California Pension Reform

[MichaelB]

I saw this in The Bond Buyer this morning. Seems pretty newsworthy to me. Bond Buyer Online - Analysts Keen on California Pension Reform

On Aug. 31, the last day of the legislative session, lawmakers passed AB 340 ...

For future hires, the reforms cap benefits, increase retirement ages, roll back formulas used to calculate pensions, and require employees to pay at least half of the normal cost of the pension.

Additionally, current employees would also have to pay at least half of the costs, which will be negotiated through collective bargaining or be imposed after five years.

The legislation also tackles issues making recent headlines such as “pension spiking,” which are salary increases near the retirement date that artificially bump up pension calculations, and it prevents convicted felons from collecting a pension from the time of their offense forward.

This is a good first step. Lots more work to do.

 

[ziggy29]

Certainly taking on spiking is a good thing, as I feel that practice should be banned in public pension systems. It's a practice that not only cheats taxpayers but also other pensioners in that it makes their plans less solvent and sustainable.

 

[Chuckanut]

Certainly taking on spiking is a good thing, as I feel that practice should be banned in public pension systems. It's a practice that not only cheats taxpayers but also other pensioners in that it makes their plans less solvent and sustainable.

+1

 

[ducky911]

like

 

[nun]

I saw this in The Bond Buyer this morning. Seems pretty newsworthy to me. Bond Buyer Online - Analysts Keen on California Pension Reform

This is a good first step. Lots more work to do.

MA did this last year. Employee and state contributions stay the same at 11% and 5% of salary respectively, but for new employees the minimum age of retirement goes from 55 to 60 and there are new ways to calculate COLA and pension amount

State Senate passes pension reform bill – The Boston Globe « Real World Issues, Real Talk.

 

[nun]

What do people think of the UK's reform of their equivalent of social security to head off deficits. The big changes are increasing the pension age and that the amount of state pension you get will no longer be linked to your earnings history. Everyone will get the same flat rate. People on low salaries get an increase in their state pension and those on high salaries will have their state pension reduced.

BBC News - Flat-rate state pension prepared in Queen's Speech

 

[MichaelB]

What do people think of the UK's reform of their equivalent of social security to head off deficits. The big changes are increasing the pension age and that the amount of state pension you get will no longer be linked to your earnings history. Everyone will get the same flat rate. People on low salaries get an increase in their state pension and those on high salaries will have their state pension reduced.

BBC News - Flat-rate state pension prepared in Queen's Speech

A flat rate with a bit of variability is an interesting alernative, and has a greater sense of "pension insurance" vs the gov't as a pension administrator.

I'm not a big fan of two tiered systems, one richer system for some with vested interests and a poorer system for younger people. Easy for me to say, but I feel it undermines the concept of shared social responsibility. These multiple tiers are done for political expediency but set a bad example.

 

[Shanky]

This reform most likely will not be enough. In 30 years, when all the new hires are starting to retire, it can be sustainable, but most of the big $$ savings for the state do not apply to current state employees.

 

[ziggy29]

I'm not a big fan of two tiered systems, one richer system for some with vested interests and a poorer system for younger people. Easy for me to say, but I feel it undermines the concept of shared social responsibility. These multiple tiers are done for political expediency but set a bad example.

Agreed. I think it fosters an "us versus them" attitude that doesn't help.

 

[nun]

A flat rate with a bit of variability is an interesting alernative, and has a greater sense of "pension insurance" vs the gov't as a pension administrator.

I'm not a big fan of two tiered systems, one richer system for some with vested interests and a poorer system for younger people. Easy for me to say, but I feel it undermines the concept of shared social responsibility. These multiple tiers are done for political expediency but set a bad example.

The new UK system would eventually provide everyone with the same state pension amount - no variability. It's proposed that the existing system (which has an earnings related component) will co-exist with the new system until it's completely phased in. As you say this is dictated by political expediency as it would be a radical change for some of those already retired and it runs into the issue of politicians being accused or breaking the retirement contract and changing the rules for existing retirees. The same principle was adopted in MA's pension reform. The changes do not apply to existing state employees only to new ones.

 

[Chuckanut]

I'm not a big fan of two tiered systems, one richer system for some with vested interests and a poorer system for younger people. Easy for me to say, but , I feel it undermines the concept of shared social responsibility. These multiple tiers are done for political expediency but set a bad example.

True. But, it is also true that a person who is 50+ and worked for 30-40 years under one set of rules, cannot easily undo his/her past decisions in light of changes to the pension plan. A 30 year old has time to adjust, a 60 year old doesn't.

 

[ziggy29]

True. But, it is also true that a person who is 50+ and worked for 30-40 years under one set of rules, cannot easily undo his/her past decisions in light of changes to the pension plan. A 30 year old has time to adjust, a 60 year old doesn't.

This is a legitimate factor to consider, but I don't think it justifies a hard "line in the sand" where everyone on one side of the line is totally spared while everyone on the other side of the line takes the full brunt of it. I'd completely agree (using your example) that someone who is 60 and not looking at a very comfortable retirement should probably be spared, but I see no reason why someone like Warren Buffett can't share some of the "pain" of the reforms. That would at least send *some* message that we are all in this together and we recognize that the sacrifice needs to be shared to the extent reasonably possible.

I know as someone who is likely on the wrong side of the line for future SS and Medicare reforms, it would be a lot easier for me to swallow if I felt like retired CEOs would also take some of the hit even if a senior of modest means was spared.

 

[Texas Proud]

True. But, it is also true that a person who is 50+ and worked for 30-40 years under one set of rules, cannot easily undo his/her past decisions in light of changes to the pension plan. A 30 year old has time to adjust, a 60 year old doesn't.

This is a legitimate factor to consider, but I don't think it justifies a hard "line in the sand" where everyone on one side of the line is totally spared while everyone on the other side of the line takes the full brunt of it. I'd completely agree (using your example) that someone who is 60 and not looking at a very comfortable retirement should probably be spared, but I see no reason why someone like Warren Buffett can't share some of the "pain" of the reforms. That would at least send *some* message that we are all in this together and we recognize that the sacrifice needs to be shared to the extent reasonably possible.

I know as someone who is likely on the wrong side of the line for future SS and Medicare reforms, it would be a lot easier for me to swallow if I felt like retired CEOs would also take some of the hit even if a senior of modest means was spared.

I agree with both... but IMO the fix is that the older person has earned his pension to 'today' and going forward he is under the new pension system just like everybody else.... this means that the person does not lose anything that was promised and all employees will be earning the same going forward...

For someone that is 60 with 40 years in the system, this makes very little difference in their final number.... someone at 50 with 30 years it does start to change things.... BUT, it is fairer in that two people who work are getting the same benefit going forward....

 

[MichaelB]

They [-]can fix[/-] should try harder to fix pension funding without creating two tiers. They would need to quantify the value of the benefit and add that to the salary of the younger employee. In other words, they should begin with equivalent compensation. If they can't afford that then they should take total compensation down for everyone or ask that current employees pay a greater share of their future benefit. If that is not feasible now it should be phased in over a couple of years.

Easy for me to say, but I think an important component of dealing with our collective financial troubles is "we all have to contribute in one way or another". Like a wise man once said, an us vs. them attitude doesn't help.

 

[akck]

Alaska currently has 4 tiers. The second tier changed retirement age and the third tier changed vesting periods and the benefit formula. The fourth tier changed it to a 401K type plan and restricted health benefits. Each tier just affected new hires. I never heard many complaints for the first three tiers. With the fourth tier, I've heard it's harder for the state to fill positions and keep them filled.

 

[ducky911]

something has to be done. there was an artical in the paper about the 100k club. These public employees would work a bunch of overtime and turn in vacation and sick leave for their final year to boost up their retirement. It is not against the rules but it also was not ment to be that way, they are exploiting the system.

The worst case was a fireman at 55 retired with 275k per year for life.

 

[ziggy29]

something has to be done. there was an artical in the paper about the 100k club. These public employees would work a bunch of overtime and turn in vacation and sick leave for their final year to boost up their retirement. It is not against the rules but it also was not ment to be that way, they are exploiting the system.

Well, this is a form of spiking, and the OP in this thread specifically mentioned a law to curtail the practice, so that much is good. Something *is* being done, at least in some places.

Even most pensioners (at least the ones who didn't spike) will be among the first to tell you that they don't approve of the practice, either.

 

[Notmuchlonger]

I have relatives who used the CA pension system to its "fullest" potential. Its amusing listening to the person benefiting from it. I'm glad they provide top shelf liquor.

 

[skipro3]

I work for a municipal utility company in California, AKA the electric company, and there are things that are going to really affect the labor force. We are in a very harsh labor related job; linemen, for example. With the retirement raising from 55 to 62, it's going to get interesting when some 60+ year old guy is trying to climb a power pole and work an outage during a storm for example. I predict the work related injuries will skyrocket. I'm 56 this year and my body is spent; knees are shot, hearing is starting to go, etc. If I had to work another 7 years to get the same retirement, I would probably have a disability before I got there. I've been in this line of work for over 30 years. It's my trade and it's not reasonable to expect everyone in the business to promote to management or other less labor intensive work. There's other labor jobs I think could be in the same boat; highway workers for example.

 

[Gumby]

I work for a municipal utility company in California, AKA the electric company, and there are things that are going to really affect the labor force. We are in a very harsh labor related job; linemen, for example. With the retirement raising from 55 to 62, it's going to get interesting when some 60+ year old guy is trying to climb a power pole and work an outage during a storm for example. I predict the work related injuries will skyrocket. I'm 56 this year and my body is spent; knees are shot, hearing is starting to go, etc. If I had to work another 7 years to get the same retirement, I would probably have a disability before I got there. I've been in this line of work for over 30 years. It's my trade and it's not reasonable to expect everyone in the business to promote to management or other less labor intensive work. There's other labor jobs I think could be in the same boat; highway workers for example.

Interesting you should mention this. I read a fascinating article on Bloomberg today about how certain German manufacturers are modifiying their factory floors to accomodate older workers and the physical limitations they may have. BMW Never-Too-Old Assembly Insures Against Lost Engineers - Bloomberg

 

[nun]

Well, this is a form of spiking, and the OP in this thread specifically mentioned a law to curtail the practice, so that much is good. Something *is* being done, at least in some places.

Even most pensioners (at least the ones who didn't spike) will be among the first to tell you that they don't approve of the practice, either.

The wrong doing and abuse of a few (very few) should not be used as a reason to gut the pensions of the vast majority or hard working state employees.

 

[donheff]

The wrong doing and abuse of a few (very few) should not be used as a reason to gut the pensions of the vast majority or hard working state employees.

+1. You don't need to cut the pensions of workers approaching retirement to get things back on track. But it is easy to eliminate spiking and that can be done immediately for all workers. No reason that someone approaching retirement should be able to work overtime or get a brief raise and spike their pension just because their predecessors got away with it.

 

[skipro3]

As a rank-n-file labor worker, it's probably impossible to 'spike' the pension. There would have to be specific language in the contract. For me and my contract there is language that allows me to build up sick leave and use it as service credit towards retirement. I get 12 days of sick leave a year. 8 hours a day. Over a 30 year career, that could be up to a year's worth a service credit. Under the 2@55 program, that would add 2% to the pension. So a pension that paid out $3000 a month could have another $60 a month if a person wasn't sick often. I'd hardly call that spiking though. (I don't know anyone that saves up that much sick leave anyways...)
More likely, it's salary people who don't record sick leave but just take the day under the auspices of their salaried position. Labor is hourly and every hour is documented.
Overtime isn't part of any PERS retirement pension calculation I know of. Buying time back is, but the employee funds that 100%.

In any case, where I work, the labor cost is 2% of the annual budget. As I was once told during a contract negotiation by the management, "it's chump change, we could double it and not feel the effect. However, you are not worth it."

 

[MasterBlaster]

It's not what it seems

As I (and the Los Angeles Times) understand it, the legislation is all window dressing. All of the mentioned end to pension spiking, end to "airtime" purchases, and required significant employee contributions to pensions and other every favorable treatment are for "newly hired" employees. Current employees are exempt.

And since governments are (mostly) flat out broke there won't be too many new employees in the near term. It will be decades before any of these fixes saves any money.

The problem remains with nundreds of billions in unfunded liabilities for those well connected special interests.

 

[Mulligan]

I had about $10,000 in unused sick days and vacation. Our system does not allow it to count for retirement. I noticed my pension take home looked a little high, but since I didn't have a true take home estimate I just thought it was higher than I estimated. The second check, was $300 lower than the first because they incorrectly added that money to my pension, so they had to dock me for it the following check. So yes, I think pension spiking if allowed and done by many could have a significant impact on a system.