August 24th, 2011, 2:23 pm
Posted by Teri Sforza, Register staff writer

A ballot measure that would hike the retirement age of public employees to 65 (except for public safety officers, who could retire at 58) could save billions of dollars every year in the long run, according to an analysis by the nonpartisan Legislative Analyst’s Office.

Savings wouldn’t materialize for many years, however, since the new rules would likely apply only to future hires, and not to people now working (if past court decisions are any guide).

And governments would feel compelled to offer other forms of compensation to make up for the lost benefit, which could cut into savings.

“In order to offset the decreased retirement benefits resulting from this measure, governmental entities with employees enrolled in CalPERS and CalSTRS likely would increase other forms of compensation for some employees in order to remain competitive in the labor market,” the analysis says. And some local agencies might terminate contracts with the big state retirement systems in an attempt to get around things.

“Bottom Line,” says the LAO. “In the long run, public employer defined benefit pension contributions and retiree health contributions could decline by billions of dollars per year if this measure’s limitations are interpreted to require significant reductions in benefits.

“These cost reductions, however, would be offset to an unknown extent by increases in other compensation costs for some public employees,” it continues. “If, on the

other hand, this measure’s limitations on retirement ages are interpreted to require only small changes in benefits, then there might be little savings for public employers.”

In most cases, public employees with several years of service become eligible for a pension benefit at age 50, the LAO says, even though employees may be able to earn a greater pension if they delays retirement until later.

In CalPERS and CalSTRS, the average worker retires at about age 60. That will be increasing, thanks to recent changes in benefits for some newly hired state and local employees, the LAO says.

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