The Governor’s Pension Proposal

PAC News Flash: Update on Pension

Yesterday, the Legislature held a special hearing in Sacramento to review the Governor’sPension proposal.  In brief, the Governor proposed a 12-point pension plan that includes:

  • Equal sharing of pension costs between employer and employees;
  • Creating ‘hybrid’ pension system for new employees;
  • Increasing the retirement age for new employees from 55 to 67;
  • Requiring benefits to be calculated based on the three final years compensation;
  • Requiring benefits to based on regular pay to stop spiking;
  • Limiting post retirement employment to about 960 hours;
  • Requiring felons to forfeit pension benefits;
  • Prohibiting retroactive pension increase;
  • Prohibiting pension holidays;
  • Prohibiting purchases of ‘air time’;
  • Changing pension boards to increase independence and expertise; and
  • Reducing retiree health care costs.

Prior to and during the hearing, CSEA and our partners in the Californian for Retirement Security Coalition held a press conference to continue to make our case to the press and the general public that:

  • Despite of the sensational headlines on pension abuses and public employees getting six-figure pensions, only 2% of retirees in the CalPERS system fall in this category.  The average state retiree has pension of about 50 percent or less of their pay — or about $25,000 a year — after serving the state for what is typically two or three decades.  The average classified employee pension is about $1,200 a month.
  • Pension costs amount to just 3 percent of the state budget — a percentage that has actually fallen $600 million over the past two years. In fact, the State of California pays less as a percentage of payroll today than it did in the early1980s.
  • Therein no major crisis looming for our pension fund and no reason to question the long-term sustainability of CalPERS. Despite a ruthless campaign by out-of-state billionaires to generate sensational headlines based on faulty assumptions, CalPERS is not bankrupting the state.
  • While401(k) plans serve as a valuable supplement to employee pensions, they should not replace the defined benefit plan.  Anyone, with their pension savings locked into insecure 401(k)-type defined contribution plans, knows how precarious it is to be at the mercy of the increasingly volatile markets.
  • For school employees and other public workers, pensions are part and parcel of a larger wage and compensation structure, and collective bargaining must remain central to the process.  Public employers and the unions that represent their workers must maintain the authority to negotiate over pensions.
  • We support tough action to curb pension spiking and to pound down the pensions of the small number of public workers — mostly senior officials — with oversized pensions. But it’s unfair to ask the rest of California’s public employees to shoulder the burden caused by Wall Street’s greed and recklessness.

What’s Next?

CSEA is also carefully watching two other pension proposals that have been submitted to the Secretary of State.  These would become future ballot initiatives in the November General Election in 2012, if they manage to collect about 500,000 signatures.

The major provisions of the first proposal would essentially eliminate defined benefit pensions for all new employees.  For existing employees,it would impair current benefits and force existing employees to make increasingly higher contributions (increasing by 3% annually) until unfunded liabilities are reduced.

The major provisions of the second proposal would essentially eliminate defined benefit pensions for all new employees, and allow the Legislature to enact a hybrid pension plan.  It also impairs current benefits, and raises the normal retirement age to 67 with 35 years of service.  It also caps the defined benefits, and sets the minimum retirement age to 63.

At this moment, these proposals are already being amended.  It is likely that many of these proposals are simply illegal.  They will cost taxpayers more in the long run.  CSEA and our coalition partners are still studying the impact of these proposals, and we will work with the Legislature and Governor to craft a sensible and reasonable solution to address the abuses in the pension system.

We will keep you updated in the weeks and months ahead on the many activities that we are undertaking: protecting our school transportation funding in the budget,fighting against unreasonable pension changes, and assessing the impact of the many revenue proposals that are coming out.

If you wish to comment or would like additional information, please contact: Dave Low, Executive Director, Jai Sookprasert, Assistant Director, Governmental Relations; Dolores Duran-Flores, Legislative Advocate; Steve Henderson, Legislative Advocate;Joshua Golka, Legislative Advocate, 1127 11th Street, Suite. 346, Sacramento,California 95814.  Toll Free: (800)867-2026.

Distribution: Board of Directors; Alternate Area Directors; Chapter Presidents; Chapter Political Action Chairpersons; Chapter Communications Officers, Regional Representatives;Assistant Regional Representatives; Chairpersons and Members, Standing Committees; Political Action Coordinators; Retiree Political Action Coordinators; Regional Communications Officers; Retiree Unit Executive Board;All Staff.