AFT locals fight initiatives to destabilize public employee retirement benefits

California Gov. Arnold Schwarzenegger made headlines nationwide with his drive to overhaul the state's public employee pension system by replacing the guaranteed-benefit plan with a defined-contribution system, like a 401(k).

His opposition-namely, public employee unions, including the AFT's California Federation of Teachers and its locals-made news, too, with an aggressive, coordinated grass-roots outreach and lobbying effort that united everyone from teachers to state employees to fire fighters to nurses.

Gov. Schwarzenegger backed down from his plan in April, pulling his pension ballot initiative. But in very Terminator-like style, he signaled he'll be back with a "new and improved" plan to privatize the public pension system. 

What wasn't making headlines nationwide, however, were the efforts of lawmakers in other states, including Alaska, Colorado and Illinois, to plunder public pension systems. Public employee unions in those states, including AFT Public Employees locals, are attacking the schemes head-on among their ranks, in their communities and in statehouses to expose the real motivation behind theinitiatives.

Pension standoff in Alaska

"Our system is funded," says Bruce Senkow, president of the AFT's Alaska Public Employees Association (APEA). "If you take out healthcare costs for retirees, it is funded at 128 percent. Once you throw that in, our system is funded at 78 percent."

Like many states across the country, Alaska purposely underfunded its public pension system over the past decade when the stock market was escalating upward. As Senkow notes, some states, as a standing practice, fund their public retirement obligations at 75 percent.

As a result of what Senkow calls "the perfect storm"-underfunding, the rising cost of healthcare, people living longer and missed estimates on investment returns-a $5.6 billion shortfall in Alaska's system is projected over the next 25 years.

The system has close to $13 billion in investments and covers employees working for state, municipal and burough governments, school districts and the university system.

But public employee unions, including the APEA, are not taking shelter from the "storm." Coordinating with the state AFL-CIO, unions have spent the better part of this year mobilizing members and other supporters, educating them about the cause of the shortfall and the effect of pending proposals.

At the center of Alaska's pension overhaul is a Senate measure that would increase current employee contributions from 6.75 percent of salary to upwards of 10 percent of salary.

The legality of that provision is questionable, says APEA business manager Bruce Ludwig, noting that the state constitution "says that once you start in the system they can't cut your benefits."

The proposal also would discontinue the defined-benefit system for all new employees starting July 1 and replace it with a defined-contribution, 401(k)-like system, under which employees would manage their own investments.

"It does nothing to address the gap," says Ludwig, a member of the AFT Public Employees program and policy council. Ludwig says the unions' position is that an independent commission should study the issue before any changes are made.

A bipartisan group of House lawmakers took the unions' point under advisement-and agreed. The House's refusal to approve the Senate's measure, which would take effect July 1, ignited a political stalemate that continued into a special session at a reported cost of $30,000 a day. 

Instead of addressing the root of the problem, which many observers say includes escalating healthcare costs and the state's failure to fund its share at 100 percent, Gov. Frank Murkowski and Senate Republicans used the shortfall as their public rationale to promote the White House's agenda: retirement privatization. Moreover, Gov. Murkowski was threatening to withhold money for new schools, roads and other capital projects if the House didn't approve the defined-contribution system.

"The proposals in Alaska are part of the movement to privatize Social Security and as many retirement accounts as you can," Senkow says.
Both the Senate and the Murkowski administration showed their hand, says Ludwig, rejecting an early May House compromise to sunset the proposed defined-contribution system if the Legislature did not fill the defined-benefit system's gap by September 2006.

By late May, however, the Senate and the governor were willing to accept a modified House compromise: The new defined-contribution system starting July 1, 2006.
Alaska's unions, however, are not accepting defeat, Ludwig says, noting that labor will work hard over the next year to get enough support in the Legislature to revisit the pension changes.

Protecting pensions in Illinois

The AFT's Illinois state federation has launched an all-out campaign to protect their pension plans-and the retirement security of future employees who will be represented by its local unions-diving into battle with a barrage of letter writing and lobbying in the state capitol.

"Illinois' public pension systems would be fully funded today if the state had lived up to its prior commitment," says state federation president Jim Dougherty, who also is an AFT vice president. "The Legislature's decision to skip pension payments for years and the negative compounding created by those bad decisions caused nearly all of the current unfunded liability. Even with hundreds of millions the governor proposes in pension cuts, the state still has a structural deficit that will continue to exist."

AFT members in Illinois, including state employees, teachers and university faculty, flooded the capitol in Springfield April 13 for the state federation's annual lobby day. "Protect Our Pensions" was one mantra union members chimed, and they have continued repeating it in e-mails, letters and phone calls to their lawmakers since. The state federation also has teamed up with other unions in the state that represent public employees to hold legislative forums throughout the state.

Threats to the current system include an increase in the age at which employees can retire, lower annual cost-of-living adjustments (COLA), and a cap on interest earned on retirement accounts. A two-tier system, for current employees and new hires, also has been proposed.

Among Gov. Rod Blagojevich's proposals:

 Change the pension COLA. Right now, state retirees automatically receive a 3 percent annual COLA, "regardless of how the market performs," he noted. The governor wants to base the COLA on the Consumer Price Index and cap it at 3 percent. Moreover, the COLA would be calculated on the first $24,000 of retirees' annuities, unless they are eligible for Social Security. Then it would be on the first $12,000.

 Raise the retirement eligibility requirements. Currently, workers may retire at age 55 with 30 years of service and at age 60 with eight years of service and receive full benefits. The governor wants to change the retirement age to 60 for workers with 35 years of service and withhold benefits until age 65 for those with at least eight years of service.

 Cap end-of-career raises to 3 percent.
"The ideas I am proposing can save our pension systems more than $100 billion over the next 40 years," Gov. Blagojevich said in February. At the same time, he acknowledged that the state, since the 1970 Illinois Constitution that guarantees pension benefits for existing employees, has "never met its full annual commitment to the pensions in any given year, with the exception of 2004, after issuance of the $10 billion Pension Obligation Bond."

What he didn't say, however, is how much the state's savings were going to cost future retirees.

"The pension changes proposed by the governor will not correct the funding imbalance that has been largely caused by the state shirking its responsibility to fund the systems," Dougherty wrote in an op-ed. "Nothing in the governor's plan will bring more accountability to the way Illinois funds pensions. Just cut benefits, and when it becomes difficult to fund even reduced benefits, cut benefits again."

Even legislators are squirming about the governor's plan. State Sen. Bill Brady already voted against it as a member of the governor's pension committee. He called it "fiscally repulsive."

Solvency of Colorado'spension coffers questioned

Colorado state treasurer Mike Coffman is leading the charge to overhaul the Public Employee Retirement Association (PERA), the defined-benefit pension plan that counts among its members state and city employees, university and college employees and many Colorado teachers.

Like other public pensions, PERA has an unfunded liability that is reportedly approaching $10 billion. The shortfall is primarily due to government employers who didn't pay their full share from 2000-02 and poor stock market performance. PERA has almost $32 billion in assets today. It is funded at 76 percent.

Coffman has formed a 10-member group, consisting predominantly of business executives, to develop recommendations "to restore fiscal stability" to PERA. Coffman misleadingly named the group the Commission to Strengthen and Secure PERA.

At one commission meeting, PERA's chief operating officer David Maurek told the group that "funding a long-term fund like this, you don't always want to be at 100 percent. As a matter of fact, it's more comfortable at around 80 [percent]."

Jo Romero, president of the AFT's Colorado Federation of Public Employees (CFPE), says the commission, which held its first meetings this spring, has one primary objective: eliminate the defined-benefit structure and replace it with a defined-contribution system.

More than 200 state employees attended CFPE's first membership meeting about the pension threat in April at the Denver office of the Department of Public Health and Environment.

The testimony the commission has invited suggests strongly that it wants to certainly change benefit levels for future employees and possibly change benefit levels for current employees and COLAs for retirees, says Harlen Ainscough, CFPE vice president.

In addition to reducing benefits, some commission members have expressed disbelief that public employees can retire at age 50 with 30 years of service. They say age 65 is the standard in the private sector and that the public sector should be the same.

"They have given modest attention to the fact that in 2000 the governor's office pushed state contribution reductions downward [even though the system was funded at 103 percent] and substantially reduced the cost to purchase service credits in an attempt to reduce state payroll," Ainscough notes.

Romero expects the commission to wrap up its work by the end of they year so the Legislature can take action on any proposals during its 2006 session. Meanwhile, the union is continuing to educate and mobilize its members for legislative action.

Legislative activism keyto blocking changes

The pension crisis has replaced the budget crisis as the focus in legislatures across the country. In fact, Montana's Legislative Council announced May 16 plans to study its pension fund investments, and the Legislature is expected to address how to pay for the shortfall during its special session in December.

MEA-MFT president Eric Feaver speaks for all AFT leaders when he said in an e-mail update to members that the union is "unequivocally dedicated to the preservation and enhancement of Montana's public and school employee defined-benefit retirement plans."

"We will do whatever it takes during the interim and into the next legislative session and every session thereafter to protect and provide all retired, active and future public and school employees adequately funded, competitive and safe retirement benefits."

Like all union efforts on behalf of members, member involvement plays an integral part of determining the outcome. And only members, as individual voters, can hold elected officials accountable for their decisions.