Governor Unveils Pension Reform Plan

Yesterday, Governor Brown unveiled a 12-point plan to “… fix our pension systems so that they are fair and sustainable over a long time horizon.” If enacted, the Governor’s plan would affect both state and local government pensions. The Governor’s proposals are as follows:

  1. Equal Sharing of Pension Costs (All Employees and Employers):  Phase in requirement that the annual normal pension cost of pensions be shared equally by employees and employers.
  2. “Hybrid” Risk-Sharing Pension Plan (New Employees):  Establish a “hybrid” plan that includes a reduced defined benefit component and a defined contribution component that will be managed professionally to reduce the risk of employee investment loss.  The hybrid plan will combine those two components with Social Security and envisions payment of an annual retirement benefit that replaces 75 percent of an employee’s salary.
  3. Increase Retirement Ages (New Employees):  Set retirement ages at the Social Security retirement age, which is now 67. The retirement age for new safety employees will be less than 67, but commensurate with the ability of those employees to perform their jobs in a way that protects public safety.
  4. Require Three-Year Final Compensation to Stop Spiking (New Employees):  Require that final compensation be defined, as it is now for new state employees, as the highest average annual compensation over a three-year period.
  5. Calculate Benefits Based on Regular, Recurring Pay to Stop Spiking (New Employees): Require that compensation be defined as the normal rate of base pay, excluding special bonuses, unplanned overtime, payouts for unused vacation or sick leave, and other pay perks.
  6. Limit Post-Retirement Employment (All Employees):  Limit all employees who retire from public service to working 960 hours or 120 days per year for a public employer. It also will prohibit all retired employees who serve on public boards and commissions from earning any retirement benefits for that service.
  7. Felons Forfeit Pension Benefits (All Employees):  Require that public officials
    and employees forfeit pension and related benefits if they are convicted of a felony in carrying out official duties, in seeking an elected office or appointment, or in connection with obtaining salary or pension benefits.
  8. Prohibit Retroactive Pension Increases (All Employees):  Ban retroactive pension benefit enhancements like earlier retirement and increased benefit amounts for work already performed by current employees and retirees.
  9. Prohibit Pension Holidays (All Employees and Employers):  Prohibit all employers from suspending employer and/or employee contributions necessary to fund annual pension costs.
  10. Prohibit Purchases of Service Credit (All Employees):  Prohibit pension systems from allowing employees to buy “airtime,” additional retirement service credit for time not actually worked.
  11. Increase Pension Board Independence and Expertise:  Add two independent, public members with financial expertise to the CalPERS Board and replace the State Personnel Board representative on the CalPERS board with the Director of the California Department of Finance.  Government entities that control other public retirement boards should make similar changes to those boards to achieve greater independence and greater sophistication.
  12. Reduce Retiree Health Care Costs (State Employees):  Reduce the taxpayer burden for health care premium costs by requiring more state service to become eligible for health care benefits at retirement.  New state employees will be required to work for 15 years to become eligible for the state to pay a portion of their retiree health care premiums.  They will be required to work for 25 years to become eligible for the maximum state contribution to those premiums.

Comments:

The proposals are all what I would call “low hanging fruit”; most of them are fairly uncontroversial.  Significantly, the vast majority of the Governor’s proposals would affect only new public employees so the short-term savings from the plan would be minimal.  From what I’ve read, the unions have responded that the proposals are worth considering, but that any changes should be reached at the bargaining table.  In essence, the unions are not going to accept this willingly, and if they do, they want something in exchange.

Dan Walters, a Sacramento Bee columnist, had a great column today where he noted that the 1999 pension changes, which retroactively increased state pensions, were rushed  through the Legislature without even the veneer of collective bargaining.  Those changes applied tremendous pressure on local entities throughout the state to grant similar pension increases.  At that time, the state’s largest union, the California State Employees Association (now a SEIU local), declared that “retirement benefits are not part of the Dills Act (and) CSEA  should not be required to bargain for retirement benefits when the money for these benefits is coming from the Public Employees’ Retirement Fund and not state coffers.”  Now that the Governor is proposing to roll back those changes, the unions have reverted to their mantra that such changes must be bargained.

This entry was posted in News. Bookmark the permalink.

Comments are closed.