Retirement Security: Defending Your Pension Plan

1. Retirement Security: Defending Your Pension Plan Scott Adams and Brian Klopp, AFSCME Department of Research and Collective Bargaining Services

2. Sources of Retirement Income • Social Security • Personal savings • Defined benefit (DB) pension 39th International Convention, June 28 – July 2, 2010

3. DB Plans Provide Modest, but Meaningful, Benefits • Years of service = 25 • Benefit multiplier = 2% • Final Average Salary = $40,000 • Annual benefit = $20,000 • Average annual pension for an AFSCME member is $18,500 39th International Convention, June 28 – July 2, 2010

4. ‘YoYo’ Economy: the Race to the Bottom • 43 percent of American workers have less than $10,000 saved for retirement • Median account balance for 401(k) holders was around $30,000 • Millions have delayed or will delay retirement 39th International Convention, June 28 – July 2, 2010

5. Union Advantage Source: AFL-CIO; based on data from Bureau of Labor Statistics 39th International Convention, June 28 – July 2, 2010

6. Revenue Sources for Public Sector DB Plans Investment earnings 60% Employer contributions 27%Employee contributions 13% 39th International Convention, June 28 – July 2, 2010

7. Pension Plans as Economic Engines • $1.oo invested in state and local pension plans supports $11.45 in total economic activity Source: National Institute on Retirement Security; www.nirsonline.org 39th International Convention, June 28 – July 2, 2010

8. Proposed “Reforms”:Legislation, Bargaining & Ballot Initiatives • Raise employee/employer contributions • Lower or eliminate COLA • Raise retirement age • Lower multiplier — significant reduction of benefit • Increase number of years for Highest Average Salary • Increase number of years to vest 39th International Convention, June 28 – July 2, 2010

9. Attacks on Pension Plan Sustainability Opponents Claim: • Pension systems’ assumed rates of return on investments are too high • Pension board trustees must be independent and responsible to taxpayers; goal is to remove or reduce plan participants as trustees • Public employee wages and benefits higher than private sector • Taxpayers bear all responsibility; minimize/ignore contributions from employees 39th International Convention, June 28 – July 2, 2010

10. Attacks on Pension Plan Sustainability Focus on Assumed Rate of Return on Investments • Pew Report: The Trillion Dollar Gap • Stanford Report: Going for Broke: Reforming California’s Public Employee Pension Systems. $500 Billion Shortfall in California. • www.pensiontsunami.com 39th International Convention, June 28 – July 2, 2010

11. Attacks on Fiduciary Integrity of Pension Trustees • Opponents Claim: • Pension systems with plan participant trustees—elected or appointed—are compromised and need to be replaced • Taxpayers interests are not represented • Taxpayers need independent financial experts • Take politics out of systems • San Diego, San Jose, Colorado, CalPERS 39th International Convention, June 28 – July 2, 2010

12. Plan Participant Trustees make the Best Fiduciaries • Represent workers and retirees who contribute earnings into the fund; Skin in the Game • Are directly responsible as stakeholders • Sole responsibility is protecting the fiduciary interests of plan members • Independent financial experts have no stake and could have financial conflicts of interest • Hard to find independent experts to serve 39th International Convention, June 28 – July 2, 2010

13. AFSCME Report: Best Practice Policies for Trustees and Pension Systems • Report makes recommendations on board member responsibilities, core competencies, education and fiduciary and ethical conduct • We have copies of this report 39th International Convention, June 28 – July 2, 2010

14. Electing & Appointing Pension Board Trustees • In 2009, AFSCME backed JJ Jelincic for an open at-large seat on the CalPERS board; our efforts helped JJ secure a victory by 2% • In 2010, AFSCME Local 3993 member Priya Mathur is running for re-election to the CalPERS board • Helped elect trustees—including New Mexico, Oklahoma City, Ohio, Maryland, Minnesota, Philadelphia, San Diego, Los Angeles. Appointed—including Washington, Montana, Colorado • Let us know if there is an election at your system where we can help elect an AFSCME member/retiree or ally of AFSCME 39th International Convention, June 28 – July 2, 2010

15. Confronting the Public and Private Sector Pay Myths • U.S. Bureau of Labor Statistics • National Institute on Retirement Security report: Out of Balance? Comparing Public and Private Sector Compensation Over 20 Years.“ Employees of state & local government earn an average of 11% and 12% less than comparable private sector employees • Best source to confront myth = Workers & Retirees sharing own stories 39th International Convention, June 28 – July 2, 2010

16. All Stakeholders are Responsible • Taxpayers, Employers and Employees share in responsibility for ensuring pension system meets its obligations • Workers always make their contributions • Largest funding shortfalls occur where employer failed to contribute—IL, KS 39th International Convention, June 28 – July 2, 2010

17. Proposals to Improve Pension Funding that We Can Support • Measures that stop Double Dipping and Spiking • Measures that improve funding status of pension plans where all stakeholders share in the responsibility. Employers must contribute required share. • Allowing the collective bargaining process and local stakeholders—employees and employers— to reach agreement 39th International Convention, June 28 – July 2, 2010

18. New York • Governor claims Tier V plan will save $48 billion over 30 years. • To prevent Governor from cutting 8,700 state jobs and eliminating 3% pay increase a pension bill passed establishing a Tier V plan for new employees (Jan 1, 2010) that: • Raises retirement age from 55 to 62 • Sets 3% annual contribution for ERS & PFRS members (ERS: current workers pay 3% for first 10 years/PFRS had none) • Capped overtime calculation—Safety at 15% of regular salary/others at $15,000 39th International Convention, June 28 – July 2, 2010

19. Illinois—State’s Long History of Shirking Its Pension Obligations Hits New Workers Final Average Salary: The highest consecutive 8 years out of the last 10 (currently 48 months) Salary Cap: Final salary may not exceed $106,800 (indexed to the lesser of 50% of CPI or 3%) Normal Retirement Age and vesting: Age raised from 60 to 67; vesting raised to 10 years, up from 8 years for SERS & IMRF and 5 years for TRS and SURS COLA: Lesser of 3% or 50% of CPI, of original annuity (no compounding), except for judges and legislators who continue to receive 3% compounded 39th International Convention, June 28 – July 2, 2010

20. Colorado • 2010—SB 1 passed. Overwhelming public opinion and editorial board support for bill. Labor pension coalition participated in process that led to “2-2-2 Solution” • 2% increase in employer and employee contributions • COLA reduced from 3.5% to 2% 39th International Convention, June 28 – July 2, 2010

21. Utah • New Employees Forced into 401(k) plan • Legislation to end Defined Benefit pensions for new employees passed quickly and overwhelmingly 39th International Convention, June 28 – July 2, 2010

22. California Political Threats • Meg Whitman, Republican Governor Candidate Attacks Retirement Security of Current and Future Workers • Raise Retirement Age of Current Misc. Workers to 65 • Raise Retirement Age of Current Safety Workers to 55 • Force New Non-Safety Workers into defined contribution (401k style) plan. Close DB Plan. 39th International Convention, June 28 – July 2, 2010

23. Support Falls for Public Employee Pension Benefits • California Field Poll (2009)—67% support putting new public employees in 401(k) style plan • Colorado Labor Coalition poll—67% supported 2-2-2 proposal as a fair and reasonable way to address the funding shortfall 39th International Convention, June 28 – July 2, 2010

24. Polling—Best Messages • Average pension for a CalPERS member is $26,000 (COPERA is $28,000 w/out Social Security); cutting benefits is not the solution • All pension plans and 401(k) plans have incurred huge losses due to the abuses of mortgage companies and Wall Street brokers; workers should not have their retirements put at risk due to these losses, while the corporations causing the crisis receive government bailouts • Colorado: Over the last decade the state missed making its required payments while workers made their contribution; the state should meet its obligation – not cut benefits 39th International Convention, June 28 – July 2, 2010

25. Action Plan • Education • Worker Voice • Deliver message • Have a seat at the table with decision makers • Conversations with potential stakeholders • Members as pension trustees 39th International Convention, June 28 – July 2, 2010