State Workers Wary of Pension Idea

With a college degree in planning, Cesar Rincon could have landed a job with any number of private consulting firms in Los Angeles.

Instead the Boyle Heights native applied to the Los Angeles County Planning Department shortly after getting his diploma five years ago.

The private sector might have paid more, Rincon said, but the stability of his county planning job and the promise of a good retirement were more important.

“Working in the private sector, you just don’t know how long your job will last,” said Rincon, 29, recently married and hoping to start a family soon. “With a government agency, you know that if you work hard, you will have a secure job with excellent benefits.”

That deal, long embraced by the state’s public employees, could change dramatically in the months ahead.

Citing runaway costs, Gov. Arnold Schwarzenegger endorsed a proposal earlier this month to convert public employee retirements from a traditional defined-benefit system to the 401(k)-style plans held by most American workers.

The governor is also recommending that 326,000 state workers double the amount they contribute to their retirement funds. The proposals, which Schwarzenegger said were necessary to rein in state spending, are expected to face fierce opposition from unions.

Though the proposals would not affect the more than 1 million people currently employed by the state, schools and local government agencies, it would place anyone hired after July 2007 in a new contribution plan, under which a set monthly pension income would not be guaranteed.

Retirement income would instead depend on how successfully an individual employee invested contributions and the bullishness of the stock market upon leaving the work force.

With less pension security, current employees predict, it could be harder to attract teachers, police, firefighters, social workers and librarians to jobs that can often be unappealing and thankless.

Christine Lorenzi, a 27-year English teacher at North High School in Riverside, called the governor’s proposal “a bad idea.”

“We’ve seen with the stock market that there are problems,” said Lorenzi, 51. “Defined contribution plans require people to have a great deal of knowledge about the stock market, and the majority of us do not have that expertise.”

Teachers are already smarting from increased testing demands and criticism when students don’t perform well, Lorenzi said. Combine that with the prospect of a diminished pension, and the profession starts to look less attractive, she said.

“It would be one more thing on an ever-growing pile of deterrence,” she said.

In his State of the State address in Sacramento this month, Schwarzenegger said the spending on public pensions is on a “track to disaster.” At the state level, the cost to taxpayers of funding worker pensions has increased from $160 million in 2000, after the long bull run in the stock market, to $2.6 billion this year.

Local governments and school districts, meanwhile, are facing their own spiraling costs, resulting in cuts to some public services. Switching to a contribution system would make pension payments more predictable for public agencies and bring employee retirements in line with those offered by the private sector, Schwarzenegger said.

His plan to convert new hires to a contribution system parallels a legislative proposal introduced last month by Assemblyman Keith Richman (R-Northridge).

Schwarzenegger and Richman say that if Democrats don’t go along with their reform proposals, they will take the issue to voters in an initiative sponsored by Richman and the Howard Jarvis Taxpayers Assn. Richman’s office said it would begin gathering signatures this month.

Proponents have already begun gathering signatures.

Most of the state’s public workers are enrolled in pension plans operated by the $177-billion California Public Employees Retirement System.

California has increased employee benefits in recent years, placing it among the top two or three public pension systems in the nation, according to the Employee Benefits Research Institute, a Washington, D.C.-based nonpartisan group that researches public and private pension systems.

Public pensions have always outpaced those offered by the private sector, especially in large states such as New York, Florida and California, said Dallas Salisbury, the institute’s president and executive director.

In recent years, however, benefits have become so generous that some employee groups, such as police and firefighters, are eligible to retire at age 50 with 90% of their salary as a lifetime pension. On top of that, retirement income is indexed for inflation, something virtually unheard of in the private sector.

On average, longtime public employees in California would retire with 60% of their salary as a pension, compared with 45% in the private sector, Salisbury said.

“If you are looking at the realm of public sector employment, it would not seem that California is out of whack,” he said. “But if you are comparing it to private sector employment, then it is out of whack.”

A number of states have begun offering workers the option of managing their own pension money through a contribution system rather than participating in a state-run fund, Salisbury said. But only Michigan has closed out traditional pensions altogether, he said.

“They usually go toward a contribution plan for the same reason: They are trying to make retirement costs more predictable,” he said of the states.

If public pensions are higher, it is the result of a long-held agreement that public employees would be rewarded for years of service and lower pay with a stable retirement, said Fred Nesbitt, director of the National Conference on Public Employee Retirement Systems.

“At the end of a career, you know you are going to get a good pension,” Nesbitt said. “You take that away and governments will have a hard time retaining and recruiting good employees, especially for jobs of a technical nature.”

Analysis by Salisbury’s group, however, contradicts the notion that government workers earn less than their private sector counterparts.

According to Census Bureau data compiled by the institute, the average annual salary for private sector workers in 2003 was $34,603, compared with $35,771 for state and local government workers.

Rank-and-file workers have heard about Schwarzenegger’s plan, though some are fuzzy on the details. Their mood is one of caution and anxiety about what might happen to the next wave of California’s public workers.

Westminster Fire Capt. Steven Cook, 46, says he relies on union leaders to make decisions that will benefit him. He wasn’t sure whether a contribution plan would deter recruits to the Fire Department, but he said he was happy with recent improvements to his own pension.

“As you get older and start planning retirement, it becomes more important,” Cook said.

Ventura Police Sgt. Al Davis said he had listened to Schwarzenegger’s speech but did not want to make any “snap decision” about a contribution plan.

When he joined the Ventura force, he was a scrappy 21-year-old eager to get out of the streets, Davis said, and never considered what his pension pay might be.

Now 41, with retirement nine years away, Davis is appreciative that he will be entitled to a 90% pension.

“We’ve worked hard to get it and we’re happy to have it,” he said, moments after arresting three suspected car thieves at gunpoint. “It’s our reward for a job well done.”