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Brown takes softer line in latest plan to rein in pension costs

The governor would raise the retirement age and cap benefits, but he omits key provisions of his earlier proposal. A vote on the plan is expected Friday.

August 28, 2012|By Anthony York and Patrick McGreevy, Los Angeles Times
  • Gov. Jerry Brown unveils his pension plan at a Los Angeles news conference.
Gov. Jerry Brown unveils his pension plan at a Los Angeles news conference. (Anthony York / Los Angeles…)

Gov. Jerry Brown announced a new plan Tuesday to rein in public pension costs that would raise the retirement age, cap benefits for the highest-paid employees and eliminate "spiking" — but lacks key parts of the bolder system overhaul he proposed months ago and would even increase some payouts.

The governor described as "radical change" the program he and lawmakers agreed upon to address what has become a heavy burden on state and local governments and generated voter anger over rich benefits for government workers.

It does not contain a linchpin of his original plan, however: a requirement that new employees have a substantial portion of their retirement money in 401 (k)-style accounts. Such a mandate would have shifted considerable financial risk from the state to the employees.

The plan also does not address skyrocketing healthcare costs for retirees, another main element of the governor's first scenario. Hundreds of thousands of government workers have been promised medical coverage for life.

The new proposal, which lawmakers expect to vote on Friday, the last day of their session, would mostly affect new government employees. Benefits for current workers would stay largely the same, though many would be asked to pay a larger share of their own retirement.

At a news conference in Los Angeles, Brown said the revised proposal would save state and local governments at least $18 billion over the next three decades, scaling benefits "back to below where they were when I was governor the last time."

His administration did not produce details to show how that would occur or how much would be saved in the short term.

Administration officials referred questions to the California Public Employees Retirement System, which issued a statement saying it has yet to analyze the plan. A CalPERS spokeswoman said the agency may not be able to do a full study until after the Legislature adjourns for the year.

Generous retirement payments to public workers threaten to further hobble state finances, and some estimates show that California has promised employees hundreds of billions of dollars more over the next 30 years than pension fund investments may be able to cover.

Out-of-control pension costs have helped drive some California cities into bankruptcy as their obligations have consumed more of their budgets. The proposed rules would not apply to employees of some cities, including Los Angeles, San Diego and San Jose, whose pension systems are not managed by the state.

Brown and fellow Democrats were determined to take action on the overburdened state pension system before lawmakers leave town. They hope that a declaration of victory over runaway costs will persuade voters that Sacramento is a responsible steward of public money, as they ramp up their campaign for billions of dollars in tax increases on the November ballot.

"I'm trying to fix the state," Brown told reporters. "That's my goal."

Unions that represent public workers immediately denounced the plan as unnecessarily harsh. GOP lawmakers and antitax activists dismissed it — and labor's protests — as politically expedient.

Under existing law, retirement can begin as early as age 50, with reduced benefits. Retirement age for full benefits is 63, when a worker can begin collecting a yearly payout of up to 2.4% of his or her highest annual salary multiplied by years of employment.

The new proposal would push the minimum retirement age to 52. Full retirement age would rise to 67, with an annual benefit computed at a slightly higher rate than current law allows: 2.5% for each year of service.

Even with the higher payments, Brown said, the savings would come from encouraging employees to work longer.

Police officers and firefighters, who receive the most generous payments, would experience the biggest changes. They now have an option to retire at 50 with maximum benefits, calculated at 3% of their highest salary per year earned. That would be scaled back: They would have to work until 57 for maximum benefits, computed at 2.7% of their highest salary.

The governor touted the proposed cap on what any new government worker could receive, though CalPERS statistics suggest it would apply to fewer than 3% of public retirees — most don't earn enough to be affected. The portion of salary that could be used to calculate a pension would be limited to $110,000 if they receive Social Security income or $132,000 if not.

The plan also takes aim at some high-profile abuses of the pension system, such as spiking — boosting a worker's salary in the final year of employment to ensure a larger pension — and would halt the practice of allowing employees to increase their benefits by buying credits for years they did not work in government.

Union leaders expressed indignation at the Democrats' proposal, which needs no Republican votes to pass the Legislature.

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