The purpose of this page is to urge that members take specific action on matters which affect the well being of all RELAC members. Members who wish to express a different point of view or who recognize a need for action by our membership are invited to send their comments to takeaction@relac.org
Newly Submited Initiative Aims to Reduce Cost of Living Adjustments
by Dave Muir
Chair, Legislation Committee
A Republican-backed pension reform initiative was filed with the Attorney General’s Office on November 2, 2011. Once the Attorney General issues a title and summary of the proposal, the sponsors of the initiative will have 150 days to obtain the 807,615 signatures required to qualify the proposed initiative for the ballot. The Secretary of State has estimated that the time for obtaining signatures will commence approximately January 6, 2012.
The initiative proposal would add several pension reform measures to the California Constitution. There are two versions of the initiative: Version one would close traditional pension plans to all public employees hired on and after July 1, 2013. They would instead be enrolled in a retirement plan that does not have “the potential to accumulate debt or unfunded liabilities owed by the government agency.” This seems to envision a 401(k) styled plan or a defined benefit or annuity program not operated by the government. Version two would place new employees in a retirement system that combines a defined benefit plan offering lower benefits with a 401(k)-styled plan. This is referred to as a “hybrid” plan.
The provisions applicable to employees are complicated and too detailed to be discussed in this article. But a provision of immediate concern to retirees would limit cost-of-living adjustments, starting in April 2013, “to the annual percentage increase, if any, given to Social Security recipients in the most recent twelve month period.”
If the initiative qualifies for the ballot and is passed by the voters, the provision limiting cost-of-living adjustments (as well as many other provisions that would reduce benefits of existing employees) would be immediately challenged in the courts. The great majority of legal scholars, including LACERA’s Chief Counsel and the general counsel of CalPERS, firmly believe that retirement benefits of existing employees and retirees, including cost-of-living adjustments, are vested benefits that cannot be taken away. Our courts in California have held on numerous occasions that attempts to reduce benefits of employees and retirees violate the “impairment of contracts” provisions of both the California and United States Constitutions. There is, however, a minority view held by some attorneys that retirement benefits could be reduced under some circumstances.
RELAC will carefully monitor future developments and keep you advised of the status by posting updates on the RELAC website: www.relac.org.
As always, RELAC will work diligently to keep you informed of attempts to reduce your benefits and to protect your rights at all times.
The ballot initiative described by Dave Muir in the above article has been cleared to collect signatures required to qualify it to be submitted to California voters. The sponsor is Daniel Pellesier. A second similar intitiative, also submitted by Pellesier, has also been approved for signature collection. Both initiatives have been titled Reduces Pension Benefits for Public Employees. Both would limit annual cost of living increases on public empolyee pensions to no more than the annual increase granted by Social Security. If this provision survived legal challenge the result would be reduced annual increases for LACERA retirees. This limit would apply to the pensions of those who are already retired as well as to the pensions of active employees following their retirement, reason enough to refuse to sign these petitions.
In addition one of these initiatives specifies that the pensions of public employees hired after the adoption of the intitiative must be hybrid, divided between a defined benefit plan, a defined contribution plan and Social Security. The California Legislative Analyst’s Office has warned that the amount that employers and active employee contribute to the defined benefit fund will be greatly reduced; making up for the reduction will require greatly increased employer contributions. We can see the possibility that this increase may be sufficiently burdensome so as to persuade the County to look for ways to reduce benefits for those persons who have already retired.
We are pleased to report that the proposed ballot initiative which would require public pension systems to invest 85% of their assets in California businesses has failed to collect enough signatures to qualify to be submitted to the voters. This initiative was submitted by Michael Lee Madsen. The RELAC Board opposed this initiative on the grounds that this rigid requirement would prevent LACERA from investing so as to get the best returns with the least risk. If passed, the initiative would have been likely to have serious adverse consequences for the retirement fund and for taxpayers.
