By Ed Mendel
Thursday, August 31, 2012

A pension reform plan worked out by Gov. Brown and Democratic legislators could save state and local government employers $40 billion to $60 billion over the next 30 years.

The preliminary CalPERS estimate, which will be refined before the Legislature votes on the plan Friday, expects most savings to come from two cost-cutting strategies used in labor negotiations: lower benefits for new hires and higher employee contributions.

Instead of negotiations, the plan simply imposes lower pension formulas on new employees in CalPERS and CalSTRS and authorizes employers, if there is no agreement, to use bargaining impasse to raise employee contributions to half of the “normal” cost by 2018.

“I do not know what portion of the savings are due to increased member contributions,” Alan Milligan, the CalPERS chief actuary, told the board yesterday. “I do know that the two biggest pieces of that savings are the benefit changes and the member contribution changes.”

Brown issued a 12-point pension reform plan last October that was opposed by unions. He proposed a “hybrid” plan for new hires aimed at replacing 75 percent of final pay with a smaller pension, a 401(k)-style plan and Social Security.

The plan replaces the hybrid with the lower pension formulas and a cap on final pay used to calculate pensions. The cap is tied to the maximum income taxed for Social Security, now $110,100. For pay above the cap, employers can offer a 401(k)-style plan.

Savings from the cap are decades away, when the new hires retire, and the savings are expected to be limited. The pay of most state and local government employees is below the cap, which will grow with inflation.

When the plan surfaced Tuesday evening, some of the Democrats in the two-house committee that sent the bill (AB 340) to the legislative floors said one of its good points is the eventual elimination of the “100,000 club.”

A pension reform group has a website that lists the growing number of retirees with pensions of $100,000 or more from the California Public Employees Retirement System, the California State Teachers Retirement System and the UC Retirement plan.

CalPERS says only 2 percent of its retirees receive pensions of $100,000 or more. Some big pensions are connected to scandals. After reviews, CalPERS reduced several pensions in the troubled cities of Bell and Vernon, one paying more than $500,000 a year.

The plan excludes UC Retirement and charter cities and counties, a nod to their independence. Reports that the plan would override pension reforms approved by San Jose and San Diego in June drew heated objections from the two big cities.

Assemblyman Warren Furutani, D-Gardena, said the governor, hoping for action later, asked that two of his points not be included: curbing retiree health care costs and restructuring pension boards to increase independence and financial sophistication.

By Furutani’s count, the plan has 10 of the governor’s original 12 points, including curbs on “spiking” to boost pensions, “double-dipping” by having a government pension and a government job, and the “air time” purchase of service credits.

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