The Bay Area News Group's front-page story in its June 23 editions and its June 25 editorial made much ado about what has come to be known as "pension pickup." The editorial's assertion that workers are getting a Rolls-Royce for the price of a Volkswagen is hyperbolic, even for BANG's editorial page.
What the paper neglected to report was that public employee unions and public employers bargained pension pickups in lieu of pay raises. These agreements were not, as the paper wishes to paint them, and as is often argued, a "giveaway" of the public purse extracted by big, powerful unions from compliant public officials.
The ones with which I am familiar did not cost taxpayers more than what pay raises would have cost, had pension pickup not been an option at the bargaining table. They were negotiated with eyes wide open.
Had they not been negotiated, employers' pension cost would be less today, but their salary cost would be higher by a like amount.
Here is how it worked: Suppose an employer agreed to "pick up" the employee share of 8 percent of salary rather than increasing the employees' pay by 8 percent.
By the way, an increase of that magnitude was usually done over a number of years, not all at once. Agreeing to pick up the employee share of pension contribution of 8 percent cost the employer less than agreeing to an 8 percent pay raise because the employer did not have to and has not had to pay so-called "rollups" such as retirement contributions, payroll taxes, workers' compensation and unemployment insurance because the employee's pay was not increased.
Moreover, because employees' base pay was less than it would have been had wages been increased by 8 percent, overtime cost the employer less money. And ironies of ironies, employees' pension would be less because their salaries for retirement calculations would be less than they would have been had salaries been increased by 8 percent. This would not be the case for the so-called "reverse pickup." The benefit to employees: Take-home pay increased by more because the 8 percent was not taxed.
The paper's argument that these agreements are bad because employees do not have "any skin in the game" is fallacious. The employee share is a fixed amount for CalPERS. Employees pay more when they get a pay raise, not when pension costs increase. Though the employee share for 37 Act systems do fluctuate, changes in assumptions for projected earnings and such things as life expectancy are a significant cause of changes in the rate.
As noted in your article, in recent years many public agencies and unions that represent their employees have agreed through collective bargaining that employers who heretofore had paid some or all of the "employee share" will no longer do so. The result for most public servants affected by such agreements was a pay cut, often on top of salary cuts and increased cost for health insurance.
During the past several years, there has been an ongoing public discussion about public sector pensions. Some points raised by those who have been critical, including the paper, have merit. The pension pickup issue to which the paper has dedicated so much ink does not. Respectfully, the article and editorial are a bunch of folderol.
Roland M. Katz is a supervising business agent for Public Employees Union Local 1, which represents more than 13,000 local government employees in Northern California. Katz is Local 1's chief negotiator for its Contra Costa County members.