Many state-employee pensions slashed to cut costs - East Valley Tribune: Arizona

Many state-employee pensions slashed to cut costs

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Posted: Thursday, June 17, 2010 12:31 pm

In an effort to reduce the burden on their budgets, at least a dozen states have passed laws this year overhauling their retirement systems. Some have created less-generous pensions for newly hired workers. Others have increased the amount of money employees must pay into their pensions. Some have done both.

The trend is being driven by big budget deficits and the 2008 stock-market crash, which left many pension plans underfunded. Meanwhile, sympathy for public employees' pensions has waned as anxious voters in the private sector struggle with turbulent 401(k) plan results and frozen pensions.

Arizona, Mississippi and Virginia are among those that instituted lower retirement benefits for newly hired workers. Even union-friendly states like Michigan and Illinois, their budgets depleted by the recession, reduced pensions for new hires.

"You have an almost unprecedented revenue crisis for state governments and an almost unprecedented loss in investment value," said Ron Snell, a pension expert with the National Conference of State Legislatures. "A lot of these issues came together -- it has become a flood tide of action."

But the waters haven't yet reached California, where the two big public pension funds are looking to state government for more money -- and California Gov. Arnold Schwarzenegger's attempts to reduce retirement expenses are running into resistance.

The California Public Employees' Retirement System was on the verge last month of billing the state an additional $600 million for the upcoming fiscal year, an 18 percent increase. At the last minute, the board postponed the decision, saying it wants to see if increases can be put off for another year to ease the strain on a state budget that's $19 billion in the red. But this week, the board decided to bill the state the additional amount.

The California State Teachers' Retirement System is at least a year away from raising rates. The teachers' fund, unlike CalPERS, needs the Legislature's approval to set contribution rates, and the fund doesn't plan to approach lawmakers until 2011.

CalPERS and CalSTRS officials say they need additional state and local government dollars to help them recover from the 2008 market crash, which cost them a combined $100 billion.

Despite the two funds' money problems, Schwarzenegger's plan for a two-tier pension system, with lower benefits for new hires, is making little headway in the Democratic-controlled Legislature.

A small union representing California state scientists has opened the door a crack to a two-tier system. But the largest unions remain opposed, including the powerful Local 1000 of the Service Employees International Union.

Regardless of what happens elsewhere, "we need to work on California based on California's numbers," said Jim Zamora, spokesman for Local 1000. "Every state and every jurisdiction is different."

The trends in other states "give a talking point to advocates of reform, but I don't think it's very persuasive to the union leaders (in California), at least not yet," said political analyst Jack Pitney of Claremont McKenna College.

The average CalPERS pension pays $25,212 a year. The average CalSTRS pension is significantly higher -- $34,668 -- but officials with the fund note that their members don't collect Social Security.

Private-sector pensions average $11,282 a year, according to the Employee Benefit Research Institute. Public employee unions say their relatively hefty pensions represent a fair trade-off because their members earn smaller salaries during their careers than their private-sector counterparts.

Still, public employee pensions around the country have come under scrutiny as state legislatures cope with sagging revenue and the fallout from the market crash.

"Certainly in the wake of the investment losses of 2008, a lot of plans took a look at their numbers and found that they needed to make some changes ... in order to preserve or restore the plans' sustainability," said Keith Brainard, research director at the National Association of State Retirement Administrators. "The level of attention being given to public employee compensation is heightened."

The issue reached a flash point in Illinois. The leading Wall Street debt-rating agencies were threatening to downgrade the state's credit rating because of Illinois' budget woes, including troubles in the pension funds. A downgrade would have jeopardized financing for billions of dollars' worth of public-works construction projects.

So lawmakers in April passed a series of pension changes. The law will reduce benefits for newly hired state and municipal employees -- and will force them to work longer before they can retire with full pensions. The plan will save billions.

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