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Our View: Auburn out front on pension reform; can state follow?

Our View
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How do you eat an elephant named “pension reform”? As you would any other elephant — one bite at a time. The Auburn City Council and three public safety unions agreed to changes in pension benefits earlier this year that creates a two-tier system for local police officers and firefighters. The changes were adopted formally by the council Monday night. Under the new plan, current officers will continue to receive a pension equal to 3 percent per year, while new officers and firefighters will start at 2 percent and work up to a maximum of 2.7 percent per year. In both cases, retirees must be 50 years or older. This is a relatively small change, but significant in that the city and union members worked together to develop a workable reform initiative. Both sides should be commended for taking this small bite. Comparing two officers with 30 years experience, earning $65,000 annually and retiring at age 55, the new plan would save the city and California Public Employees’ Retirement System, or CalPERS, about $175,000 over the life of the retiree. Multiply that savings by dozens of officers, sergeants and firefighters, and the total savings will be in the millions of dollars. While the new formula falls short of the “2 percent at 55” that other city employees subscribe to, it’s a step in the right direction. From Wisconsin to Ohio to California’s own budget crisis, pension and benefit reform for public employees is the hottest button going. So hot that most liberal lawmakers are unwilling to risk irritating their union supporters, and most conservative legislators can’t position a platform that could mediate results like Auburn’s. Californians want pension reform, says a Los Angeles Times/USC poll released this week. According to the poll, 70 percent of voters support a cap on pensions for current and future public employees. Not surprising, given the number of six-figure retirees — dozens who worked for city, county, school and special districts in Placer County. The Journal editorial board has previously criticized the bloated salaries and subsequent pensions of those retired county workers, mainly managers and administrators. A Journal report earlier this year outlined how the county’s pension costs are expected to increase over the next four years from $38.9 million in 2010-11 to a projected $53.2 million for 2014-15. While the county has taken steps to cap pensions for future employees, current employees and managers need to take a harder look at increasing their contributions to their retirement packages. Those polled agree. Sixty-eight percent of respondents believe public employees should be contributing more to their retirement accounts, and 52 percent want government to increase the minimum retirement age, which varies by contract between ages 50 and 62. A majority of survey respondents — 66 percent — support a blend of the traditional, defined-benefit pension plan with a 401(k), which generates income from a mix of investments tied to stocks and bonds. This is the primary retirement vehicle for most private-sector employees. Published reports of the poll included a comment from Art Pulaski, executive-secretary of the California Labor Federation. Pulaski is quoted as saying taxpayers are caught in a “moment of envy” over pensions and benefits, and that every public employee should be entitled to a secure, defined pension plan. That might have been true 20 years ago, when the private and public sector alike used traditional pension plans for retirement. That might have been partially true 10 years ago, when public-sector salaries and wages still trailed the private sector. But a lot has changed. Companies realized that defined-benefit pensions were unsustainable and could lead to bankruptcy. The American auto industry nearly collapsed, leaving hundreds of thousands unemployed, until sweeping changes were made in retirement packages. And compensation? While the data is debated about who earns what, a federal Department of Labor report released last month stated that average private-sector employees earned $27.75 per hour in total compensation — wages and benefits — in 2010. This was 45 percent less than total compensation for average state and local government workers, who earned $40.28 per hour. Clearly, the path to long-term pension reform will be a long and winding one, riddled with rhetoric, accusations and sacrifice. But every journey starts with a small step, and Auburn has shown it can be done.