A group of politicians and business leaders is making a new
effort to reduce California's mounting government pension problems,
with a ballot campaign that would curb retirement benefits for new
hires and give voters a larger say on future cost increases.
The California coalition hopes to ask voters next fall to
approve an initiative giving governments the power to deny
guaranteed retirement payouts to new workers and instead cycle
employees into 401(k)-style plans starting in 2019. Future
increases to the benefits of current pensioners would also be
subject to a popular vote, among other changes.
The effort is expected to be watched closely around the U.S. as
it sets up a potential battle with the California Public Employees'
Retirement System, known as Calpers, which controls retirement
money for many municipal and state workers as the country's largest
public pension fund.
Calpers relies on contributions from governments to fund worker
pensions, and it has argued those retirement benefits are
guaranteed by California law and can't be cut.
Pension contributions are among the heaviest costs shouldered by
California municipalities. California cities are expected to make a
total of $5.1 billion in contributions during fiscal 2015,
accounting for nearly 7% of total revenue, according to the
California Policy Center, which analyzed 459 municipalities. Higher
contributions often mean cash-strapped cities are forced to cut
services or raise taxes to cover the bill.
"We need to do something to get control over these skyrocketing
costs," said former San Jose Mayor Chuck Reed, one of the backers
of the new campaign.
A Calpers spokeswoman didn't immediately respond to a request
for comment.
The proposed California initiative would put new hires onto a
401(k)-style plan, requiring municipalities that want to keep a
more traditional defined-benefit plan to put it up for a popular
vote. Otherwise, new government hires would be placed into the
system starting Jan. 1, 2019, which more closely resembles those at
private-sector companies.
In a traditional pension plan, administrators choose where to
put the money and employees receive a set payout at retirement
regardless of how well or poorly the funds were invested. In a
401(k)-style plan employees typically decide where to invest their
funds. At retirement they have a sum of money reflecting how much
was contributed and how the investments fared.
Voters don't typically have much of a say when it comes to
designing retirement benefits, a responsibility typically left to
elected officials. "It's unusual for pension benefits to be subject
to popular vote," said Keith Brainard, research director at the
National Association of State Retirement Administrators.
The ballot-measure campaign still has several hurdles to clear,
needing to gather around 560,000 signatures and emerge from a
review by Attorney General Kamala Harris. The ballot campaign would
also have to overcome opposition from organized labor, which is
expected to mount opposition to it.
A similar effort to curb pension benefits in California failed
to come up for a vote last year. Where this new attempt differs is
that it doesn't ask for benefit reductions from current
employees.
The group backing the new effort includes former San Diego
council member Carl DeMaio, a Republican, and Mr. Reed, a Democrat
who was able to pass a pension overhaul in his previous job as
mayor of San Jose. The group has spent $180,000 so far on the
campaign but ultimately could require around $25 million, Mr. Reed
said.
If successful, the initiative "puts the power in the hands of
the voters to service a check on bad deals made by politicians,"
Mr. DeMaio said.
Write to Timothy W. Martin at timothy.martin@wsj.com
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