thursday with groups looking to trim public pension and health care benefits as a bipartisan state panel looked at ways to pay for California governments' multibillion dollar promise to its employees.
Barbara LaPlante, a retired state worker, angrily dismissed complaints that government workers get lavish, gold-plated pensions.
"The average monthly pension benefit paid out by (the state retirement system) is only about $1,700 a month for someone with nearly 20 years of service,'' she told the Public Employee Post-Employment Benefits Commission, meeting in Burlingame. "Trust me; no one is growing rich on a $1,700-a-month public pension.''
But Marcia Fritz, vice president for the California Foundation for Fiscal Responsibility, warned that the skyrocketing cost of retiree benefits is one of the most important issues facing the state and local governments.
"The only way to trim long-term pension costs is reducing the pension benefits,'' she said.
When Gov. Arnold Schwarzenegger established the 12-member commission in December, he told them they had a year to identify how much California governments -- the state, cities, counties, school districts and others -- owed for promised pension and health care benefits and to suggest ways to pay for those benefits that aren't already funded.
"Soaring obligations of this type ... remain one of the biggest problems facing governments everywhere,'' the governor said, "for the simple reason that rising pension and retiree health care costs mean less money for other government programs.''
Schwarzenegger already has taken a shot at dealing with the state's pension problems and gotten badly burned in the process. In 2005, he backed a special election initiative that would have eliminated the traditional defined benefit, check-a-month, retirement plan and replaced it with a 401(k)-style defined contribution plan, where workers take responsibility for investing their retirement funds.
When public workers, including nurses, police officers and firefighters, complained that their retirement income and disability benefits could be slashed, Schwarzenegger dropped his proposal before it went on the ballot.
"I think the governor and everyone else agrees that we were moving to a ballot initiative before understanding what the issues were,'' said Gerald Parsky, the commission chair. "What we're doing now is treating an issue that affects many people.''
The numbers are staggering. State and local governments in California employ about 2.2 million people, which is around 15 percent of the state's total workforce. According to 2005 census figures, there were another 850,000 retired public employees getting monthly benefit payments of $22 billion for an average of about $26,000 annually.
"That exceeds the personal income derived from California's farming, fishing and mining industries, combined,'' Keith Brainard of the National Association of State Retirement Administrators said in a presentation to the commission.
Brainard also told the commission that the financial condition of the state pension systems, including the mammoth California Public Employee Retirement System, "is not nearly as bad as some folks may imply.''
While a combination of increased retiree benefits and a stock market ravaged by the dotcom bust sent the state fund plummeting from a market value of 137 percent of its liabilities in 1999 down to about 80 percent in 2003, the fund's assets will be back over 100 percent of liabilities next year, said Ron Seeling, chief actuary for the fund.
Other retirement funds did even better. San Francisco, for example, is one of the best-funded retirement systems in the state, with over 100 percent funding for its future pension costs.
It's a different situation for health care funding, where the state has an unfunded liability of more than $40 billion, and San Francisco is looking at $4.9 billion in future costs.
San Francisco, the state and most other counties, cities and school districts are looking to create the same type of prepaid fund for health care costs as they have been using for pensions.
The advantage is that in a fully funded system investment earnings can pay many of the pension benefits. In the California state system, for example, 70 percent of the revenue from 1996 to 2005 came from the fund's investments, which was money the employers and the workers didn't have to contribute.
But opponents of the current system argue that the state and local governments still are paying too much for overly generous retirement benefits. By cutting benefits and changing retirement rules, the state's costs could be cut by two-thirds, they say.
A ballot initiative proposed by former Southern California Assemblyman Keith Richman would require all new public employees in the state, except for safety employees like police or firefighters to work until they were 65 or 67 before they could receive full pension and health benefits and cap the size of their pensions. If it receives enough signatures, it could go on the ballot next year.
Unions already have vowed to fight the measure if it comes to a statewide vote.
But union leaders on the panel are confident that some agreement can be reached on the pension and health benefit questions by the time the commission submits its report to Schwarzenegger next January.
"There's plenty of middle ground,'' said Dave Low of the California School Employees Association. "We may not have one single solution, but we'll have a better handle on the problems.''
--------------------------------------------------------------------------------
By the numbers
2.2 million
Number of Californians employed by state and local governments
15%
Amount of the state's total workforce employed by governments
850,000
Number of retired public employees getting monthly benefit payments in 2005
$22 billion
Total payouts in 2005
$26,000
Average benefit in 2005
Source: Chronicle
Date: 7/13/2007
John Wildermuth, Chronicle Staff Writer
Friday, July 13, 2007
Retired government workers clashed Thursday with groups looking to trim public pension and health care benefits as a bipartisan state panel looked at ways to pay for California governments' multibillion dollar promise to its employees.
Barbara LaPlante, a retired state worker, angrily dismissed complaints that government workers get lavish, gold-plated pensions.
"The average monthly pension benefit paid out by (the state retirement system) is only about $1,700 a month for someone with nearly 20 years of service,'' she told the Public Employee Post-Employment Benefits Commission, meeting in Burlingame. "Trust me; no one is growing rich on a $1,700-a-month public pension.''
But Marcia Fritz, vice president for the California Foundation for Fiscal Responsibility, warned that the skyrocketing cost of retiree benefits is one of the most important issues facing the state and local governments.
"The only way to trim long-term pension costs is reducing the pension benefits,'' she said.
When Gov. Arnold Schwarzenegger established the 12-member commission in December, he told them they had a year to identify how much California governments -- the state, cities, counties, school districts and others -- owed for promised pension and health care benefits and to suggest ways to pay for those benefits that aren't already funded.
"Soaring obligations of this type ... remain one of the biggest problems facing governments everywhere,'' the governor said, "for the simple reason that rising pension and retiree health care costs mean less money for other government programs.''
Schwarzenegger already has taken a shot at dealing with the state's pension problems and gotten badly burned in the process. In 2005, he backed a special election initiative that would have eliminated the traditional defined benefit, check-a-month, retirement plan and replaced it with a 401(k)-style defined contribution plan, where workers take responsibility for investing their retirement funds.
When public workers, including nurses, police officers and firefighters, complained that their retirement income and disability benefits could be slashed, Schwarzenegger dropped his proposal before it went on the ballot.
"I think the governor and everyone else agrees that we were moving to a ballot initiative before understanding what the issues were,'' said Gerald Parsky, the commission chair. "What we're doing now is treating an issue that affects many people.''
The numbers are staggering. State and local governments in California employ about 2.2 million people, which is around 15 percent of the state's total workforce. According to 2005 census figures, there were another 850,000 retired public employees getting monthly benefit payments of $22 billion for an average of about $26,000 annually.
"That exceeds the personal income derived from California's farming, fishing and mining industries, combined,'' Keith Brainard of the National Association of State Retirement Administrators said in a presentation to the commission.
Brainard also told the commission that the financial condition of the state pension systems, including the mammoth California Public Employee Retirement System, "is not nearly as bad as some folks may imply.''
While a combination of increased retiree benefits and a stock market ravaged by the dotcom bust sent the state fund plummeting from a market value of 137 percent of its liabilities in 1999 down to about 80 percent in 2003, the fund's assets will be back over 100 percent of liabilities next year, said Ron Seeling, chief actuary for the fund.
Other retirement funds did even better. San Francisco, for example, is one of the best-funded retirement systems in the state, with over 100 percent funding for its future pension costs.
It's a different situation for health care funding, where the state has an unfunded liability of more than $40 billion, and San Francisco is looking at $4.9 billion in future costs.
San Francisco, the state and most other counties, cities and school districts are looking to create the same type of prepaid fund for health care costs as they have been using for pensions.
The advantage is that in a fully funded system investment earnings can pay many of the pension benefits. In the California state system, for example, 70 percent of the revenue from 1996 to 2005 came from the fund's investments, which was money the employers and the workers didn't have to contribute.
But opponents of the current system argue that the state and local governments still are paying too much for overly generous retirement benefits. By cutting benefits and changing retirement rules, the state's costs could be cut by two-thirds, they say.
A ballot initiative proposed by former Southern California Assemblyman Keith Richman would require all new public employees in the state, except for safety employees like police or firefighters to work until they were 65 or 67 before they could receive full pension and health benefits and cap the size of their pensions. If it receives enough signatures, it could go on the ballot next year.
Unions already have vowed to fight the measure if it comes to a statewide vote.
But union leaders on the panel are confident that some agreement can be reached on the pension and health benefit questions by the time the commission submits its report to Schwarzenegger next January.
"There's plenty of middle ground,'' said Dave Low of the California School Employees Association. "We may not have one single solution, but we'll have a better handle on the problems.''
--------------------------------------------------------------------------------
By the numbers
2.2 million
Number of Californians employed by state and local governments
15%
Amount of the state's total workforce employed by governments
850,000
Number of retired public employees getting monthly benefit payments in 2005
$22 billion
Total payouts in 2005
$26,000
Average benefit in 2005
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