UPDATED at 3:36 p.m. to add link to report.
The bipartisan Little Hoover Commission recommended today that California state and local governments roll back pensions for existing employees, dump guaranteed retirement payouts and put more of the pension burden on workers.
Although any attempt to reduce pensions for current workers would prompt a legal battle, the commission says that public pension funds are in such dire financial straits that they'll never right themselves by reducing benefits for new hires. The recommendation would not affect current retirees. Click here to read the commission's 106-page report.
The most controversial Hoover proposal would allow state and local governments to freeze existing employee pension benefits and then lower them for future years worked.
Courts have ruled that pensions are legally protected property and that government has a contractual obligation to follow through with them.
The Hoover idea echoes a similar plan that the California Foundation for Fiscal Responsibility has said it hopes to put to a public statewide vote next year.
Such a measure, if approved by voters, would undoubtedly trigger lawsuits that would test government's ability to alter pension promises prospectively. The foundation believes that its ballot measure would hold up in court.
Other Hoover proposals in today's report include:
- Move public pension from the current defined benefit model that guarantees retirement payouts, to a three-legged hybrid system that includes a small defined benefit pension, Social Security and an employer-matched 401(k) component that is professionally managed.
- Establish uniform rules to prevent "pension spiking."
- Establish an annual salary cap of no more than $90,000 for purposes of figuring out pension benefits.
- Prohibit "pension holidays" that allow government to skip contributions when pension funds are flush.
- Prohibit retroactive pension benefit hikes.
- Split pension contributions between employer and employee.
Click here to read the Little Hoover Commission's press release.
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