LOS ANGELES — California and its local governments face sustained pension contribution hikes because of the exceptionally strong legal protections afforded public pensions, according to a Moody's Investors Service report.
Any relief from the broad pensions reforms passed in 2012 through the California Public Employees' Pension Reform Act will take years to materialize, because they primarily impact new employees, Moody's analysts Thomas Aaron and Timothy Blake said in the Sept. 2 report.
A series of state Supreme Court decisions, referred to as the California Rule, have created strong legal protections that make it difficult for the state and localities to deal with pension challenges, Moody's analysts said.
The report outlined three rulings from 1947 to 1991 that placed restrictions on changes that can be made to employee pensions. Critics of the California Rule have said that once an employee is hired in California, the pension agreement struck on the date of hire lasts through retirement.
The Rule applies to core annuity formulas, baseline employee contributions and cost-of-living adjustments.
As most pension funds are still playing catch-up from the hits they took when the economy cratered in 2008, state and local government contributions to the state's two large public pension systems are expected to rise substantially for the next several years.
The California Public Employees' Retirement System, which administers hundreds of pension plans, projects that government contributions to public safety plans will grow to 40% of payroll, compared to 32% for fiscal 2015. Likewise, the cost to address the California State Teachers Retirement System's unfunded liabilities after years of contributions below actuarial levels are also scheduled "to increase steeply in coming years and will weight on school district budgets."
