Reed’s pension plan is deceptive
Former San Jose Mayor Chuck Reed asserts that his latest pension reform initiative would not reduce the future benefits of current public employees. Attorney General Kamala Harris says it could — and she’s right.
Last week, Harris released the initiative summary that would appear on the ballot if backers collect sufficient signatures. She began by saying it “eliminates the constitutional protections for vested pension and retiree health care benefits for current public employees.”
That contradicts how Reed and former San Diego Councilman Carl DeMaio portrayed the measure when they unveiled it in June. They said they wanted to avoid an attack on California’s vested rights doctrine protecting the rate at which current employees accrue pension benefits.
On Monday, DeMaio still maintained that “nothing in our initiative changes the vested benefits for existing employees.” Reed echoed that: “We don’t believe the initiative affects current employees.”
But it does, as an excellent legal analysis by McGeorge Law School Professor Clark Kelso makes clear. The analysis was prepared for labor leaders fighting the initiative, but its conclusion was supported by four top pension attorneys who did not want to speak publicly.
No retirement law experts have defended Reed and DeMaio’s position. They now have two options if they plan to start the signature-gathering phase: They could challenge Harris’ ballot wording in court, and almost certainly lose. Or they could embrace it and Former San Jose Mayor Chuck Reed’s latest pension proposal actually could reduce future benefits for current public employees. accurately promote the initiative as one that would truly reform California’s public employee pension system.
But they shouldn’t continue to falsely pitch the measure.
At issue are public employees’ protections for pension accrual rates. Take for example most California public safety workers. Each year that they work, their future pensions increase by 3 percent of final salary. After 30 years, their starting pensions are 90 percent of that salary.
But what if the employer cannot afford such generous benefits? A private-sector company could reduce the rate of future accruals. It could tell workers that they can keep the 3 percent credit for each year already worked, but going forward they will earn pension benefits at a rate of, say, 2 percent a year.
However, once a California public employee starts working, that accrual rate can never be reduced. The state Supreme Court issued a series of rulings, the most recent in 1991, that reductions would violate the contract clauses of the state and federal constitutions.
Amy Monahan, University of Minnesota law professor, has sharply criticized the “California Rule.” California courts, she writes, have “established one of the most protective legal approaches for public employee pension benefits of any state in the country.”
Reed and DeMaio argued that their initiative would not change the California Rule. They said they were only trying to alter the rules for new employees by making those pensions subject to voter approval, and for current employees by requiring ballot approval for future increases.
But, actually, one part of the initiative would amend the state Constitution to give voters the right through an initiative or referendum to reduce the future pension accrual rate for current employees. This could be applied statewide or in each local government jurisdiction.
Thus, if the initiative passed and withstood court challenge, voters could eliminate current workers’ vested rights protections under the California Rule.
In an earlier column on the measure, I missed the significance of this section. Harris’ ballot summary prompted my re-examination.
Reed and DeMaio could take the lemons Harris handed them and make the proverbial lemonade. They certainly should stop demonizing her for making a politically calculated move to please union supporters as she prepares her U.S. Senate campaign.
Rather than running from the wording of their initiative, they could embrace it. Government employers — in this case, voters — should be able to scale back future pension accruals if they’re too costly.
To be clear, no one should reduce benefits workers already earned. The issue here is the accrual rate for future labor.
As the Little Hoover Commission, a state bipartisan watchdog group, presciently wrote in 2011, pensions will strangle funding for needed public services unless officials reduce future accruals for current workers.
The initiative could let voters do that. But Reed and DeMaio should be honest about it, or abandon the measure.