ACSA Board approves official opposition

ACSA’s Board of Directors has officially opposed an initiative currently in circulation that would reduce the retirement benefits of public employees, including educators.

The initiative has been certified by the Secretary of State for circulation. In order to qualify for either the June or November 2008 ballots, the initiative – a Constitutional amendment – must collect nearly 700,000 signatures. Because the initiative is being circulated, ACSA members are encouraged not to sign and to encourage their colleagues not to sign.

Filed by the California Foundation for Fiscal Responsibility under the leadership of former Assemblyman Keith Richman and Orange County Supervisor John Moorlach, the Public Employee Benefits Reform Initiative would reduce pensions and retirement health benefits of educators, peace officers, firefighters, public safety workers and other public employees hired after July 1, 2009.

The initiative increases the minimum retirement age, restricts early retirement, increases minimum age and years of employment needed to qualify for health care benefits, and limits post-retirement pension increases. It also prohibits retroactive increases in retirement benefits, requires public employers to make annual payments to fund future benefit costs, and allows public employers to adjust retirement contribution rates in future labor agreements.

The initiative applies to any school district, city, county, special district, state agency and the California State University and University of California systems. The initiative cuts pensions for new school employees by at least 40 percent, according to a recent analysis by the California State Teachers Retirement System.

More specifically, the initiative increases the minimum retirement age for classified, educators and other public employees to Social Security retirement age, currently age 67. The average retirement age for CalSTRS members is now 61 and for members of the California Public Employees Retirement System, 60.

The initiative also changes the retirement formula to 1.5 percent of a member’s final compensation multiplied by the number of years of employment. Currently the formula is 2 percent of final compensation. It also limits final compensation to an average of five years. Currently, final compensation is the highest year for individuals with 25 or more years of service credit and an average of three consecutive years for fewer than 25 years of service credit.

The initiative would also restrict the annual cost-of-living increases for five years after retirement. The increase is based on the Consumer Price Index annual increase or 3 percent, whichever is less. As of June 2007, the California CPI increased 1.03 percent from the same time last year. Currently, increases are given after a retirement allowance goes below 80 percent of the purchasing power of the original pension allowance.

The initiative also eliminates retiree health care benefits for any public employee who does not attain the minimum retirement age and prohibits providing retroactive pension benefits or health care benefits. According to an analysis done by the Legislative Analyst’s Office, pension contributions for new employees would be considerably less than contributions paid for current employees, and several decades in the future the total pension costs for state and local governments, including school districts, would probably be less than $5 billion annually. Today’s costs are about $10 billion yearly. The LAO also suggests that the two-tierd retirement system enacted under this initiative would likely increase other forms of compensation for new employees in order for state and local governments and school districts to remain competitive.

The CalSTRS analysis of the proposal illustrates the drastic decrease in retirement allowance with the following case study:

Assuming retirement at age 65, a final annual salary of $72,000 for an average teacher, an annual wage increase of 4.25 percent, and 30 years of service, the CalSTRS member’s annual benefit under current law would be approximately $52,000 and the benefit under the proposed initiative would be about $30,000. This is a 42 percent decrease in the annual benefit.

According to current reports, the initiative proponents have limited funds and have not initiated a fully paid signature gathering effort. Approximately $2 million would be needed to gather the signatures necessary to qualify for the ballot by early next year. Regardless, ACSA needs to be taking this effort very seriously, make members aware of the negative affects of the proposal, and encourage them to not sign petitions once they become available.

At this time, the California School Employees Association, California Retired Teachers’ Association and California Federation of Teachers are opposed. The California Teachers Association has not taken a formal position. The CalSTRS Board has also not taken a formal position but will discuss the proposal at its November meeting.