Wednesday, August 29, 2012

California Gov. Jerry Brown unveils pension deal capping benefits - Vallejo Times-Herald

SACRAMENTO -- Gov. Jerry Brown on Tuesday unveiled what he called "sweeping" pension reforms that cap benefits, boost the retirement age, prevent abusive practices such as "spiking" and require new state employees to pay at least half their pension costs.

The deal with top Democratic lawmakers, which must be passed by the Legislature by Friday, is considered key to Brown's tax initiative that goes before voters in November. A conference committee is expected to take up the package this afternoon.

"These reforms make fundamental changes that rein in costs and help to ensure that our public retirement system is sustainable for the long term," Brown said in a statement. "These reforms require sacrifice from public employees and represent a significant step forward."

Brown, who introduced a 12-point plan in October, is getting most of what he asked for, though a hybrid plan -- where new employees would get part of their pensions through a 401(k)-style plan -- was dropped.

If the Legislature approves the reforms, public retirement benefits would be lower than Brown took office in 1975, the governor said. More changes would require a vote of the people.

The pension reform agreement requires all new public employees to pay for at least half of their pensions, while a similar split for existing employees would have to go through collective bargaining. Local governments would also be able to increase employee contributions under this plan.

It bans employees

from enhancing pension payouts by artificially inflating their final years of salary or buying pension credits.

"No more spiking, no more air time, no more pensions earned by convicted felons," Brown said. "We're cleaning up a big mess, and the agreement reached with Legislative leaders today is historic in its far-reaching implications."

The new proposal puts a high, $110,000-$130,000 cap on salary that can apply toward a pension. That means employees who earn that much or less in salary will continue to receive guaranteed pension income, with all risk borne by government employers and by extension, taxpayers.

Senate President Pro Tem Darrell Steinberg, D-Sacramento, had foreshadowed the deal Monday when he said: "There are going to be some people, in organized labor frankly, that are not going to be thrilled with it."

Public employee groups indeed called it the largest rollback to retirement benefits in state history and said that it hurt hundreds of thousands of low- and middle-class workers. They vowed to fight it, either with a referendum or through the courts.

"We're considering whether we can defeat it, considering whether we can go to the courts," said Dave Low, executive director of the California School Employees Association and chair of Californians for Retirement Security, a labor coalition, in a news teleconference with reporters.

Low said that the hybrid proposal was unacceptable to labor because it would "reduce the pension so significantly" that lower-income public workers would be forced to "retire in poverty." Even so, he said the pension-cap plan that emerged from the Legislature is "potentially worse."

Low claimed public employees have been scapegoated for government financial problems caused by Wall Street speculators.

"We are of course fighting back, and at this point, we're losing," Low said.

But two Bay Area business groups, the Silicon Valley Leadership Group, and the Bay Area Council, welcomed Brown's announcement.

"If this was easy, this would have already been done," said Carl Guardino, president and CEO of the Silicon Valley Leadership Group.

Marcia Fritz, president of the California Foundation for Fiscal Responsibility, said the revised proposal maintains much of what Brown had called for back in October, reforms that his Republican opponents considered substantive enough that they copied them into bill form and urged Democrats to approve them.

Most significantly, Fritz said, was the proposal that retains the insistence that both current employees and future hires pay half the "normal" cost of their pensions. The "normal cost" is the projected cost of the benefit minus unfunded liabilities built up over the years from both retroactive benefit increases and projected costs falling short of reality.

"He was under a lot of pressure not to require workers to pay half the normal cost, and now it's in," Fritz said. "That puts the employees in the same room with taxpayers on what's going on with their pension plan."

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