Angry Response From Public Employees to the Governor’s Plan
On Thursday, Governor Jerry Brown unveiled the statutory and constitutional language to implement the 12-point pension reform plan he presented last October.
“These major reforms for state and local pension systems will improve their long-term sustainability while providing employees a fair retirement,” the governor wrote. “These reforms also will end system-wide abuses and reduce taxpayer costs by billions of dollars over the long term.”
“Current benefits, contributions and retirement ages don’t reflect the changing demographic realities we face and are not sustainable,” he continued. “Continuing these plans in their current form will put taxpayers on the hook for substantial costs now and in the future. Urgent and decisive action is imperative.”
The governor’s plan includes a provision for equal sharing of pension costs between all employees and employers.
“My plan will require that all new and current employees transition to a contribution level of at least 50 percent of the annual cost of their pension benefits,” the governor said.
It also creates a hybrid risk-sharing component that will add a 401(k)-style defined contribution plan that will reduce the risks on public agencies and place the entire risk of loss on investments on employees.
“I believe that all public employees should have a pension plan that strikes a fair balance between a guaranteed benefit and a benefit subject to investment risk. The ‘hybrid’ plan I am proposing will include a reduced defined benefit component and a defined contribution component that will be managed professionally to reduce the risk of employee investment loss,” the governor said.
It would also increase the retirement age to 67, the same age as social security, and it would require three-year final compensation to be the guide in order to stop spiking.
“Raising the retirement age will reduce the amount of time retirement benefits must be paid and will significantly reduce retiree health care premium costs. Employees will have fewer, if any, years between retirement and reaching the age of Medicare eligibility, when a substantial portion of retiree health care costs shift to the federal government under Medicare,” the governor said.
The governor also argued, “That one-year rule encourages games and gimmicks in the last year of employment that artificially increase the compensation used to determine pension benefits.”
It would also calculate benefits based on regular and recurring pay as another way to stop spiking, by manipulating benefits through the supplementing of salaries with special bonuses, unused vacation time, excessive overtime and other pay perks.
His plan would limit post-retirement employment.
“Retired employees often have experience that can deliver real value to public employers, though, so striking a reasonable balance in limiting post-retirement employment is appropriate,” the governor said. “My plan will 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.”
It would enable felons to forfeit pension benefits. It would prohibit retroactive pension increase, pension holidays and purchasing of service credit, and it would also increase pension board independence and expertise.
The governor wrote: ” ‘Independence’ means that neither the board member nor anyone in the board member’s family, who is a CalPERS member, is eligible to receive a pension from the CalPERS system, is a member of an organization that represents employees eligible to or who receive a pension from the CalPERS system, or has any material financial interest in an entity that contracts with CalPERS. My plan also will replace the State Personnel Board representative on the CalPERS board with the Director of the California Department of Finance.”
Finally, it would reduce retiree health care 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.
Reaction to the governor’s plan, however, was swift and severe.
Californians for Retirement Security, a coalition representing more than 1.5 million public employees and retirees, issued a heated and pointed statement:
“Governor Brown’s pension proposals amount to an unprecedented and unacceptable assault on current and future California teachers, firefighters, peace officers, school employees and other public employees. They abrogate the very collective bargaining laws he first enacted, attempt to violate Constitutional rights of current workers, severely harm middle-class and low-wage workers and will force workers in back-breaking manual labor jobs to work 30 to 40 years, until age 67, only to receive 50 percent less in stable defined benefits.
“Nonpartisan analyses already have found these sloppy proposals won’t yield the savings promised and are full of major legal and constitutional minefields. Research from the University of California, Berkeley, released today, concludes that forcing public employees in California into risky retirement plans like the one the governor proposes will disproportionately harm low and middle-income workers – further crumbling California’s middle class.”
“We implore the Legislature to reject the governor’s attempts to subvert the collective bargaining process entirely by locking these ill-considered proposals into our state’s Constitution. We urge the Legislature to consider facts instead of Republican-created political rhetoric when examining retirement safety for California workers.”
“Pensions make up a tiny fraction of the state budget, less than 3 percent, and public employees who already pay up to 12 percent of their salaries into their own retirement plans have made hundreds of millions of dollars in concessions to help save taxpayers’ money. The nonpartisan Legislative Analyst has determined that two proposed ballot measures that contain some of the same proposals outlined by the governor would cost taxpayers at least $1 billion a year for the next three decades. Meanwhile, pension costs are one of the smallest growing costs in all of state government, while recently approved tax breaks for corporations are costing taxpayers a billion dollars a year.”
“Governor Brown and the Legislature should focus on meaningful, legal and fair pension changes. We will continue to support them in that endeavor. But we will use everything at our disposal to fight any attempts to rescind collective bargaining rights or break promises to this state’s middle class working families.”
“It’s time to fix our pension systems so that they are fair and sustainable over a long time horizon,” said Governor Brown. “My plan raises the retirement age and bans abusive practices like ‘spiking’ and ‘air time’ while mandating that public employees pay an equal share of pension costs.”
The governor’s office said, “When fully implemented, these reforms will cut roughly in half the cost to taxpayers for providing pension benefits for state employees. It will cut the risk to taxpayers for pension debt by more than half. Similar savings are expected across all systems.”
In our view, these reforms fix most of the problems – at least down the line. The unfortunate part is that we cannot implement those changes for current employees unless they agree to it. Governor Brown conceded as much.
The short-term benefits are limited. However, his administration said that over the next 30 years, the plan could save the state $4 billion to $11 billion.
The effect on existing public employees would be minimal. However, critically, public safety employees would have to pay 2% more towards their pensions.
“I try to protect working people whenever I can,” said Governor Brown, “but I’m also responsible to the taxpayer and making sure we have a solvent state government.”
And that is the dilemma that we face. The average state worker is not the problem here. In fact, neither is the average pension receiver, who receives 2% at 60 and makes an average of less than $40,000.
“We can’t forget that the vast majority of public-sector employees are middle-class workers, and their average pensions are far from exorbitant,” State Senate leader Darrell Steinberg said in a statement.
He is right. But he forgets the key point: what kills us are those making over $100,000. Those who are able to retire at 50. Those who get 3% for every year that they work at the final salary which can be spiked using a variety of means.
The two main culprits are management and public safety.
Until the worst abuses are reined in, the pensions to the rank and file will be in jeopardy. Governor Brown skirts a fine line, but most of the changes here will fix the system.
—David M. Greenwald reporting