in dollars and in in-kind get-out-the-vote efforts—to
plans—in contrast—are essentially tax-favored
Democrats. The Republican argument was that unions
savings accounts for individual workers which receive
were negotiating overly-generous pay and benefits
employer and employee contributions. Covered
and that these costs were harmful to distressed public
workers generally have a choice of investments such as
budgets. The State of Wisconsin was home to an
stock funds, bond funds, and less risky assets such as
especially bitter legislative battle over the collective
certificates of deposit.
bargaining issue.
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There was also a brief push
to have Congress (now that the House was under
Under defined contribution plans, employees
Republican control) create a legal mechanism for
on retirement have a sum of money reflecting
states to declare bankruptcy—presumably allowing
contributions and investment returns—whatever those
state governments to void or renegotiate existing
turn out to be. The risks entailed due to investments
collective bargaining agreements. The idea was
that don’t pan out or due to inadequate contributions
dropped when it seemed likely that allowing such
over the years are borne by the employee. Under
bankruptcy would tend to undermine the market for
defined benefit plans, investment risks are covered by
state government bonds.
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the employer since the eventual monthly pension is determined by formula. In the private sector, defined
In California, where unionization is higher than the
benefit plans were commonly components of union
national average, almost entirely because of higher
contracts but as unionization declined in private
unionization rates in the public sector, collective
employment, so—too—did defined benefits there.
bargaining as a legislative issue did not arise because
In the public sector, defined benefit plans actually
of Democratic control and the general tilt of state
predated unions; when public sector unionization
politics. However, in particular localities—notably the
came along—mainly in the 1960s, 1970s, and 1980s—
City of Costa Mesa—there was a Wisconsin-type battle.
unions essentially inherited an employment system
That small city managed to garner statewide attention
which came with such pensions.
when one employee committed suicide after receiving a layoff notice. 6 1 Palo Alto’s city council voted to put
Defined benefit plans can become underfunded
on the ballot a proposition that would end that city’s
since ultimately the plans must pay the accrued
compulsory (binding) arbitration system for settling
benefits whether or not sufficiently funding has
labor dispute impasses.
been gathered from contributions and investment earnings. By definition, defined contribution plans
While collective bargaining per se was not a major
cannot be underfunded since the employer owes only
issue in California, public pensions became a proxy
the contribution it puts in and those contributions
for that issue, although many nonunion employees
are made upfront. If those contributions—or the
in the state are covered by pension systems. Pensions
investment income the employee derives from them—
essentially come in two flavors: “traditional” defined
prove to be inadequate to support the employee in
benefit pensions and “401k”-type defined contribution
retirement in the style he/she might have expected,
pensions.
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The former involve the creation of a
pension fund which receives employer and employee
that is the misfortune of the employee/retiree, not of the public employer.
contributions in varying proportions to pay benefits to retirees. Those benefits are based on a formula
California has three major state pension funds.
typically involving age, length of service, and earnings
CalPERS covers most state employees, apart from
history of the beneficiaries. Defined contribution
those of the University of California, and the
R e a l ly ! N o M e n ta l R e s e r v at i o n s
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