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Bill proposes changes to pension plans for public employees

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AUGUST 30, 2012

The California legislature will vote this Friday on a bill that would significantly impact state and local public employees.

The Public Employee Pensions Reform Act of 2012, also known as AB 340, proposes considerable changes to pension plans for new public employees hired after Jan. 1, 2013. If passed on Friday, the act will notably alter the formula under which pensions are dispersed to public employees — though the effects will not be felt immediately after.

Under the act, new public employees would be given less generous pension formulas and their retirement ages would be extended.

Pensions under this act are also capped at a max of $110,100. In comparison, Berkeley City Manager Phil Kamlarz, who retired last year, left with a $249,420 pension plan.

“Every city in California — except the ones that have their own pension plan — will be affected by this (act),” said Berkeley City Auditor Ann-Marie Hogan. “It’s mostly going to affect new employees, so most of the cost-saving won’t kick in for a long, long time.”

Instead, Hogan identified another aspect of the bill that will have a more immediate impact. Under this act, Berkeley and similar cities may negotiate by 2018 with unions representing current employees to increase employee contributions to the normal cost of pension benefits, she said.

The bill would allow for cities to pursue a way in which employees would contribute for about half of their normal cost of pension benefits, said Dwight Stenbakken, deputy executive director of League of California Cities. If an agreement on how to divide the contributions cannot be reached by 2018, the city may unilaterally impose a 50/50 share, or higher, between the city and employee.

“That’s something that’s going to require more study and information, but if you look at it, it says that they could impose the higher level of contribution,” said CalPERS spokesperson Amy Norris.

In response, the people most affected by these proposed changes have expressed dismay and anger. Many union representatives have protested against the bill for what they say is a violation of collective bargaining rights.

“(AB 340) infringes upon (collective bargaining) rights because it mandates a whole number of things, which historically we’ve done through collective bargaining,” said Rollie Katz, business agent for Public Employees Union Local 1.

Katz went on to say that PEU Local 1 recognizes the needs for pension reform and have committed to doing so, citing examples such as the city of Antioch where PEU Local 1 workers will now contribute their full share of normal cost pension benefits.

“Everybody cares about total compensation, so when you enter into negotiation, what you care about is the total cost in terms of compensation,” said Goldman School of Public Policy Professor John Ellwood. “If in fact I have high pensions, it means that I have settled for lower wages. If you are cutting my pension in the future, as a union, I’m going to demand more in wages. That’s what economic theory tells you.”

For Berkeley, these developments are too recent to properly analyze the financial impacts, said Berkeley spokesperson Mary Kay Clunies-Ross. The League of California Cities, however, has come out in support of the bill, said Stenbakken.

Jaehak Yu is the lead city government reporter. Contact him at [email protected]

AUGUST 30, 2012

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