Promises to Keep
By Eric Siddall
As California firefighters battle the Santa Barbara blaze, their pension rights are under fire in the courtroom. Opponents of organized labor hope to score a major victory against firefighters in Cal Fire Local 2881 v. California Public Employees’ Retirement System (CalPERS).
In Cal Fire, firefighters challenged a provision of the Public Employees’ Pension Reform Act of 2013, known as “Airtime.” Airtime, established by the federal tax code in 1997 and enacted into law by the state in 2003, allowed state employees to purchase years of service that counted towards their pension. Its creators intended it to be a cost-neutral program: The purchasing employee was to pay both the employee and employer pension contributions along with interest for the years of service purchased. However, the reality was early retirement and actuarial assumptions that increased the government’s net-contributions. These unintended consequences compelled Gov. Jerry Brown to eliminate the benefit in 2013 in order to shore-up state pensions’ long-term health.
However, much more is at stake in this case than Airtime. Opponents of labor hope to terminate a legal doctrine known as the California Rule, and they see Cal Fire as their opportunity. For almost seven decades, the California Rule held that a vested pension right cannot be modified unless the change was reasonable, material to the successful operation of the pension system, and, most importantly, comparably advantageous to the employee. The bottom line: You cannot eliminate a bargained benefit without giving something of equal or greater weight. This is basic contract law.
Those against organized labor – who hypocritically will defend contract law to the hilt so long as it does not involve workers’ rights – want this principle overturned. They believe the Cal Fire case may be labor’s Waterloo.
They may be right. The public today has developed a dim view of pensions thanks in part to the anti-labor movement. Prior to the 2008 financial crisis, this view held limited sway because CalPERS and other state pension funds were on sound financial footing. Unlike Social Security, state pension funds were permitted to invest heavily in the financial markets. Their returns were impressive and paid for most of the cost of pensions. In 2007, for example, CalPERS earned a rate of return of 19.1 percent.
After the 2008 financial collapse, CalPERS endured long-term financial insolvency. In 2008 and 2009, CalPERS went from earning double-digit rates of returns to losing 5.1 percent and 24 percent of its total value in each respective year. This financial downturn exposed government pensions to renewed attack.
Anti-union constituencies have successfully painted public employee’s pensions as a drain on government finances. They tend to forget that these are the very people who educate our children and safeguard our communities. They have created an image of pensioners living high on the hog despite the fact that teachers on average receive about $3,300 per month after 27 years of service, and public employees contribute between 8 to 12 percent of their paychecks to their own pensions. Many taxpayers believe that pensions will continue to cannibalize the state government’s budget. Yet projections show that the percentage of California’s state budget devoted to pensions will decrease from 8.2 percent in 2013 – an artificially high figure due to the budget crisis and to the downturn in financial markets – to 5.7 percent in 2046.
If the anti-labor side wins in Cal Fire, it could mean the end of government pensions. The irony is that it was labor that created this scenario by fighting back on sensible pension reform, specifically by challenging the government’s ability to eliminate Airtime. Greed on both sides has presented obstacle after obstacle for ensuring the long-term health of our pension system.
But we should not forget that the primary goal of pensions is to induce smart and capable people to become public servants and reduce attrition. Without pensions, instead of draining the swamp, we will drain talent out of our public sector.
Eric Siddall is Vice President of the Association of Deputy District Attorneys, the collective bargaining agent representing nearly 1,000 Deputy District Attorneys who work for the County of Los Angeles.