State Workers, Long Resistant, Accept Cuts in Pension Benefits

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The Wall Street Journal
By: Jeannette Neumann
June 29, 2010

Some public-sector unions, trying to avoid furloughs and layoffs, are accepting less-generous pension benefits for current workers and retirees, often for the first time in years.

In California, where Gov. Arnold Schwarzenegger has said he wouldn't sign a budget without a pension-fund overhaul, his office on Monday announced tentative contract agreements with two unions, following two years of wrangling over benefit cuts. Earlier this month, four unions agreed to similar tentative contracts. The agreements would potentially curtail benefits to 37,000 workers.

Unions and workers' associations in states such as Vermont, Iowa, Minnesota, Colorado and Wyoming also have recently supported rollbacks not just for new hires, an easier political sell, but for current union members, whose benefits have long been considered sacrosanct.

"It was either the legislature was going to do it, or we were going to define it for ourselves," said Pam Manwiller, chief negotiator and director of state programs for the American Federation of State, County and Municipal Employees in Sacramento, one of the six California unions that has agreed to a tentative contract.

States and workers are responding to some alarming math. Recent actuarial reports have indicated that without meaningful benefit cuts, many public pension funds could run dry in a generation or sooner.

In response, pension funds and legislatures have pushed for higher monthly contributions to pension plans, a later retirement age and lower annual cost-of-living adjustments for current and retired workers.

Not all workers are ready for cuts. The Mississippi Alliance of State Employees, which represents 3,300 state workers, unsuccessfully lobbied state lawmakers to vote against an increase in monthly contributions to pension plans for current employees.

The boost for Mississippi state workers, to 9% of monthly earned compensation from 7.25%, will go into effect July 1. "It was a bitter pill to swallow," said Brenda Scott, president of the worker alliance.

This year, nine state legislatures have voted to reduce benefits, increase monthly contributions or both for current workers and sometimes retirees, according to Keith Brainard, research director for the National Association of State Retirement Administrators. Unions and workers' associations in at least two-thirds of those states have supported the rollbacks.

"It's an exceptional moment," said Harley Shaiken, a professor at the University of California, Berkeley, specializing in labor issues. "The depth of the crisis and the lack of a near-term solution have led some unions to conclude that they're willing to save what they can to make the system work."

A tentative contract recently reached for the California Association of Highway Patrolmen would increase monthly employee contributions to 10% from 8%, and would base retirement benefits on the highest three years of wages rather than the single highest year, to prevent pension "spiking," in which employees try to boost their final-year pay to increase their income for pension-calculation purposes.

In exchange, California state troopers would not be furloughed through 2013, and their salaries would be guaranteed for three years.

"It's a significant step...to get concessions of that magnitude," said Lynelle Jolley, spokeswoman for the office that represented Mr. Schwarzenegger in the negotiations with the six unions.

Jon Hamm, who negotiated the tentative contract on behalf of 7,000 state troopers, said his group concluded it needed to get on board with cuts beyond those to new hires. "We have to take a different approach than traditional unions have taken. And that is to be part of the solution," he said.

In some instances, unions that are making concessions are trying to ward off what they see as a much bigger threat--the specter of a switch from a defined benefit plan to a defined contribution plan, which is similar to a 401(k) in the private sector.

That worry was behind some recent union concessions in Minnesota, said Eliot Seide, executive director of AFSCME in St. Paul. Mr. Seide said his board agreed to a reduction in cost-of-living adjustments for current retirees "reluctantly," so that "we don't kill the goose that lays that golden egg."

In Wyoming, public employees have not made monthly contributions to their retirement plan since 1991. Now, recently passed legislation means some public employees will have to pay on average $60 a month toward retirement.

Kathryn Valido, president of the Wyoming Education Association, said the legislation faced little dissent within the organization. But that could change once the adjustments go into effect on Sept. 1.

"People are busy," Ms. Valido said, "and I'm not sure the reality of paying into the system is going to really hit them until they get that first pay stub."

Write to Jeannette Neumann at jeannette.neumann@wsj.com

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