SAN FRANCISCO. California Governor Jerry Brown on Thursday unveiled a major overhaul of the pension plan for the state’s public employees, proposing they equally share the cost of pension contributions and raising the retirement plan for most new workers to 67 from 55, according to Reuters.
Brown said his plan would save taxpayers billions of dollars over the long term and close loopholes that allow workers to inflate pensions.
Pension costs have been a growing concern for state leaders due to forecasts of their burden on California’s already strained finances.
“It’s time to fix our pension systems so that they are fair and sustainable over a long time horizon,” Brown, a Democrat, said in a statement.
Leaders of the Democrat-controlled legislature responded cautiously to the plan. Public employee unions, whose members have already been hit with layoffs, furloughs and a hiring freeze as California has reined in spending, reacted negatively.
Under the plan, which now goes to lawmakers, all new and current employees in state, local, school and other public agencies would have to equally share with their employers contributions to retirement plans.
Brown also proposed changing the existing defined benefit pension plan — under which retirees receive a guaranteed amount of money per month for life — for a “hybrid” plan with a reduced defined-benefit component paired with a defined-contribution component.
The combined approach would provide employees 75 percent of salary based on a full career of 30 years for safety employees and 35 years for nonsafety employees. The two components of the plan would provide roughly equal benefits.
For state workers who are not covered by U.S. Social Security, defined benefits would make up two-thirds of targeted pension payouts and defined-contribution payments would make up the remaining one-third.
Brown also proposed restructuring the board of the California Public Employees’ Retirement System, the biggest U.S. public pension fund.
“In the past, the lack of independence and financial sophistication on public retirement boards has contributed to unaffordable pension benefit increases,” Brown said.
POLITICS OF PENSION REFORM
Democratic lawmakers gave a muted response to the plan.
“The governor is proposing a provocative set of reforms, and I intend to approach them with an open mind,” said Senate President pro Tempore Darrell Steinberg. “The abuses that a small number of people take advantage of absolutely must be resolved. But we can’t forget that the vast majority of public sector employees are middle class workers and their average pensions are far from exorbitant.”
Assembly Speaker John Perez said his chamber would work with Brown to “bring stability to our pension system in a manner that does right by taxpayers and public servants alike.”
Union officials offered a fairly blunt assessment.
“The governor has said for weeks now that he would release a plan labor wouldn’t like. Mission accomplished,” said Dave Low, executive director of the 220,000-member California School Employees Association. “It’s a pretty tough pill to swallow.”
Even before taking office in January, Brown had vowed to be a tightfisted governor and said that would involve changes to shave pension costs.
He had been in talks on pension issues with Republicans in the legislature’s minority as part of broader state budget negotiations in March. Talks on pension matters, however, were shelved as more pressing budget matters prevailed.
Republicans were able to insert pensions into budget talks because polls have been showing voters back changing them.
“This seems to be increasing in urgency,” said Mark DiCamillo, director of The Field Poll, which has conducted polls on voter sentiment on public pensions.