Governor Jerry Brown and other state lawmakers announced their plan Tuesday to curtail public employee retirement benefits.
The Public Employee Pension Reform Act of 2012, which will require approval of the state legislature and could lead to a vote for additional changes, would cap pensionable salaries, require new hires to pay more into the system while getting less in return, increase retirement ages, and require final compensation to consist of a three-year average rather than the final 12 months, in an effort to prevent spiking.
“These reforms make fundamental changes that rein in costs and help to ensure that our public retirement system is sustainable for the long term,” Brown said. “These reforms require sacrifice from public employees and represent a significant step forward.
“If the legislature approves these reforms, public retirement benefits will be lower than when I took office in 1975,” he added. “Additional changes would require a vote of the people.”
Labor’s response was swift and unenthusiastic.
“This is far more than ‘low hanging fruit,’” Dave Low, chairman of union coalition Californians for Retirement Security, said in a statement to the Sacramento Bee. “This is the fruit, the branch, the tree trunk, and the roots.”
A hybrid plan Brown pushed, which would have involved a 401(k)-style system, was scrapped. Daniel Borenstein, a columnist with Bay Area News Group, is already calling the effort “pension reform light.”
San Jose Mayor Chuck Reed, who in many ways provided a roadmap to pension reform at the state level—although San Jose went with a ballot measure, released the following statement after Brown’s announcement:
“This pension reform agreement is a significant accomplishment for the Governor that will have a positive impact for many jurisdictions,” Reed said. “I agree with the Governor that there is more work to be done.”
Reed added, “California needs a constitutional amendment to ensure that the changes aren’t undone by future legislatures and to affirm the ability to make changes to retirement benefits for future work while protecting vested rights employees have already earned.”
He also said the state “needs to reform the governance of pension funds to ensure independence, accountability, and transparency.”
Below is the bullet-point plan Gov. Brown’s office released Tuesday.
Public Employee Pension Reform Act of 2012
Caps Pensionable Salaries
• Caps pensionable salaries at the Social Security contribution and wage base of $110,100 (or 120 percent of that amount for employees not covered by Social Security).
Establishes Equal Sharing of Pension Costs as the Standard
• California state employees are leading the way and are paying for at least 50 percent of normal costs of their pension benefits. Requires new employees to contribute at least half of normal costs, and sets a similar target for current employees, subject to bargaining.
• Eliminates current restrictions that impede local employers from having their employees help pay for pension liabilities.
• Permits employers to develop plans that are lower cost and lower risk if certified by the system’s actuary and approved by the legislature.
• Provides additional authority to local employers to require employees to pay for a greater share of pension costs through impasse proceedings if they are unsuccessful in achieving the goal of 50-50 cost sharing in 5 years.
• Directs state savings from cost sharing toward additional payments to reduce the state’s unfunded liability.
Unilaterally Rolls Back Retirement Ages and Formulas
• Increases retirement ages by two years or more for all new public employees.
• Rolls back the unsustainable retirement benefit increases granted in 1999 and reduces the benefits below the levels in effect for decades.
• Eliminates all 3 percent formulas going forward.
• For local miscellaneous employees: 2.5 percent at 55 changes to 2 percent at 62; with a maximum of 2.5 percent at 67.
• For local fire and police employees: 3 percent at 50 changes to 2.7 percent at 57.
• Establishes consistent formulas for all new employees going forward.
• Requires three-year final compensation to stop spiking for all new employees.
• Calculates benefits based on regular, recurring pay to stop spiking for all new employees.
• Limits post-retirement employment for all employees.
• Felons will forfeit pension benefits.
• Prohibits retroactive pension increases for all employees.
• Prohibits pension holidays for all employees and employers.
• Prohibits purchases of service credit for all employees.