Pension initiative withdrawn; governor vows 'It'll be back'

By Sherry Posnick-Goodwin

Teachers, nurses, firefighters, police and state workers savored a moment of victory recently when the governor backed off of his plan to privatize the public pension system through the initiative process this year. After he called a surprise news conference to announce that he was withdrawing his initiative from signature gathering, political analysts labeled it a "huge defeat" for the governor.

While it's cause for celebration, jubilation should be short-lived. The governor says he plans to try again in June 2006, unless there is a legislative compromise. ACAX1 1 by Assembly Member Keith Richman, a bill that would accomplish the same goals, is still moving through the Legislature.

Numerous protests around the state showed the extent of public outrage over his pension proposal, but the governor denied that he was swayed by public pressure. He says he withdrew the initiative because he had inadvertently included language that would have eliminated death and disability benefits for public safety officers injured or killed in the line of duty.

His goal of moving new employees into 401(k)-style investments and undermining the defined benefit pension systems on which more than 2 million California employees depend is still a threat that must be taken seriously.

"It's already difficult to get people into the teaching profession and have them stay," says Martine Korach, a science teacher at Millikan High School in Long Beach. "They leave because the pay and benefits aren't as good as what people can get in private industry. But taking away pensions could drive people out of the profession because they would not have a secure retirement."

Under the governor's plan, people could outlive their retirement money, says Korach, a member of the Teachers Association of Long Beach who has appeared in CTA commercials to fight the governor's proposals. "Teachers don't get Social Security. It would be terrible to be 70 or 80 years old and have no income."

"The futures of public school employees are being left out to dry," wrote UC Davis Student CTA chapter President Annie Pestolesi in an editorial in The California Aggie. "Can we be confident that we will ever have the financial stability to retire?"

The governor's reform plan would eliminate traditional pensions for teachers hired after July 1, 2007. As the language stands now, current teachers who transfer to different school districts after that date could be considered new employees as well.

Under the proposal, the State Teachers' Retirement System (STRS) and the Public Employees' Retirement System (PERS) would be changed from "defined benefit" pension programs to "defined contribution" programs (see "A Risky Proposal" below). A defined benefit program promises guaranteed payments for a lifetime, the amount of which is calculated on the number of years of service and the salary level at career's end. Riskier defined contribution programs, such as 401(k), depend on how much money the employee contributes and how much the investments gain or lose in value over time. It's estimated that the average 401(k) investment lost 40 percent of its value in the stock market downturn of the last few years.

"With an increasing callousness, the corporate sector, seeking to maximize profits by transforming its employees' retirement into something more leaden than golden, has been moving out of defined benefits and into riskier defined contributions for years," notes an article in the Sacramento Bee. "Ask Enron's former employees how they feel about that swap".

Oddly enough, the governor's pension proposal would not save the state or taxpayers any money. According to STRS and PERS, the measure would increase state costs for retirement by an estimated $7.6 billion over the next 10 years. It would also increase existing pension plan costs, because without new employees paying into the plan, it will have fewer assets to invest.

At the same time, the governor is proposing reneging on the state's responsibility to pick up 2 percent of the cost of employee pensions, opting instead to pass that obligation on to local districts.

For 2005-06 alone, that would mean local school districts would have to pay $469 million to make up funds that the state previously paid toward teacher pensions, resulting in further cuts to California classrooms. According to calculations by the Castro Valley Unified School District, it would result in a loss of $586,000 next year for the district's 15 campuses or $72 per student.

When the governor first announced his proposal to privatize California's public pensions, four members of the STRS Board of Directors spoke out in opposition to his plan. Since they had been appointed by the governor but not yet confirmed, he withdrew their nominations and "terminated" their positions.

Since he has withdrawn the pension initiative, CTA President Barbara E. Kerr has challenged him to do likewise with his other so-called reform initiatives. "Now he needs to truly follow the will of the people and abandon the entire special election, which would save California taxpayers $70 million. The governor should drop his flawed schemes and get back to work on the real issues that Californians care about, like proposing a budget that protects school funding instead of breaking his promise to our schools and our kids."

A Risky Proposal

The difference between defined benefit and defined contribution pension programs