Governor Jerry Brown signed legislation September 12 to make several changes to the public employee retirement pension system (AB 340, Furutani), but the changes are focused on pensions for those who are yet to be hired, so the fiscal effects of the legislation may not be realized for decades.
Also signed was AB 197 (Buchanan), the so-called "pension trailer bill." Proponents said it was needed to correct mistakes, while critics said it was designed to scale back some provisions of AB 340.
At a recent State Board of Equalization meeting, BOE staff told the board that the changes will have almost no impact on current employees of the tax agency.
Governor Brown said the legislation will save billions over time by capping benefits, increasing the retirement age, requiring state employees to pay at least half of their pension costs, and eliminating "spiking" by requiring pensions to be based on the average of the final three years' worth of compensation, and by calculating benefits based on regular, recurring pay (see the CalTaxletter of August 31 for a detailed description of the legislation). The anti-spiking provisions and many other provisions apply only to employees hired after AB 340 takes effect on January 1, so even employees hired later this year will be able to spike their pensions when they retire many years from now.
The Associated Press noted: "The bill does not include a hybrid system that includes a 401(k)-style plan so public employees would bear some of the investment risk, as private-sector workers do. Nothing was done to reduce skyrocketing health care costs promised to current workers when they retire. And there will be no independent members with financial expertise on the board of the state's main pension fund."
Still, Governor Brown called the changes "the biggest rollback to public pension benefits in the history of California pensions." He added: "We're lowering benefits to what they were before I was governor the first time and reducing costs by up to $55 billion in (the California Public Employees' Retirement System) and billions more in other local pension systems."
Senate President pro Tem Darrell Steinberg, who opposed the governor's original 12-point pension reform plan that would have resulted in more immediate savings, said: "Some say that it is far too much and others say that it is not enough but this much is undeniable: the result is a fair and defined middle-class retirement package that goes a great distance toward protecting taxpayers and the fiscal health of our pension systems."
In a press release distributed by the Governor's Office, Republican Assemblyman Cameron Smyth said: "Having been involved in pension discussions with the Governor for many months, I can say that all of us wanted to see this plan go further. We have to be careful, though, not to make the perfect the enemy of the good. This plan is a step in the right direction, and lays the groundwork for more comprehensive reform going forward."
In a meeting with the Bay Area News Group, Governor Brown acknowledged that the legislation falls short of the goals he outlined in the pension reform plan he unveiled in 2011. "You never get it all," he said, "but this is more than anybody would have thought about three or four years ago."
Critics of the pension deal, which was struck by the governor and Democratic legislative leaders, pointed out that the Legislature could simply reverse those changes in the future, after the pension changes are used by pro-tax campaigns as a sign of austerity in Sacramento. The San Francisco Chronicle reported September 7 that "Brown said this week that as long as he is governor, that 'is not going to happen.'"
In a September 12 editorial, the Orange County Register called the pension changes "grossly inadequate" and added: "The pension reform deliberations in Sacramento that began in earnest last year with Gov. Brown's 12-point plan and culminated Wednesday with his signature on AB 340 represent a missed opportunity. … The Legislature left Sacramento announcing the state's pension crisis almost solved with passage of AB 340. The governor has foregone an opportunity to help disabuse his fellow Democrats of that notion with a veto that could have sent a loud, clear message that almost is not remotely good enough."
September 14, 2012
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