The state's nonpartisan analyst on Tuesday called Gov. Jerry Brown's public pension proposal a bold first step for controlling the high cost of retirement benefits and urged lawmakers to make significant funding and benefit changes.
The Legislative Analyst's Office commended Brown's plan to shift more of the financial risk for public pensions to employees.
The plan released last month by the Democratic governor calls for increasing the retirement age to 67 for new, non-public safety employees and having local and state workers pay more toward their
retirement and health care. It also would put new workers in a hybrid plan with a 401(k)-style vehicle.
We view the governor's proposal as a bold starting point for legislative deliberations a proposal that would implement substantial changes to retirement benefits, particularly for future public workers,'' the report stated.
Brown has said he wants the Democratic-led Legislature to tackle the issue. Senate Republicans are expected to urge Brown to call for a special legislative session.
Public employee unions have been critical of Brown's proposals and will lean on lawmakers, particularly Democrats, to stop the reduction of benefits for current workers.
``We will continue to work in the upcoming legislative session, just as we have for the past several years, to achieve the spirit of the governor's reforms without taking a wrecking ball to the
retirement security of California's teachers, firefighters, police officers, and other public workers,'' said Dave Low, chairman of Californians for Retirement Security, a labor coalition representing 1.5 million public employees in California.
The analysis said the governor, lawmakers and voters need to make significant changes in the pension system because the public has lost trust in the government's ability to effectively manage taxpayer money.
California's current pension system has led to ``unfunded liabilities that have spiraled higher in recent years and are producing cost pressures for the state and many local governments
that will persist for years to come,'' the report stated.
The California Public Employees' Retirement System has $75 billion in unfunded future pension liabilities, and the state is on the hook for an estimated $51.8 billion in unfunded retiree health care costs.
Brown's administration has estimated that his proposed changes would reduce the state's contributions by $4 billion to $11 billion over the next 30 years as the plan is implemented. Other aspects of government from courts and schools to cities and counties would see their own savings.
The report said the governor's plan aims to provide government employees with a sufficient standard of living in their retirement years but better aligns those benefits to match those offered to
``Public-sector workers have guaranteed, defined-benefit pension plans, and many, but not all, of them have retiree health plans too,'' the report stated. ``Private-sector workers by and large
have none of these things anymore.''
The percentage of public workers receiving pension benefits topping $100,000 a year is projected to keep growing, in part because of increased benefits adopted in the past 15 years.
The average pension benefit for all CalPERS retirees is around $25,000 a year, but the report said they are not the problem. Instead, spiraling costs lie with current employees who will be
retiring with greater benefits.
For example, public employees who retired in 2008-09 with 25 years or more of service will receive between $53,000 and $66,000 a year double what the average retiree is getting.
Already, pension reform advocates are pushing ahead with their own plan. Last week, a Republican-led group called California Pension Reform filed two ballot initiative proposals aimed at stopping pension system abuses, reducing costs and debts of government employee pensions, and increasing retirement ages for government employees
Mike Genest, a former state finance director working with the reform group, said the governor's plan doesn't go far enough because it deals mainly with new hires.
The analyst recommended the Legislature put together a constitutional package for voters to consider for the November 2012 ballot.
The report raised questions about how Brown's hybrid system would work. And while the governor's plan addressed state and local employees, it did not tackle the huge funding problems facing the state's teachers retirement fund, the cost of public university pensions and existing retiree health benefit liabilities.
The analyst agreed with the governor that future public employees should be required to pay at least 50 percent of the normal costs of funding their pensions. In fact, the report urges the Legislature to require that future public employees pay for not only normal pension costs but also contribute to unfunded liabilities.
The report disagreed with the governor's assessment that current public employees can be required to contribute more to their pensions. It warned that the courts have made it difficult for
employers to roll back benefits for current employees outside of collective bargaining, saying they generally have to replace those benefits with something comparable. Such legal constraints could
leave the governor's plan falling short in achieving short-term savings.