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Jon Ortiz

The State Worker: Will pension changes prompt pay raises?

Published: Thursday, Aug. 30, 2012 - 12:00 am | Page 3A
Last Modified: Tuesday, Feb. 26, 2013 - 8:13 pm

Government wages and retirement benefits are a lot like a balloon: Squeezing one end puts pressure on the other.

Pension reform legislation that lawmakers likely will send to Gov. Jerry Brown on Friday could slowly squeeze retirement benefits for state and local employees as new workers come in with less-generous benefit formulas.

Down the road, that could pressure governments to bump up employee pay.

First, let's look at a concrete example of how pension reform will affect benefits, courtesy of a legislative analysis.

Currently, a miscellaneous-category worker, let's say a city hall employee, receives a $43,000 annual pension at age 63, assuming 30 years of service and a highest-year salary of $60,000.

An employee hired under the new proposal doing that same job for the same pay for as many years would receive a $36,000 yearly pension at age 62.

Public employees argue with some validity that their pensions make up for lower pay when compared with the private sector. This is certainly true for highly skilled state workers: scientists, pension investment managers, attorneys and the like.

But now, with government retirement benefits squeezed, will the wage end of the balloon start to swell?

"That's really the big question," said Dave Gilb, former head of California's personnel department. "Will governments try to offset decreased pensions? Will they give employees raises without objective reasons to do so, such as recruitment problems?"

Let's say that for whatever reason, real or otherwise, state and/or local wages start to balloon. Guess what that does? It inflates pension costs, because pay is a factor in determining retirement benefits.

Hourly overtime costs would swell, too, further tamping down savings realized by reducing pension formulas.

Still, there's some upside to emphasizing pay and de-emphasizing pensions: If governments do wind up paying more up front, at least wages are transparent and easier to understand.

Part of the problem with the pension debate is complexity of the retirement systems and their long-term costs. Who knows what fund investments will do over the next three decades? But that's what the pension debate hinges on – predicting the long-term future.

Wages focus on the here and now. There's no mystery, no soothsaying involved. But in the current atmosphere, it's difficult for an elected official to argue for paying civil servants more.

It's easier to promise future compensation partially shared by a pension fund than grant a pay raise today. Employees have already bought into the idea. Politicians love it, too.

Even if the new pension reform produces only modest savings, it's a chance to ask a larger question about the whole balloon: What is civil service itself worth?

© Copyright The Sacramento Bee. All rights reserved.

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About The State Worker

Jon Ortiz The Author

Jon Ortiz launched The State Worker blog and a companion column in 2008 to cover state government from the perspective of California government employees. Every day he filters the news through a single question: "What does this mean for state workers?" Join Ortiz for updates and debate on state pay, benefits, pensions, contracts and jobs. Contact him at (916) 321-1043 and at jortiz@sacbee.com.

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Note: The State Worker blog switched blog platforms in October 2013. All posts after the switch are found here. Older posts are available using the list below.


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