Jerry Brown Budgets Shrink Pension Payment to CSU

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Calpensions.com.

California State University employees pay less for their pensions and health care than other state workers, including members of a faculty union scheduled to demonstrate for higher pay at a CSU trustees meeting in Long Beach today.

The California Faculty Association, backed by a member strike authorization, has launched a “Drive for Five” campaign for a pay raise of 5 percent, rather than the 2 percent pay raise offered by the university administration.

As it happens, the gap between the faculty goal and the administration offer, 3 percent of pay, equals the gap between what CSU employees and other state workers pay for the same pension.

CSU employees contribute 5 percent of pay. The employees of other state agencies contribute 8 percent of pay. Both groups are in the “2 at 55” CalPERS plan, which provides a pension of 2 percent of final pay for each year served at age 55.

It’s an obvious inequity, if not a subsidy, because the contribution rate for the employers in both groups is the same: 25.1 percent of pay this fiscal year, projected to grow to 30.1 percent in five years.

(Under a cost-cutting reform Gov. Brown pushed through the Legislature, state workers hired since Jan. 1, 2013, are in new plans requiring longer service or an older age to earn a similar pension.)

The lower employee pension payment may not feel like a free ride for the California State University faculty union representing 26,000 employees, the largest of the 13 bargaining units on the 23 campuses.

“Faculty salaries lag behind the UC and California community college faculty salaries both in absolute terms and in relation to inflation over the last 10 years,” said the faculty union’s “Race to the Bottom” analysis.

“While the average faculty salary at the University of California rose from 2004 to 2013, adjusted for inflation, purchasing power for CSU faculty fell during the time period,“ said the analysis. “This disparity is most dramatic in San Francisco, where UC San Francisco average salaries rose $16,138, while faculty at San Francisco State lost $9,748.”

Is the CSU employee pension contribution an issue in the current labor negotiations? Spokeswomen for the CSU chancellor’s office and the California Faculty Association did not reply.

The powerful California Public Employees Retirement System does not control employee contributions. But it does set the annual contribution rates that must be paid by state employers.

Four years ago, the Brown administration requested separate rates for CSU employers because CSU employees, unlike other state workers, had not agreed to increase their pension contributions.

“We expect that having separate rates will result in state employers having to contribute $50 million less for the remainder of the fiscal year and CSU employers having to pay $50 million more,” CalPERS actuaries said in a staff report.

The CalPERS board rejected the proposal on a rare tie vote, 5-to-5 with three absentees. The vote was evenly split between members elected by active and retired employees and Brown appointees and representatives of the state treasurer and controller.

Now the governor’s state budgets have begun gradually shifting more of the CSU employer pension cost to the university system.

The state continues to pay the full CSU employer rate. But the amount the state gives CSU for mid-year adjustments to the rate, based on payroll and other factors, has been tied to the fiscal 2013-14 level.

As the payroll increases over the years, the state will pay a shrinking amount of the mid-year rate adjustment, requiring CSU to pay the remainder.

“This process is intended to increase budget transparency and helps hold CSU accountable for payroll decisions that are within CSU’s control,” said H.D. Palmer, the Brown finance department spokesman.

At the same time, he said, CSU is held harmless for employer rates that are outside of CSU’s control, such as CalPERS investment returns and changes in actuarial assumptions.

Another difference: CSU employees are in a “100/90” health care plan that pays 100 percent of the average cost of several plans and 90 percent of the cost for dependents. After retiring, they remain in the plan until eligible for Medicare supplement.

Other state workers are in a health care plan that pays 80 to 85 percent of the average health plan cost for retirees, depending on bargaining, and 80 percent of the cost for dependents. They receive the more generous “100/90” plan after retiring.

“My plan also will change the anomaly of retirees paying less for health care premiums than current employees,” Brown said in a 12-point pension reform issued four years ago.

The debt or “unfunded liability” for retiree health care promised state workers over the next 30 years ($72 billion) was greater last year than the unfunded liability for state worker pensions ($50 billion).

A Brown reform proposed last January would, through labor bargaining, switch state worker retiree health care from “pay as you go” to a pension-like “prefunding” with investments to help pay future costs.

Employee contributions to the retiree health care fund would be matched by the state. Some small state worker bargaining units, including the Highway Patrol, had already begun making payments for their retiree health care.

Brown also proposed adding five years to the retiree health care vesting period that begins with 50 percent coverage after 10 years of service and reaches 100 percent after 20 years. Yet another difference: CSU employees currently vest after five years.

State workers would be barred from receiving a higher health care subsidy in retirement than on the job. The governor’s proposal for an optional low-cost health plan with high deductibles, strongly opposed by unions, stalled in the Legislature.

Last month, state engineers agreed to a contract that phases in payments for retiree health care, extends the vesting period, and has a smaller retiree health care subsidy, the Sacramento Bee reported. Most state worker unions will negotiate contracts next year.

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