SAN FRANCISCO — California Gov. Jerry Brown laid out Tuesday a pension reform agreement with lawmakers, setting the table for possible major legislative changes this week to local and state worker pensions.
The governor said the reforms would cap benefits, increase retirement ages, stop abuses such as “pension spiking” and make both current and new state employees pay at least half of their pension costs.
“If the legislature approves these reforms, public retirement benefits will be lower than when I took office in 1975,” Brown said in a statement released late Tuesday morning. “We’re cleaning up a big mess and the agreement reached with legislative leaders today is historic in its far-reaching implications.”
Brown proposed his own plan in October that included equal contributions for all employees and employers, and outside of public safety would raise the retirement age to 67 for new hires. It would have also created a “hybrid” defined-benefit plan for new employees.
State officials originally said the governor’s plan would save California between $4 billion and $11 billion over a 30-year period. In Tuesday’s statement, Brown only said it would save “billions.”
The governor said the agreement with lawmakers would cap pensionable salaries at the current Social Security contribution and wage base of $110,100, or 120% of that amount for employees outside of Social Security.
Current state employees would also have to pay for 50% of the “normal costs” of their pension benefits, which is still subject to bargaining, and new employees would have to pay at least half as well.
Cost savings from the pension sharing would be put toward paying down the state’s unfunded liability, according to Brown.
Some have pegged the state’s unfunded liabilities at around $80 billion. Academic studies have put the total pension-funding gap for all public workers in California as high as $500 billion.
Among the several changes, the state would also raise retirement ages by two or more years for all new employees and roll back the formulas used to determine pensions.
It would end all 3% formulas in the future, changing the local police and fire computation to 2.7% at 57 from 3% at 50. Other local employees would also see their formulas changed.
For municipalities, Brown said the “Pension Reform Act of 2012” would remove state restrictions that have prevented local governments from increasing their employee pension contributions.
Following recent pension scandals in recent years, the bill would also attempt to tackle abuses by requiring the base compensation for the pension formula to use the last three years of a regular, reoccurring salary to try to prevent spiking. It also would limit post-retirement employment, and felons would lose pension benefits.
The proposed agreement will have to be pushed through both houses in the final days of the legislative session this week before lawmakers break ahead of the November election.
But with Democratic lawmakers, who have the majority in both the Assembly and Senate, apparently in sync with the governor, it may pass with few changes. Some Republicans in the Legislature supported the governor’s earlier pension proposal.