• Governor Brown Unveils Twelve-Point Pension Plan
  • November 7, 2011 | Authors: Allison De Tal; Isabel Cesanto Safie; John D. Wahlin
  • Law Firm: Best Best & Krieger LLP - Riverside Office
  • Governor Brown’s plan to reform public pensions, aimed at increasing their fairness and sustainability, seeks various changes that include increasing the retirement age and requiring that employees share equally in the cost of their pensions. The governor’s proposal, announced last week, would impact all public employers and would apply, to the extent legally permissible, to new and current public employees.

    The governor’s plan is aimed at fixing the state’s public pension systems “so that they are fair and sustainable.” Various features of the governor’s plan are designed to apply to new and current public employees. For example, the plan requires that all employees eventually contribute at least fifty percent of the annual cost of their pensions. The plan also prohibits pension holidays, disallows the purchase of “air time” and limits the amount of time that a public retiree may work for a public employer. Further, the plan will ban the retroactive application of enhanced pension benefits, and will require public officials and employees who are convicted of felony charges to, in certain situations, forfeit their pension benefits.

    Other aspects of the governor’s plan will only apply to new employees. The plan will require the adoption of “hybrid” pension plans. Using this approach it is predicted that safety employees who work 30 years and non-safety employees who work 35 years will receive a retirement benefit that will replace 75 percent of the employee’s salary. This 75 percent will be comprised of one-third from the defined benefit component, one-third from the defined contribution component and one-third from social security. The plan also seeks to increase the retirement age of new non-safety employees to 67. The retirement age for new safety employees will be less than 67, but commensurate with the ability of those employees to perform their jobs in a way that protects public safety. Finally, in order to prevent pension spiking, “final compensation” will be defined as the “highest average annual compensation over a three-year period” and reportable compensation will be limited to base pay.  

    Additionally, the plan proposes steps to reduce retiree health care costs for new state employees but encourages local agencies to adopt similar standards. Lastly, the plan proposes changes to the composition of the CalPERS Board, which are intended to increase the board’s independence and financial expertise, and encourages local governments to make similar changes to their boards.

    It is currently unknown if and when the proposal, or any portion thereof, will be implemented. Governor Brown will first seek legislative action before appealing to the voters.