California lawmakers OK pension reform

Jerry Brown
Gov. Edmund G. Brown Jr. has until Sept. 30 to sign the legislation

The California Legislature approved an overhaul of the state's public pension laws on Friday, rolling back benefits to pre-1999 levels.

Gov. Edmund G. Brown Jr., who is expected to sign the legislation, has until Sept. 30 to do so.

Republican legislators, who said before Friday's vote that the changes weren't broad enough, ultimately went along with the controlling Democrats majority in both the Assembly and state Senate. The final vote in the Senate was 38-1 and in the Assembly, 48-8.

Action was swift on the proposal, a compromise plan between Mr. Brown and state Democratic legislators that was introduced on Aug. 28.

The new plan is a watered-down version of a proposal Mr. Brown introduced in October 2011 that called for a hybrid pension system for public employees.

Democratic legislators — who receive huge political contributions from public employee unions — refused to go along with the hybrid proposal.

The compromise bill limits benefits to being based on the first $110,000 of an employee's salary if they receive Social Security and around $130,000 if they do not.

If signed by the governor, the law would take effect in January. It would increase the retirement age to obtain maximum benefits for new state, county and municipal workers to 67 from 55 for general employees and to 57 from 50 for public safety workers. The pension package also contains anti-spiking provisions that are supposed to prevent employees from boosting their benefit in their last years of employment.

Union officials upset

While the changes in the legislation were less severe than in Mr. Brown's original proposal — one that minority Republicans had endorsed — union officials were still upset. They immediately denounced the proposal when it was announced on Aug. 28, saying they might challenge the measure in court and take retribution against supporters at the ballot box.

“We are fighting back and we're struggling, and in this case it appears like we're losing,” said Dave Low, chairman of Californians for Retirement Security, a labor coalition representing more than 1.5 million public employees and retirees, during an Aug. 28 Sacramento news conference.

J.J. Jelincic, a board member of the $238.4 billion California Public Employees' Retirement System, Sacramento, and one-time president of a California public employees union, said in an interview that the changes would make it more difficult for CalPERS to recruit investment staff. He said CalPERS' salaries are already much lower than those of the private sector, and the benefit reduction would be an additional deterrent.

Mr. Jelincic also slammed the legislation, saying it was short on reform and long on cuts. “The California public sector has joined the race to the bottom,” he said. “Rather than defend retirement security for working folks, it is weakening that security.”

In an Aug. 29 statement, CalPERS officials praised some of the anti-spiking provisions, but did not address the biggest changes being made, such as the benefits cap.

The new law spares existing workers from reductions but boosts employee contributions for some state, municipal and county employees to 8% of salary from varying percentages now. Most state workers already pay 8%.

The legislation also affects teachers covered by the $152.1 billion West Sacramento-based California State Teachers' Retirement System and 20 county retirement systems in the state. It does not affect employees covered by so-called charter systems, such as in cities like San Jose and San Diego where voters approved referendums earlier this year reducing benefits for current and new employees.

CalPERS on Aug. 31 estimated the legislation will save between $42 billion and $55 billion over 30 years for CalPERS-administered pension plans. Mr. Brown has said the changes would save up to $30 billion over 30 years. “These reforms make fundamental changes that rein in costs and help to ensure that our public retirement system is sustainable for the long term,” he said in an Aug. 28 statement. “These reforms require sacrifice from public employees and represent a significant step forward.”

Republicans and pension reform advocates say the legislation doesn't go far enough, and won't help reduce the combined $150 billion unfunded liability of CalPERS and CalSTRS because it doesn't reduce the benefits of current workers.

CalSTRS is scheduled to run out of money in about 40 years if contribution rates are not raised, according to its own actuarial analysis. A study last year by an independent state oversight agency warned that government budgets would continue to be overwhelmed by debt if benefits for existing workers were not scaled back. The promised benefits are unaffordable and leave taxpayers facing all the risk as the bill becomes due, the report said.

The legislation's quick passage came after months of inaction as Democratic legislators and the governor failed to strike a compromise. That all changed after Mr. Brown's Aug. 28 announcement that a deal had been struck. That evening, a conference committee passed the bill on a 4-2 party-line vote, which set the stage for the Aug. 31 vote. The package was passed on the last day of the Legislature's session.

This article originally appeared in the September 3, 2012 print issue as, "Lawmakers OK pension reform in California".