OC Taxpayers Overwhelmingly Support Pension Reform

The following editorial was written by Laguna Niguel Councilman Robert Ming. Ming as also the President of the Association of California Cities – Orange County. OCBC CEO Lucy Dunn serves as a non-voting member of the ACC-OC board.

It’s not easy getting two-thirds of Orange County voters together on anything, but when it comes to pension reform, they agree. Orange County cities have been struggling with how to approach pension reform and the Association of California Cities – Orange County (ACC-OC) has stepped in to help bring some consensus. How much support is there for pension reform? Plenty.

In a recent poll fielded by Probolsky Research for the ACC-OC, 64 percent of Orange County voters said they believe pension reform is needed now. Importantly, when voters were read specific pension reform measures, this support went even higher.
· 83% support requiring local government employees to contribute the same amount as their employers to their pensions

· 73% support capping the amount of benefits local government employees receive when they are no longer working

· 72% support allowing local government agencies to freeze unaffordable pension plans and offer an alternative

· 71% support setting local government employees’ retirement age to be the same as the Social Security retirement age

Not long ago, pension reform was an issue that made people’s eyes glaze over, so it is refreshing to see such broad, bi-partisan support. It is also good to see that on this issue, Orange County is not alone. In another recent poll – this one conducted by the LA Times – about 70 percent of all California voters favored specific reform measures, like capping retirement benefits. Like it or not, this puts Orange County well within the mainstream of pension reform policy, indicating that we can lead the way both locally and statewide.

This is precisely why the ACC-OC – an organization focused on public policy for local governments – has spent the past two months developing a set of commonsense solutions that cities can use as the framework to enact meaningful change in their jurisdictions. These measures were developed by the ACC-OC’s Pension Reform Taskforce following hours of deliberation and with the help of financial experts, leading actuaries, city leaders and staff, and the ACC-OC’s 25-city membership.

Following is a sample of the ACC-OC’s pension reform policy platform. Because many of the pension related issues are controlled by state law, there is a limited number of things cities can do today to implement reform, but the committee has isolated some specific things cities can do today through the collective bargaining process that will make a real difference. Here is a sample of some of the things the committee came up with:

What Cities Can Do Today

· Share Retirement Responsibility with Employees – Cities and employees should move toward parity where employees contribute an equal amount to their pensions as cities.

· Treat New Hires Differently – Cities should adopt a second tier for new hires offering the least generous formula currently available for that class of employees and use the longest analysis period available and eliminate other optional compensation.

· Be Flexible to Market Changes – Retain flexibility to adapt to market and legal changes by limiting contract periods to one year.

Items Requiring Legislative Action

· Stop Pension Spiking – Seek to eliminate all the techniques for inflating compensation in the final year that results in a disproportionate pension payout.

· Permit Cities to “Freeze” Plans – Cities should have the same alternatives available to private sector companies that are able to “freeze” unaffordable pension plans.

· Add a Statutory Hard Cap – Limit the total pension payable to both miscellaneous and safety employees to either a percentage of salary or a hard dollar amount.

These issues may sound like nothing more than commonsense, but they are actually a long way from where most cities are today. In the past, many cities have been afraid to reduce pension benefits in fear that other nearby cities offering better packages would poach good employees. By developing a county-wide best practice approach, the ACC-OC hopes to minimize this and pave the way for cities to begin immediately examining their pension programs and determine where these concepts can help.

People are beginning to realize the magnitude of this problem, and that time will only make things worse, especially as CALPERS smoothes in the significant investment losses of 2008, years of unrealistic assumptions and overly generous packages. This reality converges with potential changes in the Generally Accepted Accounting Practices (GAAP) and revised actuarial assumptions (e.g. retirees living longer) to create even higher unfunded anticipated actuarial liabilities for cities across California.

Pension reform at the local government level must happen now and ACC-OC’s policy platform serves as the launch pad for this process – a catalyst that gives cities the tools to enact meaningful reforms in their jurisdictions, at their own pace. While some of these concepts will be more difficult than others to realize, cities can now march forward with confidence that they have a well-conceived plan based in commonsense that voters overwhelmingly support.

For more information contact Kate Klimow, Vice President of Government Affairs.

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