California faces billions of dollars in unfunded public employee pensions. It’s a huge hole to climb out of. Pension experts who recently gathered at USC have some ideas about how to do it.
Not every pension plan is the same. That’s something most pension experts agree on. They say one blanket solution isn’t going to fix California’s public pension problem.
Ed Derman says CalSTRS, the country's largest pension plan for teachers, ran into problems because the stock market tanked. Derman is CalSTRS' deputy chief executive officer.
"If the market hadn’t done anything like it, we would be over. We would have more than enough assets to pay our benefits. So the market is what drove the problem," Derman says. "The market’s gotten better. You know, we certainly had a very good year last year. We’re having a very good year this year. But it’s not enough. We cannot invest our way out of it. We would have to earn 10 percent per year for the next 30 years in order to be fully funded. And we just can’t – it’s not prudent to rely upon that."
Derman says CalSTRS officials need to gather stakeholders and craft a new plan – possibly one that would raise contribution rates. He says those haven’t changed for teachers since 1972 and for their employers since 1990.
Juliet Musso – who teaches policy, planning and development at USC – says part of the problem is that the public pension issue has become a political lightning rod.
"People either view pension reform as being anti-union on the one hand, or they perceive it as being pro-government, pro-union and people vilify public employees as getting pension benefits that are too generous. Or people who are proponents of the system argue that we’re punishing people for their years of public service," Musso says. "And so people tend to line up in an ideologically-fraught way, which makes it particularly difficult to move forward."
Julie Butcher is a union organizer with Service Employees International Union 721 in L.A. and Orange counties. She describes this not as a pension crisis, but as a retirement problem, with too many people leaving their careers and not enough new workers to support them.
She says regardless of what we do, we’ll be paying to support our retirees one way or another –either through pensions or public programs.
Like Musso, Butcher agrees that the key to solving the pension problem is sitting all sides down to talk.
"It’s got to be in good faith and it’s got to be at the bargaining table. When the employer tries to make these changes by themselves without talking to the workers, I think that’s where everybody runs into trouble," Butcher says. "I think folks will figure it out together. And every retirement is different. Every situation is different. At the local level, I think, is where it needs to happen."
Bruce Channing operates at that local level. He’s the city manager of Laguna Hills in south Orange County.
Channing says Laguna Hills doesn’t face as severe a pension problem as other cities for a few reasons.
"One is we’re a fairly young city. We incorporated only 20 years ago. And so we don’t have a large workforce that’s retired that we’re still paying for, number one. Number two, we never enhanced our pension plans beyond the original one of 2 percent at 60, so we have a very manageable cost in that respect," Channing says. "And then the third and probably most significant factor is that we are, as many south Orange County cities are, we’re what’s known as a contract city."
That means the city pools with other cities to save money on services like fire protection, law enforcement and trash collection.
Channing, who is also involved with the League of California Cities, says most cities would like the state Legislature to roll back laws that allow for more generous retirement plans – specifically the law that allows for public safety workers to retire at age 50 with 3 percent of their pay for every year they’ve worked.
That “3 percent at 50” plan is what Orange County sued to roll back retroactively with its sheriff’s department. The county lost that case.
"The courts have obviously opined on that and they’re not going to get that resolved or turned over," Channing says. "Orange County has not tested the question of, can they lower benefits for existing employees prospectively? Not taking away anything of what they’ve earned up to today or at the time a new plan is initiated, but only the way that you would accrue benefits from that point going forward, to the balance of your career."
Channing points out that Orange County just finished a major pension battle in the courts and probably couldn’t afford another one. But he doesn’t think his jurisdiction and others will be able to avoid future legal wrangling.
One battle the pension experts hope won’t happen is one at the ballot box. They say the initiative process doesn’t give everyone a say and can’t be tweaked – and that, they say, could lead to even more problems.