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California Pension Reform: Too Little, Too Late

After much backroom wrangling, the contents of Governor Jerry Brown’s much-touted California pension reform bill have finally been made public just a few days before the vote at the end of the week. As we predicted when we last heard about the bill, the final product contains a few steps in the right direction, but it is nothing like what is needed. In particular, many of the more far-reaching aspects of his original plan, such as the shift to a hybrid 401k-Social Security pension program for state workers, were dropped. The LA Times reports:

Brown’s original proposal called for new workers to receive a “hybrid” retirement benefit that combined a much smaller pension with a 401(k) plan and Social Security benefits. But he gave up that plan, which would have shifted some of the financial risk from the state onto its workers, in the face of high short-term costs.

Instead, Brown is seeking to roll back the increase in maximum pension benefits that the Legislature enacted more than a decade ago, much to its regret. He also proposes new mechanisms that local governments can use to require workers to cover more of the cost of their retirement pay and the shortfall in their pension funds. Other provisions would cap the size of pensions for highly paid workers, raise the retirement age for new employees and bar retroactive pension increases.

To his credit, Governor Brown does at least seem to recognize that his state if facing a grave problem, and he appears to be serious about taking steps to put it back on track. But the unfortunate reality is that his current term is broken by the legacy of his first. When Brown was first elected Governor in the 1970s, he extended collective bargaining rights to California state workers. Partly as a result, he’s facing an unworkable mess his second time around.

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  • Wayne Lusvardi

    If the pension cost savings from the joint proposal by Gov. Brown and the California legislature is $20 billion that is only 4% of the $500 billion in pension liabilities and would only kick in beginning in 2030 to 2050. So it wouldn’t help all those cities going into bankruptcy court now with excessive pension obligations.

    Cal-PERS, the California Public Employees Retirement System – claims the cost savings from this reform will be $60 billion or 12% of the $500 billion total unfunded pension liability. But once again, even if they are right the critical question is when: 2050?

    Also the 50/50 sharing of pension costs between employer and employee touted in the reform is only in truth 25% for the employee and 75% for the taxpayer. The pension plan is still predicated on a targeted 7.75% annual return which is unrealistic. So when you plug in a lower safe rate of return the true return is about half of the targeted return. That would mean that the employee would only be really paying half of 50%, or in truth 25% into the pension plan.

  • Jim.

    Democrats, working alone, cannot fix Blue because the will is lacking.

    They can work as a loyal opposition to think of ways to maintain as much Blue as our budgetary constraints allow.

    Until California and other Blue states find the will to elect a GOP majority to their state houses — and the trends are pointing in this direction — Blue will continue in a state of near-catastrophe with the occasional out-and-out collapse.

  • Sam L.

    Sometimes there’s quite a delay before realizing you’ve shot yourself in the foot.

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