filed for bankruptcy, with commentators citing pension promises to public employees as a major cause.1 Munnell also notes “many states have substantially reduced benefits for new employees and increased employee contributions across the board.” 2 The City of Stockton that declared Chapter 9 bankruptcy protection in the largest municipal bankruptcy in U.S. history seeks in show in a March 2013 that it can not pay Wall Street bond creditors (Franklin High Yield Tax-Free Income Fund and National Public Finance Guarantee Corporation) but has paid its CalPERS obligation because the pension fund argued the city must make its annual payment to the fund no matter what. If Stockton did not pay CalPERS, the pension fund would sue the city of 300,000 people, and the city’s pension plan could be terminated and employees and retirees would be placed in a special CalPERS fund that would pay them reduced benefits. In March 2013, the City of San Bernardino in the midst of bankruptcy owes CalPERS pension payments since August 2012 and the pension fund argues that it has priority over other creditors in the bankruptcy. The city is seeking bankruptcy protection citing its $46 million deficit from CalPERS and its other creditors. A far larger problem developed in March 2013 with the potential city bankruptcy in Detroit Michigan. Over the protests of the mayor and city council, the state sent in an emergency manager to run the city with a $14 billion debt. Detroit has a population over 1, 800,000 million and is unable to meet its employee pay and pension contracts. The manager could cut city spending, change labor union contracts, pensions, eliminate city departments and sell city assets. As of 2013, five cities and three school districts in Michigan are under the supervision of an unelected emergency manager. appointed
be secondary or marginalized. Big money can put measures directly on the ballot to get voters response without considering the legislature. Voters, by means of local initiated actions, in two large California cities used the ballot to go after pension costs. More will be said about this below. In February 2013, the California Legislative Analyst Office noted problems in the California State Teachers Retirement System (CalSTRS) similar to CalPERS and raised concerns over future initiative proposals reforming pensions.7 California Pension Reform organization wants the 2014 ballot to have measures that increase employee pension contributions, ending spiking and retroactive benefit increases and move towards a defined contribution 401(k) style plan versus the existing defined benefit retirements guaranteed by employers. In short, the measures move towards a two-tier system. Both voter initiatives and ballot measures all reflect the unfunded costs of pension shortfall. A report released by the Stanford Institute for Economic Policy Research concluded the state’s pension systems have over $500 billion shortfall in 2012 up 17 percent than in 2010. The report notes that the “annual cost to the state of delaying pension solutions is $3.4 million per day.”8 Defined Contribution (DC) plans are found in the private sector, public employee pensions are mostly Defined Benefit (DB) plans. As indicated, Defined Benefit plans offer guaranteed benefits as a percentage of salary at retirement age. Voter created CalPERS pension system in 1932 for state employees and is the nation’s largest public employee retirement plan. It expanded to include city and county governments, school staffs (excluding teachers), legislators, and judges. The total
The 2012 pension plan from Governor Jerry Brown and from California Pension Reform (CPR) legislation, involves a twelve-point plan to “provide a fair but sustainable income security plan.” The plan is that the reform applies to all new state, local, school, and other public employees and to current employees as permitted by law. The twelve points can be grouped into three broad areas: • Benefit reductions • Contribution increases • Governance. The Governor Brown’s proposal provided only modest cost savings because the proposed ban on pension holidays, as is a