SAN FRANCISCO — California Gov. Jerry Brown unveiled a pension reform plan Thursday that would affect both current and new workers in state and local government in an effort to control rising costs.
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“I have tried to do something that is legal and will save a hell of a lot of money going forward,” Brown said during a news conference in Sacramento. “This is a solid plan and it is going to run into opposition.”
The plan would save the state between $4 billion and $11 billion over a 30-year period as it is phased in and provide similar savings for local governments, finance director Ana Matosantos said in a conference call.
However, the proposal does not address the state’s current unfunded pension liability, which some have pegged at around $80 billion. Academic studies have put the total pension funding gap for all public workers in California as high as $500 million. The governor refrained from putting a number on the liability.
But the plan, if it makes it out of the Legislature, would help reduce future liabilities.
The goal of the hybrid piece of the plan would be for employees to get 75% of their salary after retirement with one-third from Social Security, one-third as a defined benefit, and one-third from a 401(k)-style defined contribution.
For the workers without Social Security, mainly public safety employees and teachers, the pension plan would break down into two-thirds of pension payments from a defined benefit and one-third from 401(k)-style contributions.
Brown’s proposal also includes basing pensions on the final three years of work instead of just the last year and limiting the calculation to regular pay to prevent “spiking,” which is the practice of ballooning final-year salaries to increase workers’ pensions.
Additionally, the governor said the plan would help cap the ultimate size of pensions, limit post-retirement employment and curb health care costs.
Several pension scandals have come to light over the last year that have involved public employees “double dipping” — grabbing a pension while taking the same job elsewhere — and enjoying enormous salaries that had been unknown to the public.
Brown said he would present the plan to the special legislative committee that has begun holding hearings across the state on the pension reform.
The Democratic governor said he is going to press the Legislature to move forward on his proposal to try to get it on next year’s November ballot.
Brown said he created a plan that he believes could apply across the board in local and state government while remaining legal.
The secretary of labor, Marty Morgenstern, said in a conference call that the equal contribution piece of the plan would have to be implemented through legislation, contract changes or collective bargaining.
The state has a combined unfunded actuarial accrued liability of $80 billion for its two largest retirement funds, the California Public Employees’ Retirement System and the California State Teachers’ Retirement System, according to Standard & Poor’s.
The unfunded ratio for CalSTRS was 30% as of June 30, 2010, while CalPERS’ unfunded ratio as of fiscal 2009 was 20%, the rating agency said.
In an April report, its most recent that discussed California pensions, Standard & Poor’s estimated the combined retiree benefit costs, including pension and retiree medical benefits, to be $6.36 billion in fiscal 2011.
Of that, $4.74 billion hit the general fund.
In fiscal 2011, the agency said pension contributions cost the state $3.29 billion, of which $2.06 billion comes out of the general fund.
The combined benefit contributions and debt service are around 12.3% of California’s general fund costs.
