Is San Jose's pension vote a precedent for the U.S.?News added by Benefits Pro on June 4, 2012
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By Andy Stonehouse

Tuesday brings a civic vote in San Jose, Calif. that many are saying could set an important precedent for the future of public employee retirement benefits across the nation.

According to Reuters, voters in the nation's 10th-largest city will be asked to approve Mayor Chuck Reed's sweeping proposal to slash workers' benefits and vastly increase employee contributions to their pension plans - a move that's expected to prompt a major legal challenge from the employees' unions.

Similar cost-cutting ballot initiatives, aimed squarely at the escalating cost of public retirement plans, will also be voted on in San Diego and Stockton.

Reed told Reuters that as retirement benefits are now consuming more than a quarter of San Jose's city budget,(approximately $244 million this year), and are growing quickly, the city has to take drastic measures to contain the costs.

"The best metaphor is cancer," he said. "It started a long time ago, it goes for a long time, and then it becomes life-threatening. Our problem is nearly universal in the state. It's just a question of timing."

California has become something of a test case in seeing the long-term effects of the real cost of pension benefits, with a gigantic funding deficit in the state teachers' pension plan escalating to a crisis point this year.

Both the public and educational pension plan systems have also been criticized for the ways that their own funds are managed and overseen, with pension fund boards filled largely with recipients of pension benefits.

San Jose recognized some of that conflict and changed its pension boards in 2010, promoting independent citizens with financial backgrounds to key positions on its boards.

Tuesday's statewide votes largely call for moves to systems where new public employees will not receive the benefits common among existing employees, with 401(k)-styled plans substituted and cost-containment strategies pushed for current workers - attempting to cap cost-of-living increases built into many pension systems.

San Jose's workers could also be forced to choose between a lower-cost benefit plan with lower payouts or paying much more to keep their current benefits.

A police union representative suggests that if the changes occur, police officers would need to pay more than 40 percent of their current salaries into the pension fund to guarantee their benefits. They've vowed to take the issue to the courts.

Originally published on BenefitsPro.com
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