The State Worker

Chronicling civil-service life for California state workers

June 13, 2011
Senate Republicans release pension overhaul demands

Four of the Senate Republicans engaged in budget negotiations with Gov. Jerry Brown today released the most-detailed look yet at how they propose to overhaul public employee pensions.

Republicans said the pension demands, along with a spending cap, and changes to environmental and other regulations, would go before voters at the same time as tax increase extensions sought by Brown and represent the "necessary components of any successful bipartisan budget solution."

New hires would be offered hybrid plans that combine a "smaller" defined-benefit component split equally between the employee and the employer and a 401(k)-style defined contribution plan. New employees also could opt-out of the hybrid and choose to have only a defined contribution plan.

The Republicans said that one of their goals is to "provide employees with a sensible retirement plan that is more in line with the private sector and achieves about 75 percent salary replacement after taking into consideration social security benefits."

The Brown administration previously has signaled support for some of the ideas. They include stopping both pension holidays and retroactive pension increases, banning the purchase of retirement credit for work that hasn't been performed ("airtime") and capping benefits at $106,000 for those participating in social security and $119,000 for those that aren't.

Several changes the GOP laid out are included in bills pending before the Legislature. Those would ban pension spiking, where employers could consider overtime and unused leave into final compensation calculations, and double dipping, where employees could retire, start collecting a pension and then return to the same employer on a fresh salary.

Republicans also want new hires to pay about half of their health care costs during retirement. The GOP plan also calls for two-thirds of the membership of pension boards to have financial, legal accounting or health care expertise. The boards would be required to follow the recommendations of independent plan actuaries.

Other highlights:

Pension Spiking - Average Salary: Final compensation for new employees would be defined as the highest average annual compensation during a consecutive 60-month period.

Reduces Unfunded Liabilities: Require current employees to contribute more of their salaries towards reducing unfunded pension liabilities, and they will pay more for health care costs both during employment and post-retirement (could be done through Collective Bargaining). Future employees will be required to pay more for their health care.

Vesting: Change from partial at 10 years and full at 20 years to partial at 15 years and full at 25 years.

Applicability: Applies to all California public employers - state, local, special districts University of California and the California State Teacher's Retirement System (do we need to include STRS?).

110613_ReformProposalSpecifics

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About The State Worker

Jon Ortiz The Author

Jon Ortiz launched The State Worker blog and a companion column in 2008 to cover state government from the perspective of California government employees. Every day he filters the news through a single question: "What does this mean for state workers?" Join Ortiz for updates and debate on state pay, benefits, pensions, contracts and jobs. Contact him at (916) 321-1043 and at jortiz@sacbee.com.

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