CALIFORNIA STATE UNIVERSITY, NORTHRIDGE

California Public Employee Pension Reform

A graduate project submitted in partial fulfillment of the requirements for the degree of Master

of Public Administration in Public Sector Management and Leadership

By

Brian Flinn

August 2021

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Copyright by Brian Flinn 2021

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The graduate project of Brian Flinn is approved:

__________________________________________ _______________ Dr. Ariane C. David Date __________________________________________ _______________ Dr. Steven J. Golightly Date __________________________________________ _______________ Dr. Henrik Palasani-Minassians, Chair Date

California State University, Northridge

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ACKNOWLEDGEMENT

Since 2014, I set out on a journey of higher education. Obtaining my bachelor's and

master's degrees over the last seven years was a dream of mine. This could not have been a

reality without the support of several people in my life.

To City of Downey management and Downey PD Chief Milligan: Your generosity made

all this possible. I am grateful for the support and for believing in a little kid, fresh out of high

school, who 20 years later would be running your 911 center.

To my colleagues in Cohort 168: In law enforcement, it was ingrained in our heads from

day one that we would count on our partners for everything. This couldn't have been truer;

throughout this program, there were many a day that I felt like I was lost, but you all were only a

text away. You all are leaders; just remember to lead with your heart. You’ll do remarkable

things and make an impact without a doubt wherever your careers take you.

Finally, to Tricia, Mom, Dad, Dave & Hattie – you all encouraged me and helped me

along even when I thought this was going to be impossible. You had faith in me, and you

believed in me. You held me up when I faltered, and you checked in on me when I was MIA and

knee-deep in homework.

For that, I am forever grateful.

Table of Contents

Copyright Page .................................................................................................................... ii

Signature Page ................................................................................................................... iii

Acknowledgement .............................................................................................................. iv

Abstract ............................................................................................................................... vi

Introduction ......................................................................................................................... 1

Background ......................................................................................................................... 6

Review of the Literature ...................................................................................................... 9

Methodology ...................................................................................................................... 19

Conclusion ......................................................................................................................... 21

References ......................................................................................................................... 25

Appendix ........................................................................................................................... 28

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ABSTRACT

California Public Employee Pension Reform

By

Brian Flinn

Master of Public Administration in Public Sector Management and Leadership

Since the great recession of 2009, public employee pensions were put under the

microscope after full-blown scandals revealed severe ethical questions regarding public

pensions. This opened a Pandora's box of issues related to public pensions, such as how much of

the general fund was contributed to ensuring that public employee's pensions promised to them

had the financial wherewithal to continue supporting those who are drawing off them. In

addition, it shed light on how the California Public Employee Retirement System (CalPERS)

discounted rates that each member agency paid to CalPERS and the subsequent effect that those

discounts had when the economy was bullish. This gave rise to the Public Employee Pension

Reform Act of 2013 (PEPRA). PEPRA required employees to pay more for their pensions for the

contractual liabilities that CalPERS had to pay.

This study intends to gauge whether or not there's a better way forward for both

employees and the governments they serve. Can fledgling governments afford to provide

essential services without the restrictive CalPERS costs, or is there something out there that can

give competitive pension benefits and be cost-effective so that the cost of delivering government

services is not compromised? The information could provide additional data for newly formed

cities attempting to determine their future financial sustainability.

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INTRODUCTION

The recession of 2009 brought light to the shortcomings of government budgets and

contractual obligations as they pertain to public pensions. "They were contractual, and because

of that, $500 billion of debt must be paid, retirement costs [would] rise dramatically no matter

we [did]” (Crane, 2010). In January of 2013, California passed the California Public Employees’

Pension Reform Act (PEPRA).

This was of particular interest both to elected officials and voters in California alike. The

state employs the lion's share of public employees in California and other public entities such as

cities, school districts, community services districts, and transit agencies. One of the largest

administrators of government pensions in California, the California Public Employee Retirement

System (CalPERS) represents the majority of these employee’s pensions. The cost of

administering the benefits had grown exponentially during the recession; those costs were

ultimately passed onto the entities that paid into the program.

Has PEPRA been effective at stemming the rising costs of pensions? In California,

pensions are all but promised. Overby (2020) stated, "The California Rule is the general notion

that a public employee is vested in the pension benefit promised at the start of employment such

that those benefits cannot be reduced even for prospective service except under minimal

circumstances.” The term “vested” refers to the amount of “service credit” that has accumulated

for an employee’s hire date and the amount of time that the employee has been paying into the

system. As an example, depending on the employer’s contract with CalPERS, employees are

generally vested into the system for 5 years and can begin receiving benefits based upon their

employer’s formula. (CalPERS, 2021)

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In 1955, the California Supreme Court case Allen v. Long Beach established the

California Rule, all but cementing the notion that pensions were a covenant that could not be

broken.

What were elected officials to do? They were at a crossroads. Eliminate or substantially

curtail public services or pass on the rising costs of pensions to the employees. Since pensions

allowed for generous benefits when CalPERS was performing well, those great benefits that

retirees were promised were now arriving at their payment due date, and the funds to pay them

simply weren’t there. This paper intends to explore from a historical standpoint how pensions

became promised via case law and how elected officials could maintain these promises while not

cutting public services provided by the agencies that their employees worked for.

Moreover, what were the legal ramifications if agencies did not or could not pay for their

CalPERS obligations? What were agencies to do when CalPERS investments intended to bolster

the pension fund did not perform as well as planned? CalPERS is one of the largest pension

providers for public employees in California and the largest public pension fund in the nation

and represents 2,052,082 members statewide. CalPERS represents public employees from state,

municipal, transportation agencies, courts and school districts throughout California. (CalPERS,

2021)

The impacts of pensions on the coffers of governments up and down California were

tremendous: There were a substantial amount of government agencies that subscribed to

CalPERS and the prospect of costs being passed onto the employers was deafening. Schools

could potentially be closed, their non-certificated staff members cut, transit agencies may not be

able to put enough buses on the street, cities may have to curtail the amount of police officers or

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firefighters that they have. The stakes were high, and repercussions would be swift if the fund

wasn’t able to come up with the requisite returns to pay out to pensioners and stay afloat.

One of the most obvious and ripe-for-picking policy changes occurred in 2011. Los

Angeles County District Attorney Steve Cooley filed charges on several management level

employees from the City of Bell, California after it was discovered that City Manager Robert

Rizzo bestowed pay raises upon himself and his colleagues. While this was an indeed an

egregious act, it put the small city on the map nationwide as it not only made Rizzo the highest

paid public employee in the nation, but it also put the small city of Bell on the hook for paying

its share of Rizzo’s pension for the rest of his life.

Cities all over California were filing for bankruptcy because of the great recession. One

issue that came to surface during these bankruptcy proceedings was the requirement that the

filing cities continue to pay their CalPERS contributions. Case law determined that cities had to

continue making their payments to CalPERS above everything else; while this cemented the

certainty of pension checks for retirees, what were some of the consequences of this?

Public employee unions over the years became stronger and more effective at lobbying

politicians to ensure that their members continued to receive their benefits, despite their cost and

potential to affect the services that government is tasked to provide. In addition, some cities had

to levy additional taxes just to ensure that sufficient revenue was coming in to pay CalPERS.

From the standpoint of class, did this present an issue of the lower-class funding mostly middle-

class pensions that they clearly did not benefit from?

Unions also have been impacted by politics, particularly in states that lean conservative.

Some states have eliminated the right for unions to bargain and have been eliminated all together

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through passing of right to work laws. Was this an overreach of government, or was this a direct

result of unions have too much of an effect on politicians that it in a sense was a form of revolt?

Recruitment and retention was a substantial concern with PEPRA. The cost to maintain

generous plans had grown exponentially, and many new employees flocked to agencies which

had the means to continue offering those types of plans. What effect did PEPRA have on

recruitment and retention? Throughout this document, I’ll refer to law enforcement as it is where

I am currently employed. I have observed and have been affected by how these changes have

impacted public safety and management.

Public employees provide a service that has reverberating effects; not just for the

employee, but for the city and all those who live in them. Generous pension plans can help bring

in the best and the brightest talent to manage public safety, find new solutions to housing

problems, provide parks and recreation services, and maintain a high quality of life for the

constituents that those organizations represent. When pensions become financially unbearable

and their costs are unpredictable, public administrators have a challenge: continue to provide

those services while depleting savings and potentially taking out bond measures to pay their

costs or eliminate those services that governments were tasked to provide.

Governments always provided a steady and consistent job for those who were employed

by them. Their pay was almost always lower than in the private sector, but they could count on

their job as a career, and it would lead them to a good retirement. Was PEPRA effective enough

at ensuring those pensions were protected and continue to be offered, or did it open new options

to public agencies and potentially have lasting effects on how pensions were offered to

employees? This paper looks to examine what those effects could be and how they could be

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potentially offered to not just existing employees and organizations, but to new public agencies

as well.

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BACKGROUND OF THE CASE

PEPRA (Public Employee Pension Reform Act) was enacted by Governor Jerry Brown in

2013. I set out to examine whether PEPRA did enough to quell the growing debt to governments

in California who subscribe to CalPERS to provide pension plans for their full-time employees.

I set out to examine this for a few reasons of which I will address.

I reside in the newly incorporated city of Eastvale, California which currently contracts

with the County of Riverside to provide law enforcement services. Our city, although financially

solvent, is still new and hasn't established a substantial revenue stream that would allow for

CalPERS contributions and maintain the ability to make the annual payments when the fund's

returns don't meet the requisite percentages. One of the questions that I asked of my City

Councilpersons, "what are some of the mitigating factors toward [Eastvale] establishing its

police department?”

CalPERS was one of the leading factors I learned. Eastvale could most certainly afford

to establish its law enforcement agency; however, the costs associated with CalPERS and activist

investment policies I learned were of significant concern to elected officials. However, there

were alternatives, such as the 401(k) types of pensions mentioned in the literature review earlier

in this document. This created concerns from a recruitment and retention point of view – how

could a smaller city like Eastvale attract the best and the brightest individuals with a pension plan

that didn't offer what virtually every other agency in California did? Ultimately, the notion of

establishing our force in Eastvale was shelved, and we continue to contract with Riverside

County Sheriff for public safety services.

The second reason that I set out to examine this subject was my position in public safety

as well. I am currently employed by a medium-sized city in southeast Los Angeles County

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where I manage a police dispatch unit comprised of 15 full-time and part-time employees. One

of the most salient challenges in my tenure has been to acquire and maintain adequate staffing

levels. Over the past six years, I have requested additional full-time positions added to the budget

each fiscal year to ensure that we are adequately staffed. Each year, the city has countered and

offered part-time positions and has maintained that the rationalization for the cost of providing

benefits, such as medical insurance and CalPERS pensions, are prohibitive.

Staffing levels within my unit continue to run short, and the vacancies are backfilled with

overtime. This presents an additional quandary as not only public safety dispatchers but also

officers are utilized to backfill the vacancies. The overtime that those employees are

compensated by working overtime only adds to the city's CalPERS liability in the long-term.

This seems to be a short-sighted goal that serves to identify city management's accomplishment

of council goals of financial responsibility; however, it may give rise to higher costs when those

employees reach the requisite age for retirement.

The city I work for isn’t far from Bell, which I discussed earlier regarding former City

Manager Robert Rizzo. Did PEPRA do enough to keep city management from giving themselves

generous raises? It likely presented an impetus to create some pension reform, but there are still

many other issues at hand. Unions, particularly those representing active-duty law enforcement,

wield tremendous influence on elected officials statewide. The efforts of these unions to sway

the opinion of elected officials on meaningful and substantive pension reform is easily

accomplished when the notion of lawlessness and erosion of public safety is factored in – it does

not usually happen.

Civic involvement is an issue that must occur for meaningful reform to take place. Cities

like Bell consist of working-class immigrant people who often don’t understand how government

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operates, and they come from other countries where corruption is expected and tolerated.

Elected officials must accept the oath that they take when elected to office and take it seriously.

They should be held accountable to the populace they are elected to represent. This may mean

answering complex questions such as why city employees receive generous compensation

packages and why it is essential to be involved in making these decisions.

Another angle that I plan to explore is the role that public employee unions had in how

pensions are regulated. With most jobs in the public sector, the attraction to the work isn’t

always about the level of compensation; it isn’t the highest in the world, but it generally will

ensure that you have a steady foothold in the middle class. What the real attraction was to fill

these positions was the pension that employees received. Large public employee unions,

particularly those in law enforcement had a role and they became adept with lobbying and

ensuring that those pensions were maintained. With the advent of conservative politics and their

subsequent effect on unions, what court cases were out there that could potentially impact the

ability for public employees to unionize? There are many states that have disallowed employees

to unionize and negotiate pay and benefits.

Finally, technology over the years has changed the amount of employees needed for the

job; but at the same time, the cost for those employees has gone up. What is the value in having

public employees and services? Some local governments are finding that creating private/public

partnerships are more cost effective; as an example, in Eastvale – the city contracts with private

industry for public works. Is this good governance and use of public funds? As taxpayers, are

citizens concerned with receiving good city service or is it more important to maintain a

conservative approach toward everything and avoid cost to the taxpayer above all?

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REVIEW OF THE LITERATURE

The literature review aims to analyze how public pensions have been established, how

those benefits have evolved over the years, and the subsequent financial impacts those benefits

have had on the entities with which those employees work. In addition, it also aims to

understand what the alternatives are. What will have to be done for these benefits to be feasible

to those public agencies in the future or if the cutback of vital public services will have to be

made in order for those costs related to CalPERS benefits. These topics intend to understand

what is available for well-established organizations and new organizations such as recently

incorporated cities to provide services such as law enforcement to their constituents.

A Brief History of PEPRA

On September 12, 2012, California Governor Jerry Brown signed AB340, the Public

Employees' Pension Reform Act (PEPRA). It was effective January 1, 2013 and set out to

reform public employees' pension benefits (Kilgour, 2013, p. 350). This occurred after the

discovery of the City of Bell, California scandal in 2010. In this scandal, “City Manager Robert

Rizzo, Assistant City Manager Angela Spaccia, Police Chief Randy Adams, and four of five

members of the city council were all being paid salaries far beyond the surrounding cities”

(Hogen-Esch, 2011, p. 1).

It was discovered in this scandal that the named actors in Bell had given themselves

generous salaries over the years. Those salaries would eventually become the responsibility of

Bell by way of the payments to CalPERS. “This ultimately led to a $4 million budget deficit,

and Bell was potentially considering dissolving its 84-year-old police department.” (Hogen-

Esch, 2011, p 1).

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So, what did PEPRA do precisely to curb the prospect of cutting services, such as its

police department? First of all, it required that the minimum age of retirement was raised from

55 to 62. It then needed employee contributions to pay for at least half of the "normal cost",

which prohibited employers from paying employee contributions. In addition, the final benefit

was based on an average of the three highest consecutive years as opposed to the highest 12

consecutive months. Also, it “capped the maximum pensionable earnings used to calculate

pension benefits at 100% of the Social Security wage base for covered employees and 120% for

those not covered by Social Security” (Kilgour, 2013, p. 354).

Some of the benefits that employees utilized to elevate their final pay were also

eliminated; frequently, employees would convert unused sick and vacation hours to make it

appear that their earnings were higher than average, thus making them eligible to have their

pensions based upon that final year's pay. In addition, the notion of “air time", where

“employees could purchase additional years of retirement, beneficiaries could retire earlier than

the actual years worked, was eliminated” (Kilgour, 2013, p. 355).

The recession of 2009 also introduced a dilemma to cities in California – bankruptcy.

“Several large cities in California – Stockton, Vallejo, San Bernardino all filed Chapter 9

bankruptcy proceedings. All had negotiated with CalPERS regarding their contributions

payments which covered their pensioners. In these cases, CalPERS threatened litigation with the

cities if they did not make their contribution payments.” (Kilgour, 2013, p. 355).

An effort to skirt the California rule was floated by Mayor Chuck Reed of San Jose,

California. Measure ‘B’, which sought to not only force workers to contribute 16% of their

salary toward their pensions, but it also called for “plans less than 80% funded to be fully funded

within 15 years as opposed to the normal 30-year funding model” (Kilgour, 2013, p. 355).

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Preloading pension benefits meant that while it kept the fund more sustainable, it forced

employees to contribute substantially toward retirement, whereas other surrounding entities did

not. According to Kilgour (2013), “San Diego attempted a similar plan which ultimately became

ensnared in litigation” (p. 355).

PEPRA repaired some issues, but not all of them. One of the most significant issues that

PEPRA failed to address was the unfunded liability of pensions already in effect that predated

PEPRA. According to Kilgour (2013), “Unfunded liabilities are the equivalent of borrowing

from the future at the plan’s discount rate (p. 355).” The discount rate is known as the “expected

rate of return” (Estes and Kremling, 2018, p. 80). The unfunded liability is what has not been

paid into the fund. It is ultimately what the member organizations have to pay to make up the

difference, which then eats away at the services those entities provide.

Kilgour also discusses how the California Rule prevents PEPRA from being fully

effective post-PEPRA. He posits “there is little that can be done in the near term to alleviate the

state and many of its subdivisions from the looming financial burden of public employee

pensions” (2013, p. 356). However, one way employers can get out from the CalPERS liability

issues is if the California Rule is overturned. According to Kilgour (2013), unions could, in

theory, protect their members through collective bargaining and perhaps make a more favorable

deal to their members by way of cash compensation or improved benefits as the entities will no

longer be restrained by the often changes in unfunded liability that creates situations that aren't

feasible.

The issues associated with CalPERS and underfunding

Underfunding is an issue that has impacted CalPERS and its members. According to

Estes and Kremling (2018), underfunding occurs when deficits by governments occur and the

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total amount to fund their share of contributions to the retirement fund. Moreover, when

combined with life expectancy surpasses what was planned initially and returns from

investments aren't returning sufficient yields. Also, COVID-19 may have a potential impact as

well; Estes and Kremling in 2018 wrote, "these problems will become devastating in the event of

a major correction, exasperated by the assumption of the additional risk” (p. 80).

CalPERS has options to mitigate the draw from taxpayers to meet obligations. The

current estimates indicate a 7% investment return. Estes and Kremling (2018) mention by

lowering that expectation to 6%, the deficits created by shortened returns and underfunding, the

issues associated are more easily addressed. In addition, this would call for additional

contribution from the employee, which would indicate more cash into CalPERS. This allows for

a new stream of capital which will enable the deficits to be tackled.

Baker (2010) discusses that underfunding is not limited to the state but virtually every

city and county in California as well. In addition, the American Enterprise Institute (AEI) has

assessed the shortage to be around $3 trillion. Baker (2010) also believes that state pensions

aren't regulated sufficiently. The Employee Retirement Income Security Act (ERISA) was

ratified in 1974 to govern private-sector pensions. The funding of and investments related to

public sector pensions were not managed so closely.

Defined Benefit

Generally, concerning pension plans, there are two types of benefits. The first, a defined

benefit, is what CalPERS beneficiaries receive after they retire. This provides the retiree with a

consistent benefit each month based on the contributions both the retiree and the entity with

which they have worked have made. The second, a defined contribution plan, is akin to a 401(k)

type of plan in which the employee makes the total contribution without any from the employer.

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What would be some of the issues associated with a defined contribution plan? Let's say one

organization furnishes employees with the typical defined benefit plan. In contrast, another

provides the employee with a substantially higher pay rate but with a defined contribution plan

requiring them to make their contributions. This also puts the risk associated with market

volatility on the employee and, in essence, takes CalPERS and the member governments out of

the equation.

Estes and Kremling (2018), Casciari and Borowski (2013), and Rauh (2018) indicate that

defined benefit plans fuel pension fund debts. New York City began these types of benefit plans

in 1857 (Estes and Kremling, 2018). These plans generally accept more risk and a lower

retirement age than those offered in the private sector. This is problematic and complicated for

the retirement fund but benefits the employee through lower retirement age.

Rauh (2018) writes, "Efforts to introduce 401(k) plans in the public sector often fail

because public employees (or their unions) look at typical 401(k) contribution rates in the private

sector and laugh (p. 135)". This would, in essence, place 100% of the risk on the employee. The

public sector benefits in the long term; however, it becomes more complicated as the benefit is

abridged and the age of retirement increases (Estes and Kremling, 2018). This can be

particularly troublesome for organizations associated with public safety as increased aged

employees often experience higher stress and may be forced to accept a medical retirement.

A hybrid plan that incorporates both defined contributions and defined benefits may be a

viable alternative. This plan would match employer contributions and defer the taxes made on

those contributions, which would mean that the employee may not take as much of a hit on

wages. Contributions are estimated at around 5-6%; however, the rate of return is estimated at

nearly 1% of the employee's final pay average.

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Compromise in Public Service

The City of El Monte, California is a sample of one of several cities throughout the state

that gave generous pension benefits to their employees. One of the prime examples was former

El Monte City Manager James Mundessen. According to McNeil and Karns (2018), Mundessen

was being compensated $216,000 per year off two CalPERS pensions from two different

organizations. While this wasn’t necessarily an amount of largesse, they “can add as much as 50

per cent to retirement incomes.” (McNeil and Karns, 2018 p. 5)

When pensions become unsustainable to governments, the resources to pay for those

benefits have to come from somewhere. El Monte is in Los Angeles County, and is 10 square

miles in area and has a population of around 120,000. McNeil and Karns (2018) indicate a

percentage of nearly 25 per cent of El Monte’s populace that live in poverty. While the

population isn’t necessarily billed directly for El Monte’s employee pensions, the city has found

other means to generate revenue to cover the costs. As an example, the nominal sales tax rate in

California is 7.5%. Oftentimes, cities add an additional percentage of sales tax based on voter-

approved initiatives for a variety of reasons; El Monte has attached an additional 2% onto the

state sales tax levied on all taxable goods and services, pushing that amount to 9.5%.

In addition to the elevated sales tax that impacts the poor, El Monte has also levied an

additional .15 per cent onto real property taxes. According to McNeil and Karns (2018), this

premium was levied on top of the assessed value of properties and was earmarked exclusively

for keeping the City solvent while maintaining its pension payments to CalPERS. Again, this

wasn’t a tax that was paid directly to El Monte by residents, but it certainly was attached by way

of higher property taxes and rents. This additional tax was able to raise approximately $9.4

million in 2016, nearly half of the $16 million in total owed to CalPERS by the City of El Monte.

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However, McNeil and Karns (2018) indicate that once the ledgers were balanced, the long-term

debts owed to CalPERS by El Monte were around $244 million.

During the recession of 2009, the writer of this document was an employee with the City

of Downey. While Downey during that time experienced financial hardship due to the

compromise in property tax revenue, it was nowhere near the issues that El Monte had. In 2009,

as a result of the recession and the projection of dwindling funds, El Monte made the decision to

lay off 8 police officers, all of whom were rehired by the City of Downey as police officers.

Once the Obama administration signed the American Recovery and Reinvestment Act of 2009

(ARRA), El Monte was able to restructure its debt and received funds to reinstate the original

officers that were laid off; 3 out of the 8 returned.

This paradoxical account is relevant because of the loss of services that occurred directly

as a result of rising pension costs. In this particular case, El Monte lost 8 experienced police

officers that they simply could not afford to pay. The cost to the city in terms of social impacts

is dramatic: several of the officers were police officers for more than 5 years; they had an

intimate understanding of the city’s dynamics and needs of the populace. In addition, the loss of

those staff could potentially add to a rise in crime as well as call response time.

When ARRA was signed into law, El Monte was able to refill those positions from funds

realized from ARRA. If those officers that went to other agencies did not choose to return, El

Monte potentially had to pay for the process not only to hire new officers, but to train them as

well; this added to additional costs that would likely not occur if they were able to retain those

employees initially. These benefits to El Monte employees were fully funded by the city; as

compared to other states and municipalities (McNeil and Karns, 2018) where they are required to

contribute a portion of the cost to the city by way of a pay deduction.

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Pensions and Public Unions

Public sector employee unions and pensions are analogous to the internal combustion

engine and gasoline – one generally can’t run efficiently if at all without the other. According to

Hess and Squire (2009), two dynamics are at stake: those who are eligible to receive benefits,

and the amount of the benefit they’ll receive. Even minor changes to pensions could be worth

tens or even hundreds of thousands of dollars over the course of the lifetime of the pension’s

beneficiary. This is relevant because, as stated earlier in this document: the community at large

who is not a public employee, or a recipient of a CalPERS pension has no benefit.

Another dynamic that Hess and Squire (2009) examine are the differences between the

newer public employees and older employees. Since the advent of PEPRA in 2013, the plans

offered to many public employees have changed and the more generous plans of the days of yore

are now longer available. As an example, when the writer of this document was hired with the

City of Downey in 2002, I was to receive the formula of 2.7% by the time I turned the age of 55,

provided I was vested with the City of Downey and that my service credits were aligned with the

35 years I would potentially put in with Downey by the time I turned 55.

Once PEPRA became law in California, pension plans for those in my job classification

as well as many across the entire state changed to a less generous and longer career time and a

formula of 2% at 62. “Newer employees have much less at stake. They are much further from

collecting benefits, have put little into the system, and consequently face much smaller

opportunity costs should those plans be altered.” (Hess and Squire, 2009, p. 79) This is another

interesting paradox and is analogous to an oft-heard complaint by millennials regarding the cost

of living in America today: the cost to live well is becoming more of a distant reality, and longer

working years with less money in your pension are a more realizable possibility.

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What roles to public unions have in this? Osorio (2015) writes that “collective

bargaining in the public sector undermines democratic governance by shifting some government

decisions away from public officials and toward unelected government employees.” (p. 690)

This, in essence has created a situation where the tail is wagging the dog: the unions have more

of an advantage to lobby for better pay than the taxpayers to argue against it. (Osorio, 2015)

Osorio posits that unions have accused politicians aiming to bring these costs down of

scapegoating: Public employee pay has increased by $200 billion since 2009; however, the

number of public employees has gone down by 671,000. So, although the number of employees

has gone down, the costs of those employees have gone up, including the cost of their increased

compensation and the subsequent pension costs. This has come at the cost of compromises to

parks, education, public safety, and other services on which the poor and middle class rely.”

(Osorio, 2015, p. 691)

In California, the political climate is as such that public employee unions wield

tremendous power over politicians. Elected officials view this too: According to Osorio (2015),

voters were in favor of measures that were backed by unions by around 50% and voted against

75% of the measures that unions disapproved of. It is important to recognize the power that

public employees wield, particularly over politicians. Californians recognize that public services

are expensive, and they are usually willing to pay for them; privatization of services is usually a

popular political movement amongst conservatives, and that typically has not been welcomed.

Moreover, this welcomes the prospect of reexamination of court cases. Osorio discusses

how if the court case regarding the 1977 Supreme Court case Abood v. Detroit Board of

Education were to be overturned, it “would in effect create a national right-to-work law for the

public sector.” (2015, p. 694) Right to work laws have historically been rooted in more

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conservative states as well and have worked to weaken employee unions, and public employee

unions would not be immune from these laws, should they ever meet that particular fate.

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METHODOLOGY

The unit measured and analyzed for the proposed research is "public pension reform." A

quantitative survey will be utilized to obtain data from the sampling population. This survey will

include city and public agency administrators of government agencies who are members of

CalPERS. The survey will be distributed to city managers at the cities of Downey and Long

Beach. My goal is to collect the opinions to gauge if they believe that alternative pension

benefits can adversely affect personnel recruitment and retention. All 10 questions will utilize an

ordinal scale on a Likert format.

Can fledgling governments afford to provide essential services without the restrictive

CalPERS costs, or is there something out there that can give competitive pension benefits and be

cost-effective so that the cost of delivering government services is not compromised? Yes, there

are pensions available, but it remains to be seen what the impacts of those pensions would be.

Would recruitment and retention be an issue? It would require employees to be more disciplined

in caring for their own pensions and ensuring that the appropriate and adequate investments are

made. Currently, that is the job of CalPERS. Also, what are the effects of a transition from a

defined benefit pension to a defined contribution?

Is CalPERS the only choice for public administrators to utilize? Are there other options

available? Some that I spoke to during my research for this document indicated that CalPERS

had become mired in politics itself and began to transition away from certain investments

because of certain stigma associated with businesses that CalPERS invested in; these elected

officials believed that because of this, it complicated their investment strategy and gave rise to

unpredictable costs and returns on investment.

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Finally, was PEPRA an effective and useful policy? In the opinion of the administrator

who is responsible for not only paying CalPERS each month, but to ensure that public services

are robust, and that recruitment and retention of talent will not be impacted because of changes

to CalPERS? The goal of this survey is to obtain feedback and to determine whether or not this

policy made the impact that it was intended to do.

The survey consists of a five-point ordinal scale of 1 - “Strongly agree”, 2 – “Agree”, 3 –

“Neutral”, 4 – “Disagree”, 5 – “Strongly Disagree”. Once the data is collected, it will be

analyzed utilizing descriptive statistics. It will also be utilized to locate critical dimensions of

research to gauge potential exploration of alternative pension benefit availability. It will also

furnish detailed research on either the benefits or the dilemmas created by pension reform.

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CONCLUSION

CalPERS provides pension plans that many of us in the public service rely upon after

several decades of service to the communities we serve. When PEPRA was introduced, it

spotlighted many issues within the pension system, which stood to impact how each of us viewed

our future after something we had grown to look forward to. Do 401(k) types of plan work, and

can it gain traction in governments?

Right now, the answer is no. While they are estimated to provide savings, each

participating organization would have to be involved to be genuinely beneficial. As it is

necessary for elected officials and subsequently the employees who work in the public service,

all will have to be involved in a modicum of forward-thinking to ensure that the future does not

come at the expense of abridged public services such as parks and recreation, housing, public

education, or the other countless functions that occur under the auspices of government.

Would the hybrid plan mentioned in the literature review be a viable option? It would

require the governments to come up with the capital to put behind it in the form of compensation,

and it would then become the responsibility of the employee to ensure that the funds were

contributed insofar as to ensure that a livable wage was maintained that would last throughout

one’s estimated life into retirement. One upside is that it would free government agencies from

the instability of the CalPERS ARC.

From the perspective of public administration, what occurred in Bell was an absolute

atrocity; growing up, my friend’s father was a Lieutenant for Bell Police Department. Me and

my friend both aspired to join law enforcement, and he would invite us to assist at one of the

many drivers’ license and DUI checkpoints that Bell would host on Atlantic Avenue, usually on

Friday and Saturday nights. Our responsibility was to fill out the “CHP 180” form, which is

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commonly used in California as a vehicle impound sheet. Bell was notorious in the region for

hosting checkpoints and impounding vehicles from unlicensed drivers, which in Bell was pretty

common: Bell’s population consisted of mostly low-income immigrants who were unable to

obtain driver’s licenses or pay their registration on their vehicles.

It was not uncommon to impound many vehicles in one night from people who although

did not have a driver’s license, they were just trying to squeeze by. Bell, by virtue of Robert

Rizzo, knew that these checkpoints were cash cows; Bell would make their money by these

people returning to their police department to pay the release fees for their vehicles, and the tow

companies who contracted with the city would also make money from the storage fees for the

impounded vehicles.

After my friend’s dad retired, he would later tell me that Robert Rizzo essentially put the

hammer down on the police department: the edict that the police department was going to be a

money-making enterprise for the city was going to become the norm and it was not to be

questioned. Robert Rizzo was the one in the ivory tower, and his orders were to be obeyed with

expediency and without delay. Later on, by way of the Los Angeles Times and the district

attorney’s office, we would find out why.

It is shameful the people that without a doubt had to suffer in Bell because they lost their

cars. It wasn’t to say, however that all of them were innocent, many of those under the influence

of drugs or alcohol had their cars taken from them as well; one issue remains, however: public

government requires involvement. Everyone who lives in cities like Bell must become involved

to maintain a solid level of checks and balances. PEPRA was in effect, a form of checks and

balances that partially occurred as a result of the recklessness that was happening in Bell for so

many years.

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Did PEPRA create a better way forward in California? It certainly laid the groundwork

for effective reform: it put public agencies on a path of less liability, it brought to light some of

the loopholes that had been exploited for years at the cost of taxpayers, and it also determined

that pensions were not something that would be easily removed if things financially got cloudy

again. I have reservations about moving the age of retirement up, however – working in public

safety and as a first responder, the toll of the job both physically and mentally is taxing.

While it is understood that the general life expectancy of Americans continues to rise; as

such, retirees should be expected to work longer; I can’t imagine being expected to keep up with

the constant changes in technology that I have observed just in my 21 years. To see a police

officer encounter the societal expectations and to be expected to have constant training that rival

that of a doctor are remarkable, but may be questionable as to if they should continue doing the

job at 60 years of age.

One observation throughout this study was the potential for public services to be curtailed

in order for pension liabilities to be met. El Monte was an example of how taxes were levied in

order to pay for their CalPERS liabilities. This was a study in perhaps why it is important to

explore other options for pensions. Taxation has to be fair and equitable, but for virtually

anybody who makes any sort of monetary transaction where sales tax is applicable, or for those

who own property are in essence funding El Monte’s pension costs.

This gives rise to the discussion of income inequality, and it has the potential to put all

public employees receiving pensions on the defensive. As an example, you have someone

working two part-time jobs just to pay the rent and put food on the table for their family, they

have probably not been able to plan for their own future; likely relying upon social security for a

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pension, provided it is still solvent in 20-30 years. From their perspective, it probably is not fair

to pay for someone else’s pension when they are barely scraping by themselves.

PEPRA was effective but could have done more. Public employee unions are going to

have to learn to bargain better and be more concerned with their long-term health rather than the

immediacy of their benefits, or else the public will force it on them, and we all will pay the

repercussions. The security and comfort of defined benefit pensions will undoubtedly be a thing

of the past.

Finally, the public must be involved in the direction of their government. From a

democratic point of view, everyone must be involved for it to function. When administrative

disasters like what occurred in Bell happen, the only ones who suffer are the taxpayers through a

reduction in services and the embarrassment brought to their community. High-quality public

services are expensive, but they are worth their weight in gold if they are administered correctly.

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REFERENCES

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Benefit and Defined Contribution Plans. The American Review of Public Administration, 49(2), 218–235. https://doi.org/10.1177/0275074018765809

Baker, James P. (2010). California's canary in the coal mine: Public pension

underfunding. Benefits Law Journal, 23(3), 94. CalPERS. (2021, January 22). Facts at a Glance. CalPERS.

https://www.calpers.ca.gov/page/about/organization/facts-at-a-glance CalPERS. (2021, April 26). Service Credit. CalPERS. https://www.calpers.ca.gov/page/active-

members/retirement-benefits/service-credit Casciari, M., & Borowski, B. (2013). Rightsizing public employee retirement benefits: How

have the state courts resolved the constitutional issues? Benefits Law Journal, 26(1), 22-32. Retrieved from http://libproxy.csun.edu/login?url=https://search-proquest-com.libproxy.csun.edu/docview/1319810670?accountid=7285

Chen, G. (2018). Understanding Decisions in State Pension Systems: A System Framework. The

American Review of Public Administration, 48(3), 260–273. https://doi.org/10.1177/0275074016675242

Coggburn, Jerrell D, & Kearney, Richard C. (2010). Trouble Keeping Promises? An Analysis of

Underfunding in State Retiree Benefits. Public Administration Review, 70(1), 97–108. https://doi.org/10.1111/j.1540-6210.2009.02114.x

Estes, J., & Kremling, J. (2018). Public Pension Issues and an Examination of CalPERS, the

Largest of the Nation's Public Pension Programs. Journal of Financial Service Professionals, 72(3), 74.

Frank, H., Gianakis, G. (Jerry), & Neshkova, M. I. (2012). Critical Questions for the Transition

to Defined Contribution Pension Systems in the Public Sector. The American Review of Public Administration, 42(4), 375–399. https://doi.org/10.1177/0275074011406712

Hess, F. M., & Squire, J. P. (2010, Dec). The False Promise of Public Pensions. Policy Review,

75-85. https://libproxy.csun.edu/login?url=https://www-proquest-com.libproxy.csun.edu/magazines/false-promise-public-pensions/docview/216455247/se-2?accountid=7285

Hogen-Esch, T. (2011). Failed State: Political Corruption and the Collapse of Democracy in Bell,

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Kilgour, J. G. (2013). Public Pension Reform in California. Compensation & Benefits Review, 45(6), 350–356. https://doi.org/10.1177/0886368714525013

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employee pension crisis. Journal of Pension Planning and Compliance, 43(4), 1-25. https://libproxy.csun.edu/login?url=https://www-proquest-com.libproxy.csun.edu/trade-journals/california-dreaming-golden-states-ongoing-public/docview/1964428174/se-2?accountid=7285

Monahan, Amy B. (2012). Statutes as contracts? The "California Rule" and its impact on public

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Osorio, I. (2015). Government against itself: public union power and its consequences. Cato

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American Review of Public Administration, 47(4), 431-442. Van Bogaert, D. (2012). Solving the public pension plan dilemma. Journal of Pension

Benefits, 19(2), 37-46. Retrieved from http://libproxy.csun.edu/login?url=https://search-proquest-com.libproxy.csun.edu/docview/913405241?accountid=7285

Walsh, M. W. (2012, August 24). Creditors of Stockton Fight City Over Pension Funding While in Bankruptcy. New York Times, p. B3(L). Retrieved from https://link-gale-com.libproxy.csun.edu/apps/doc/A300589321/ITOF?u=csunorthridge&sid=ITOF&xid=ec03379d

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Institutional News, June 30, 2017.

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APPENDIX

Research Design

Thank you for participating in this survey. The following ten questions are being used to

evaluate how public administrators opine on CalPERS, its pension offerings, and how the funds

are managed. The responses will assist CalPERS to continue to administer high-quality pension

offerings to public employees statewide while controlling the cost to the public entity. Your

survey responses are completely anonymous and confidential and will only be utilized for

statistical reporting purposes. This is an experimental quantitative survey.

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For the following ten questions, please check the box that corresponds to your opinion on the

question. Please read each question carefully and select an answer ranging from strongly agree

– strongly disagree. Please check only one box per question.

Question #1: CalPERS should eventually be phased out in this city. Strongly Agree Agree Neither Agree

or Disagree Disagree Strongly

Disagree

Question #2: You believe that the quality of pensions offered by your city plays a substantial role in recruitment and retention. Strongly Agree Agree Neither Agree

or Disagree Disagree Strongly

Disagree

Question #3: CalPERS should make more plans available to public entities that offer more of a defined contribution and less of a defined benefit. Strongly Agree Agree Neither Agree

or Disagree Disagree Strongly

Disagree

Question #4: CalPERS spends too much on fund management and should put more of a focus on ensuring the pension fund is solvent. Strongly Agree Agree Neither Agree

or Disagree Disagree Strongly

Disagree

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Question #5: You/your agency has experienced cuts because of shortages that CalPERS levied onto your agency. Strongly Agree Agree Neither Agree

or Disagree Disagree Strongly

Disagree

Question #6: You have explored to opt-out of CalPERS and advised by CalPERS of a substantial opt-out fee. Strongly Agree Agree Neither Agree

or Disagree Disagree Strongly

Disagree

Question #7: You have already begun a hybrid pension plan that enrolls new hires in a defined contribution plan. Strongly Agree Agree Neither Agree

or Disagree Disagree Strongly

Disagree

Question #8: Public agencies in your region are exploring or in discussions to begin alternate pension plans. Strongly Agree Agree Neither Agree

or Disagree Disagree Strongly

Disagree

Question #9: You believe that PEPRA was unnecessary and has only complicated matters for you and your agency. Strongly Agree Agree Neither Agree

or Disagree Disagree Strongly

Disagree

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Question #10: You plan on implementing a defined contribution plan for all employees except for public safety. Strongly Agree Agree Neither Agree

or Disagree Disagree Strongly

Disagree