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San Jose, Calif. mayor launches pension reform initiative

By Jim Christie

SAN FRANCISCO (Reuters) - The mayor of California's third largest city offered a plan on Tuesday to help the state rein in spending on public pensions, drawing rebukes from a group representing public employees as well as the state's pension fund for public-sector workers.

San Jose Mayor Chuck Reed said his measure, which he hopes to qualify for the November 2014 ballot, would urge voters to amend California's constitution to allow local governments to reduce pension expenses associated with their current employees.

Local governments in the most populous U.S. state may reduce pension benefits for their future workers to lower retirement-related spending but they face legal roadblocks in doing the same for current employees.

"In order to save significant dollars you have to go where the significant costs are and that's current employees," Reed told Reuters by telephone.

Reed, a Democrat, has emerged as a high-profile advocate for pension reform in California after successfully winning a measure in his city last year that garnered national attention. That measure allows San Jose's workers to keep pension benefits they have earned but requires them to pay more toward their pensions to keep up the same level of benefits.

If San Jose's employees do not pay more, future pension benefits are reduced, a plan they are challenging in state court.

The statewide measure filed by Reed with the state attorney general's office would leave retirement benefits already earned by public employees intact but open the door to benefits for their future service to be modified.

Dave Low, chairman of Californians for Retirement Security, which represents active and retired public employees, said the measure "breaks the promise of a secure retirement made to millions of Californians, many of whom are ineligible for Social Security and have an average pension of $26,000 per year."

"It will allow public employers to unilaterally cut the retirement benefits promised to current teachers, firefighters, police officers and school bus drivers," Low said.

If Reed's measure makes it on the ballot, it will "energize" the same coalition that rallied to knock off an initiative last year that would have barred unions from using money deducted from members' paychecks for political purposes, Low added.

The California Public Employees' Retirement System released a statement saying "Changes to pension benefit levels should be determined by the employer and the employees, and not at the ballot box."

The pension fund, known as Calpers, also said Reed's measure runs afoul of state law.

"The courts have clearly established that California public employees have a vested right to the level of benefits promised to them when they are first employed," Calpers said. "This prevents not only a reduction in the benefits that have already been earned, but it also prevents a reduction in the benefits that an employee has been promised for their future service."

Calpers said it will "continue to support and defend our members' vested rights, in accordance with the laws of the land and our obligations under the federal and state constitutions."

Attorneys for Calpers have stood ready to help the bankrupt city of Stockton, California, beat back attempts by some of its creditors to block its plans for maintaining pension payments.

By contrast, Calpers challenged San Bernardino, California's bid for bankruptcy protection. San Bernardino for a year suspended its payments to Calpers after declaring bankruptcy.

San Bernardino Mayor Patrick Morris, also a Democrat, is supporting Reed's measure. In his state of the city speech last week, Morris said San Bernardino's pension spending had reached an "unsustainable level" and has been "draining" the city's general fund of money needed for key services.

(Reporting by Jim Christie; editing by Jackie Frank)

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