Gov. Jerry Brown unveils his 12-point proposal to overhaul the state retirement… (Max Whittaker / Getty Images )
Reporting from Sacramento -- Gov. Jerry Brown proposed a sweeping overhaul of California pensions that would require public employees to pay more for their retirement and cut benefits for those hired in the future, setting the stage for a fierce battle with fellow Democrats and some of his main political supporters: unions representing government workers.
Brown's 12-point plan, announced Thursday, would require that all public workers have at least half the cost of their pensions deducted from their paychecks. Most state employees already make that contribution, but many in cities, counties and school districts across the state pitch in far less.
The governor also wants future employees to receive up to a third of their retirement income from a 401(k)-style plan rather than a traditional guaranteed pension. And he urged that the retirement age for most new public workers be raised from 55 to 67.
"I try to protect working people whenever I can," said Brown, 73, "but I'm also responsible to the taxpayer and making sure we have a solvent state government."
California's public pension system has been strained by ballooning obligations to current and future retirees. Brown, who says he does not draw a pension, has called the system unaffordable and unsustainable. He wants to cut the state's long-term pension needs in half.
His plan would have to pass the Legislature, which is dominated by Democrats whose close political allies include labor unions. Brown would need the approval of two-thirds of state lawmakers to place key parts of it on the November 2012 ballot for voters to consider.
The campaign for such a measure would be costly — in the millions of dollars — and the deep-pocketed unions that helped Brown win election last year would be unlikely to fund it.
"The governor has indicated that labor will not like many of his proposals," Dave Low, chairman of a union coalition, said in a statement. "He is right."
At a Sacramento news conference, Brown acknowledged a clash ahead but called on legislators to "rise to the occasion."
Brown did not brief them in advance of his announcement. Republicans liked the proposals, but Democrats' reaction was guarded.
"We can't forget that the vast majority of public-sector employees are middle-class workers, and their average pensions are far from exorbitant," state Senate leader Darrell Steinberg (D-Sacramento) said in a statement.
Some experts said Brown's plan does not go far enough. The state spends about $3 billion a year to pay pension benefits, according to the California Department of Finance. That is a small portion of California's budget, but the cost is rapidly growing.
The situation is most dire at the local level, where cities, school districts and counties operate more than 3,000 different pension plans that largely piggyback on the state's. In Los Angeles, for example, analysts predicted last year that soaring retirement costs would consume nearly a third of the city's general fund by 2015 unless changes are made.
Robert Novy-Marx, a business professor at the University of Rochester in New York, tracks state pensions nationwide.
He said California has one of the most overburdened systems in the nation and Brown needs to significantly cut benefits for current workers — possibly even for those already receiving pensions.
Many such employees, however, are covered by union contracts. Changing them could be difficult legally, Novy-Marx acknowledged, but that leaves Brown's proposal insufficient.
"It makes a marginal impact in the long term but does essentially nothing in the short term," he said. Still, he said, "it's going to cause a lot of vitriol on one side of the aisle, maybe both."
Brown is following in the footsteps of governors across the country who have tried to restructure pensions and create less generous plans for new hires. But only four states have added elements of a 401(k) plan or raised retirement ages, according to Ron Snell, a senior fellow the National Conference of State Legislatures.
"If California were to adopt these reforms, it would definitely give them a dramatic national presence," Snell said. "But if they go down in defeat, that would also have a very chilling effect."
The proposal is a departure for Brown, who expanded collective bargaining rights for state workers during his first stint as governor several decades ago.
The plan he unveiled Thursday would place curbs on that process, setting limits on what workers could ask for in contract negotiations with California's state and local governments.
Brown conceded that the short-term benefits would be limited. His administration said that over the next 30 years, the plan could save the state $4 billion to $11 billion. The effect on existing state workers would be minimal — only public safety employees would have to pay 2% more toward their pensions — the bulk of the savings would not be realized for decades.