‘Operation Intimidation’ Aims to Sink Comprehensive Pension Reform

Tony Manolatos Tony Manolatos 32 Comments

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Union Campaign Built On Intimidation, Desperation, Lies

 

There are few certainties in politics, but pension reform is quickly becoming one of those rare slam dunks.

In the City of San Diego, 70 percent of voters said they would vote for the Comprehensive Pension Reform (CPR) ballot measure, according to a poll conducted by Competitive Edge Research & Communication. Twenty percent said, “No” and 10 percent were unsure.  Those eye-popping numbers, along with the pension reform tsunami rolling across country, mean CPR is about as close as you can get to a lock in politics.

The unions know this and have responded with a plan I like to call, “Operation Intimidation.”

Here is how this pedestrian plan works: Unions regularly deploy blockers – mostly hired guns and other union sympathizers – to the front of Vons, Ralphs, Target, Home Depot and other places where signature collectors are working to get registered voters to sign petitions.

Union blockers also are trying to sabotage the Fair and Open Contracting measure, which would ask voters to eliminate mandated Project Labor Agreements in the City of San Diego.

The goal of Operation Intimidation is simple: Create a messy and uncomfortable environment in front of stores – including circling petitioners. If done correctly, most shoppers won’t stop to sign the petition and CPR would fail to qualify for the June 2012 ballot.

The unions, not surprisingly, argue they are at the stores to educate voters. They claim petitioners are misleading people by saying firefighters are exempt from the measure. Under the measure, police recruits would be the only new hires to receive a pension.

The Competitive Edge poll shows more San Diegans actually would vote for a measure that included all employees – including police and fire. The tally: 72.3 percent Yes, 17.5 No, 10.3 Unsure.

So there is no value for the campaign to say firefighters are not included. Still, union leaders have accused me and others on the campaign of encouraging signature collectors to lie.

Do they really believe this, or are they desperate to weave a narrative that cuts into the campaign’s credibility?

The petition companies the campaign hired have done their best to explain CPR to the petitioners, who travel from city to city throughout the state and country, depending on where the work is. It also is worth noting that anyone can circulate a petition anywhere.

The petition spells out and summarizes the entire measure. The campaign recently told the companies to remind petitioners that firefighters are not exempt from CPR.

The unions are pointing at a handful of signature collectors and calling them liars. This overlooks the fact that the entire union campaign is built on lies.

Lorena Gonzalez, the secretary-treasurer of the San Diego and Imperial Counties Labor Council, recently authored a letter urging people not to sign the CPR petition because it would leave city employees, including police officers, “without any guaranteed retirement benefits.” This is completely untrue.

Actually, the measure says, the maximum pension “payable to a sworn police officer, who is hired after the effective date of this section…shall be an amount equivalent to 80%…of the participant’s highest consecutive 36 months of Base Compensation.”

More importantly, the measure says: “This Plan shall meet the legal requirements established under the United States Internal Revenue Code in order to allow the City to retain its Social Security Safe Harbor Status, under the Internal Revenue Code.

“The City shall not contribute in excess of 9.2% of an employee’s compensation, as required by the Internal Revenue Code as amended, to defined contribution retirement accounts for that individual employee. For a Uniformed Public Safety Officer (firefighters and lifeguards), the City may contribute up to 11% of that Officer’s compensation to his or her defined contribution retirement account.

“The City may elect to re-enroll in the Social Security System (a benefit that equals 6.2 percent of compensation), provided that the City’s total cost for retirement benefits do not exceed 9.2% for each Officer’s or employee’s compensation, or 11% for Uniformed Public Safety Officers.”

CPR’s financial analysis, which shows the measure would save taxpayers up to $2.1 billion over 27 years,  assumes the City would fully fund employee retirement accounts (9.2 percent and 11 percent) if voters approve the measure.

In this clip, Ms. Gonzalez says the measure attacks social security, a benefit the City opted out of years ago. She also claims CPR is illegal. She repeats her claims in a news release stacked with misinformation.

Ms. Gonzalez says the measure would freeze pay for 5 years and is therefore illegal because it would not allow for collective bargaining. The truth is, the comprehensive measure would freeze pensionable pay and allow for annual negotiations.

Employees could continue to receive bonuses during the 5-year pensionable pay freeze. Those bonuses simply would not be lumped in with base compensation when calculating pensions.

A pool of skilled lawyers helped draft the pension reform ballot measure and agree that it is legally sound.

The unions, led by Ms. Gonzalez, have shown us early and often they are going to say and do whatever they can to keep this measure off the June 2012 ballot. Strong-arm union tactics, unfortunately, are not new.

Please remember that when you see a union blocker outside a store. Or when you hear Ms. Gonzalez and her supporters saying Mayor Jerry Sanders, council members Carl DeMaio and Kevin Faulconer, The Lincoln Club of San Diego County and The San Diego County Taxpayers Association all got it wrong.

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Comments 32

  1. Tony,

    Yikes. What was the purpose of this screed? It sounds like you’re throwing everything you can against the wall in hopes something sticks. Less than half the signatures are collected? Oh boy. You’ve got some work to do. The more this thing becomes about the signature gatherers, the worse things are going to get. I hope you are being modest about your numbers thus far. This can’t be building confidence in your campaign if we’re stuck talking about signature gathering?

    Why are you running from the Police, Tony? Carl DeMaio says it leaves the door open to them. The measure clearly creates a new 401-K retirement system and does not guarantee cops won’t be included in the future. TODAY=Cops couldn’t be put in 401-k, even if the council wanted to. IF CPR PASSES = Very easily, the Cops could be put in with a majority vote.

    And if “more reform” is better, as you say, then why not play up how the cops are going into 401-K after it passes. It sounds like you’re trying to have it both ways.

    The more you dig, the deeper you sink. Step away from the phone and take a deep breath.

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    Hi, Jefferson…

    I did go longer than I normally do with my posts. I did so because there is a possibility we don’t get enough signatures to qualify the measure. I think it is important to shine a light on that and on some of the bad info coming from the unions.

    Tony

  3. Most of the blockers who are out there to “educate” the voters before they sign haven’t even read the CPR ballot measure summary, much less the entire measure. They are simply out there to intimidate, make uncomfortable, and shame voters into not acting their best interest.

  4. I have to say I am of two minds on this “plan”. I know all the horror stories about gold plated pensions and the abuse that city workers have heaped on taxpayers. It is outragous. But I am also really really uncomfortable that we have to trust the Council as to what they will do in the future.

    Tear up my conservative card but one can create a REALLY horrible 401K plan if one wants to (unclear choices, too much duplication in holdings among the funds, no employer baseline contribution, no age indexed funds, etc.) It is pretty likely that this is ONLY the plan these employees are going to have – i.e. no third leg of social security.

    Once again our “leaders” got too cute by half….far better would have been to just put the new hires into social security, give them a 50% match on the first 6% contributed and call it a day. I know….it wouldn’t have “scored” as savings as much money and might have even cost more in the first few years. But it would have been a lot cleaner and wouldn’t require us to trust future councils and Mayors to actually design a plan that “works” – as opposed to a plausible scenario where the Dems decide to sacrifice a few workers to make a “point” about how rotten 401K are. Hell, they don’t even have to sacrifice any – just get a few stories in the newspapers in 10 years or so about underfunded 401Ks and get a 6-3 majority on council to tear this up and restore the original plan – with taxpayers on the hook for some outragous lump payment to SDCERS to make the system whole for these “late” enrollees.

  5. I think we would find that most city employees under a 401k plan would still qualify for social security from employment elsewhere. All one needs is part or full time employment for 10 years in the SS environ.

    And, unlike defined benefit plans, there would be no 401k “pension offset” to reduce the SS payments. That, coupled with the likely future reduction in SS benefits (including “means testing”) would/should result in most 401k employees being delighted they are not pouring their salaries into the SS Ponzi scheme.

  6. All one has to do is look at what pensions did to the automotive industry to see how it is a no-win situation for local, state and federal governments.

    What amazes me is we have a problem with social security (not enough paying in to support those receiving) now what if all those government employees were required to pay into social security and give up their “special” status of being exempt – that would probably correct the problem overnight.

    Of course, the is too logical and with the money from the unions paying off politicians – it’s hard to do what is right for the whole country/city/state then it is for those with the most money/power.

    Read more about why the unions are a detriment to not only the country, but union members – in an article entitled: The Union Job Killing Machine at: http://wp.me/pYtwJ-y

  7. Richard – I think that we should simply assert that SOME will have 40 quarters and qualify. I don’t think we have any evidence that “the majority” will since the vast majority of government workers (i.e. those that would leave one tax eater for another) are earning SS credits.

    This isn’t to defend what you rightly call a ponzi scheme. It is a rotten system. BUT…..for retirement purposes and as long as it is around it provide a stable income floor.

    Perhaps you know – does the SS safe harbor provision REQUIRE that the city employees contribute a minimum amount or could some irrationally and stupid employee skirt on making ANY contributions (and thus end up with REALLY bleak newstories a decade in).

  8. Kevin,

    If Social Security’s problem is that each of us, on average, will get more in retirement benefits than we put in while working, how can you say adding more people to that system (government employees) will “correct the problem overnight?”

    You sound like the entrepreneur who developed a new product that cost $10 per unit, but only sold for $8 apiece. He said not to worry because he could simply make up the difference by selling more of them.

  9. Alger,

    I don’t disagree with you…but, working for 25 years as a public servant (as I was a police officer for many years), top benies and then retire after 20-25 years and then go out and get another job and pension…while the rest of us, don’t get it (but pay for it in higher taxes)…without much left over to have our own retirement.

    Take us entrepreneurs…we pay 14%+ into social security…not much left for our own retirement accounts…while we see everyone wanting more, more, more…all government employees should be on a 401K plan and can contribute or not and go on SS like the rest of us I (which I grant you is a quasi-ponzi scheme).

  10. Erik, most city workers worked for quite a number of quarters part-time while in high school, college and perhaps the military — assuming they entered government civil “service” immediately thereafter (no further private sector employment).

    You know enough about economics to realize that incentives and disincentives affect people’s behavior. When the word gets out that — with 40 quarters logged — one gets a HUGE SS pension [NOT offset by government DB pensions] compared to what one put into the SS plan (there is a high minimum which is insane) — few will be the workers who don’t take advantage of this giveaway.

  11. Erik says “This isn’t to defend what you rightly call a ponzi scheme. It is a rotten system. BUT…..for retirement purposes and as long as it is around it provide a stable income floor.”

    Erik, the same could be said for the Bernie Madoff plan. For many years it provided a “stable income floor.” It was every bit as reliable as SS.

    But like all Ponzi schemes, Madoff’s pyramid con ran out of enough new money to keep it going. Social Security is exactly the same. It WILL become means tested (it’s already taxable above modest income levels), the age one can start drawing funds will be pushed further and further out, and the amounts will not continue to go up with COL adjustments.

    Indeed, the Madoff was FAR superior to the SS scheme — Madoff’s ruse was voluntary. Not so with SS.

  12. I would be a lot happier if they could design the plan with a mandatory contribution requirement and the investment in an age-indexed account. Sometimes you just can’t legislate away irrational/subefficient behavior and I do think that retirement security is one of those things were some “paternalism” isn’t a bad thing.

  13. Richard,

    What is your definition of a “HUGE SS pension? What would be the monthly payment for someone who contributed the minimum for 40 quarters?

  14. Erik, if I were the city’s 401k pension god, I’d have a limited number of mutual funds as 401k choices — with an emphasis on index funds.

    One of my favorites is the Fidelity Spartan S&P 500 fund, which has a total expense cost of 0.1% per year. It has a high minimum at the retail level, but I bet something could be worked out for a BIG pension fund to greatly lower or eliminate the minimum — or to provide one with a slightly higher annual cost to the investor.

    Government can screw anything up, and that includes contracting out and 401k pension administration — to say nothing of the existing cancer of defined benefit plans.

  15. Alger, I didn’t say it was a huge pension — it’s a huge MINIMUM pension for the minimum paid in. As I understand it, to be eligible, one must pay a bit over $200 in social security taxes (not counting the Medicare premium) per year for 10 years (does not have to be consecutive) — about $50 every three months. If a person does that for 10 years, they pay in about $2,000. For that payment, they can start drawing a minimum SS annual pension of almost $5,000 ($4,844 as of 2008). Hence in about 5 months they get back all their SS money paid in, and from that point on it’s all gravy.

  16. Richard,

    I understand the rate of return argument (although it probably doesn’t look as good if you contributed somewhat more than the minimum); what I don’t understand is you considering $400 per month to be what Erik called “a stable income floor.”

  17. Now I am not going to argue that $400 is the right number but remember, PRUDENT retirement planning is to envision a three legged stool – SS; 401k/DB/; Taxable savings. What SS really does is provide the opportunity, because of the generally secure level of income, to increase one’s risk tolerance in the other asset classes. Absent SS you have to reduce risk exposure in savings and thus minimize potential returns.

    The BEST advice you can give ANY 18 year old is to START SAVING NOW. Wish my dad did. Because the miracle of compound interest allows one to make VERY modest deposits at 18 and get a very NICE nest egg at 65.

    So the bottom line, you are NOT living on the $400 a month. It should constitute the “first” 20-25% of your 3 legged stool of retirement income.

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  19. Erik,

    Good point on the advantage and necessity of investing young. $1,000 invested at age 18 (assuming a 6% return) would be worth $16,000 at age 66. However that same $1,000 invested at age 42 would only be worth $4,000 at age 66.

    To your other point: $400 per month is not going to be enough for the “first 20-25% of your 3 legged stool of retirement income.”

  20. We should not be TOO negative to the young about SS. Granted, when they retire decades from now, SS will be much less valuable, available shortly before they are due to die (probably by death panel decree) and — most important — means tested. Anyone who saves, invests, has a pension, or receives an inheritance will likely get little or no SS.

    But on the PLUS side, the young will get the privilege of paying INTO SS for 40+ years so that we geezers can live well. I love this country!

  21. Ask any knowledgeable young person today the following question — Which would you prefer?

    1. You and your employer annually pay a total of 14.3% of your income income into SS, with you dependent upon the government 40+ years from now to determine at its whim how much to pay you, and how old you must be.

    2. You and your employer annually paid 14.3% (or indeed, a lesser amount) of your salary into an IRA that YOU control, YOU own, and YOU decide when (after age 60 or so) you can start drawing the funds, and at what rate — a fund can be inherited by your designated family memebers or charity upon your death (unlike SS).

    Perhaps Alger would go for “1”, but sane people will pick option 2 every time.

  22. Yeah but option 2 really isn’t on the table and, absent the fiscal tooth fairy, it is hard to envision how it could be.

  23. Richard,

    You have changed your argument so many times (are most public employees going to receive Social Security, is Social Security even a good deal…) that I don’t even know how to respond anymore.

    By the way, employee and employer put in 12.4% to Social Security, not 14.3%. If you include Medicare, the rate goes to 15.3%

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  25. Alger, thanks for the SS percentage correction. Not sure where that 14.3% figure came from. You go something correct!

    That being said, it has zero effect on my comparsion. Your obfuscation is falling flat. Let me see if I can explain it to you (let’s pretend you are interested in the truth). Two points:

    1. SS is a TERRIBLE deal for most people covered during their lifetime jobs. Particularly anyone under age 35 or so. For these youngsters, SS is iffy as to the amount and when it will be paid, it’s a poor return on investment, will likely not to be paid to those who provide for their own retirement, and cannot be inherited.

    2. SS is a TERRIFIC deal for the public sector employees not covered by SS n their government job, but who learn to (legally) scam the system by taking part-time work for 10 years total. The ROI is HUGE.

    I think it’s pretty clear to all but you, Alger — which speaks volumes to your progressive ideology overriding your ability to reason.

  26. Actually, Erik, SS vs.401k may indeed be on the table — at least for city employees not covered by SS. Depending on the IRS rules, the city MAY have the option of going into SS, or setting up a 401k plan (or, of course, having a 401k plan on TOP of a SS plan).

    Assume for the moment that such is the case (again, I do NOT know the facts on this). If we held a vote for city employees (or surveyed NEW city employees), which way would they vote to go?

    Longer term, as a country should be phasing out SS the same way we are phasing out the disastrous DB plans. It CANNOT continue without the drastic means testing and other benefit cuts I’ve mentioned earlier.

    It may be a decade or more away, but we reformers should keep pushing this option for at least part of the current SS contributions.

  27. Richard – I do think it fair that you include option 3 (cause that is what the City could well propose) – NO social security and retirement dependent solely upon a 401K with no assurances of how the funds will be structured (and at least as yet from the posters no mandate for a certain percentage of contributions).

    The problem is that this sets up TAXPAYERS for a really nasty surprise in a decade – as the supporters of the employees show that, because of bad savings and bad investment decisions, there are “THOUSANDS” of employees with really low (and “insufficient”) 401K balances. The chorus will then begin to put them BACK into a DB plan – with a HUGE balloon payment that will be magically amortized over 30 years.

    Don’t discount that happening. The one thing that the current crew on the 11th floor seems unable to do is think much more than 1 sunday editorial ahead. If you are going to avoid the pressure to put em back in a DB you better…..1) Press for a mandatory contribution level and 2) A big chunk of THAT incented to somehow go in an age indexed fund.

  28. Richard,

    I thought you were above making personal attacks. I guess that is something else I got wrong.

    So, if I understand you, you believe public employees either worked part-time for ten years before becoming a public employee, worked part-time for ten years while working full-time as a public employee or will work ten years part-time after retiring, and they did this just so they can receive a $400 monthly check from Social Security. I thought you were smarter than that; I guess you can add that to the list of things I got wrong.

  29. Alger, for 20 years I worked as a financial planner, with many government employees as clients. It was common in our industry to include a recommendation to such clients to arrange to get the 40 quarters in as painless a manner as possible to gain the minimum SS benefit.

    Remember, it’s a TOTAL of 40 quarters over the course of a lifetime. By completing the 40 quarters before age 66, the SS minimum pension is “earned.”

    It was no secret. Some even suggested that they hire each other for bogus work, report the income and then pay SS tax on it to get the quarters.

    If you think govt employees and their advisers are too dumb to learn to play the game, then you haven’t been watching our city employees scam the system for decades.

    For instance, our city employees quickly figured out the profit available from purchasing deep discounted years of service (up to 5 per employee) to boost their pensions. Many thousands of such service credits were purchased shortly before the program ended.

    And that purchase required major money. Getting a part-time job to get SS is far easier to do — especially since many if not most government employee START their government employment with at least 20 quarters credit from previous SS-covered work.

  30. Erik, rest assured that the unions will be back seeking a DB plan. Regardless how the 401k plan works, such will be the case. We can’t win and then simply go home. The battle will continue.

    The reason the unions love DB plans is that they can get politicians to commit to it without providing proper funding. It’s a FUTURE obligation, which, as you well know, opens the floodgates to promising something for nothing — at least nothing now. Rare indeed is a DB plan properly funded from the get-to. I can’t think of a government plan anywhere that can make that claim (without Pollyannaish actuarial assumptions).

    Retaining a modest DB plan offers the same trap — the unions will constantly be pressing for sweetening the pension plan. Nothing changes in that regard.

    Ultimately the resistance to future union pressure will be up to future politicians and, more importantly, the voters of San Diego. Any firewall we put up can ultimately be changed by vote. Such is our system.

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