Marcia Fritz: Unions must lead the way in pension reform effort

The city of Vallejo is days away from declaring bankruptcy. The city of San Diego may be next. Both overpromised retirement benefits to their workers. Vallejo's management followed the rules in reporting these promises. It took a whistle-blower to force San Diego to come clean.

Fraud is defined as a "crime of cheating people, obtaining money by deliberate deception."

The Securities and Exchange Commission filed a civil complaint against five former San Diego city officials last month, alleging that they committed fraud by misleading investors in the city's pension fund. The officials allegedly fibbed about the city's pension liabilities.

Even though the Governmental Accounting Standards Board allows for a wide range of options in reporting pension costs, San Diego used a method that was outside their acceptable range. This caused the city's financial condition to appear better than it actually was and allowed the city to sell bonds at lower interest rates. Investors who relied on the city's overly rosy financial statements will lose money if the city defaults, and that is why the SEC filed charges. Citizens who are cheated still have to pay.

The charges are leveled as other cities and counties are struggling to pay for retirement liabilities. While speaking to county auditors and controllers at their annual conference in Ventura recently, I asked for a show of hands to determine who is setting money aside to pay for the health care costs owed to workers after they retire. Only a few raised their hands. Beginning this year, the full costs owed for future retiree health benefits must be reported. Unlike pension debt, agencies weren't required by the Governmental Accounting Standards Board to report these liabilities until now.

Labor organizations such as the AFL-CIO and the National Conference on Public Employee Retirement Systems oppose the new rule because they fear once governments see the future they will renege on their promises.

Bill Holder, a board member for the Governmental Accounting Standards Board, sympathizes but gives critics the choice: "If your employer can't afford to pay your health care costs in 20 years, wouldn't it be a lot better to know that now rather than in 20 years, when your check doesn't come?"

Orange County Supervisor John Moorlach says, "Recessions have a way of separating savers from spenders. It blows the sand off of things hidden, like unfunded retirement liabilities."

After years of double-digit growth in revenues, agencies should have cash reserves, but many don't. Orange County is worse off today than when it declared bankruptcy. Over the next five years almost half of government workers are expected to retire. Many public-safety workers will receive more after-tax income in retirement than working. Since Sacramento County Sheriff John McGuinness turned 50 and became eligible to retire, he says he is working for free. Is it good policy to rely on a volunteer to perform one of the county's most important jobs?

Retirement commitments can't legally be rescinded except, perhaps, in bankruptcy. It is in everyone's best interest, especially the unions, that retirement benefits and ages be adjusted for new workers.

I question why unions aren't actively pursuing sensible solutions that encourage their members to keep working. Unions can easily solve the fiscal crisis unfolding statewide. They control the majority of retirement boards who, like San Diego's, prepared arcane reports that sugarcoated the costs of early retirements. Unions ensure labor-friendly candidates get elected. They have the upper hand in closed-door collective bargaining sessions both in sheer numbers and financial strength. No one else is better positioned.

Elected officials and the governor are powerless, and all term-out eventually. Administrators, such as those in near-bankrupt Vallejo, are giving up trying to balance budgets; overtaxed and underserved citizens can move to another state, and businesses can simply shut down or relocate. Unions endure.

Unions should promote labor, not leisure. On average, if each new member keeps working just five more years, pension costs will be cut in half. Retiree health benefit costs will almost disappear if more choose to work until they qualify for Medicare. Fewer positions will be cut or left vacant. Businesses will pay less for government services and can hire more workers to compete with out-of-state and foreign businesses.

Employee pension contributions can be reduced or eliminated; this will increase their take-home pay to pump into local economies.

Studies have shown people who keep working tend to live longer, healthier lives than those who retire sooner. Unions can and must lead the way.