New Retirement Ballot Proposal: The Language of Cuts

The newest front in the battle over the retirement security of California’s public employees opened June 4 with the release of the language for a proposed ballot initiative that would rewrite the state’s constitution to virtually outlaw traditional defined-benefit pension plans for future state and municipal workers.

The measure, dubbed “The Voter Empowerment Act of 2016,” would effectively shift all new public employees from the various defined-benefit plans currently in place to 401(k) plans, beginning in 2019. It would then lock those plans in place by adding the burden of direct voter approval on government employers who want to continue offering traditional pensions after 2019.

Also see in this series:

• “San Jose’s Pension-Cutting Legacy” by Tina Dupuy
• “Pension Disrupters Speak” by Seth Sandronsky

The security offered by defined-benefit retirement plans has been typically used by government employers to compete with the private sector in recruiting quality candidates for public workforces.

The measure is being spearheaded by former San Jose mayor Chuck Reed and former San Diego city councilman Carl DeMaio. It follows on the heels of Reed’s abortive attempt to get a pension-cutting measure before California voters in 2014. 

That effort foundered over the official title and summary for the ballot initiative released by California Attorney General Kamala Harris, and over a controversy surrounding revelations that the measure had been paid for with $200,000 in seed money by Texas hedge fund billionaire and former Enron executive John Arnold. Reed subsequently sued over the language but lost in court.

Both Reed and DeMaio became overnight stars of state pension cutters in 2012 when both led successful campaigns for local ballot measures to cut retirement plans for municipal employees in those cities. Court challenges to San Jose’s Measure B and San Diego’s Proposition B subsequently invalidated parts of the measures.

The pair unveiled their new measure last Thursday during a telephone conference call in which they described the initiative as a way to enable local jurisdictions to rein in what they called “skyrocketing pension costs” across the state. The proposed law “empowers the state voters” to make adjustments to future pension plans without political interference.

The measure’s main provisions are:

• Beginning in 2019, the law would eliminate defined-benefit retirement packages for new state, county or municipal workers unless approved by voters of a jurisdiction.
• Forbids any “enhancement” of a defined-benefit pension plan without voter approval.
• Caps government-employer contributions to retirement plans to one-half of the total cost unless communities that wish to pay higher benefits to new employees vote to approve such increases.
• Requires the state to pay the legal fees incurred by “any citizen of this State” in defending the measure’s constitutionality in court.

Reaction from state labor leaders was swift.

A statement released by Dave Low, chairman of the labor-supported Californians for Retirement Security, characterized the measure as “yet another destined-to-fail attempt to eliminate the retirement security of teachers, firefighters, school bus drivers and other public employees” that will ultimately be tied up in the courts for years.

Additionally, Low noted in a separate email exchange with Capital & Main, by shifting the $600 billion-plus in public employee retirement assets from professionally managed funds to more expensive and riskier individual 401(k)-type accounts, the Reed-DeMaio measure represents a windfall in fees to Wall Street potentially worth billions.

Whether or not the Reed and DeMaio initiative will prevail or even make it onto the 2016 ballot remains far from certain. As in 2014, their first hurdle will be getting the official title and desired summary language from the Attorney General, which they’ll need to gather the signatures necessary to qualify it for what is already proving to be a crowded 2016 ballot.

And while low voter turnout in 2014’s gubernatorial race has made that a cheaper proposition by cutting the total number of signatures of registered voters needed to qualify from 807,615 to around 565,000, the price tag for that effort is estimated to be around $3 million. Reed and DeMaio will then need to raise about 10 times that amount to mount a credible campaign against an opposition that has vowed to spend up to $70 million to defeat it.